Section A: Changes to Fire and Rehire under Employment Rights Act 2025
The Employment Rights Act 2025 establishes a new statutory framework for how dismissal and re-engagement will be assessed once the relevant provisions are brought into force. The Act has been passed, but the fire and rehire provisions are not yet in force. As a result, the current unfair dismissal framework continues to apply, subject to the Acas Code of Practice.
What the Act does at this stage is fix the legal architecture. It introduces the concept of “restricted variations” and provides that dismissal used to impose those variations will attract automatic unfair dismissal protection once commenced. The remaining areas of uncertainty relate to timing, the final scope of restricted variations and the detailed operation of the statutory defence, all of which depend on secondary legislation and consultation outcomes.
1. What the Act changes
Once the fire and rehire provisions are commenced, a dismissal carried out for the purpose of imposing a restricted variation will be treated as automatically unfair. In those cases, tribunals will not apply the usual reasonableness assessment under section 98(4) of the Employment Rights Act 1996. The focus will instead be on whether dismissal was used to force through a protected contractual change.
The Act does not prevent employers from seeking contractual change through consultation and agreement. What changes is the legal consequence of using dismissal as the enforcement mechanism for certain core detriments. Process quality and consultation will no longer determine liability where the automatic protection applies, although they may remain relevant to remedies in other contexts.
2. Restricted variations set out in the Act
As enacted, the Act identifies the following contractual terms as capable of being designated restricted variations: pay, pensions, working hours and statutory holiday entitlement.
The Act also provides that the insertion of a new flexibility or variation clause relating to these matters can fall within scope, even if no immediate change is implemented. This reflects an express anti-avoidance intention, aimed at preventing employers from restructuring contracts in advance to preserve leverage.
Other contractual changes, such as relocation or changes to duties, are not treated as restricted variations under the Act as it currently stands. Dismissals linked to those changes will continue to be assessed under the existing unfair dismissal framework, subject to closer statutory scrutiny once the Act is commenced.
3. Statutory financial distress defence
The Act provides for a statutory defence where dismissal is genuinely unavoidable due to severe financial distress. The defence is framed narrowly and is intended to apply only in exceptional circumstances.
The detailed wording and evidential threshold for this defence are not yet in force and will be set out in secondary legislation. At present, the Act does not support reliance on routine cost-saving, margin protection or business efficiency as sufficient justification. Employers should assume that the defence will be difficult to establish in practice and subject to close scrutiny.
For public sector employers, the Act indicates that the defence will turn on whether the organisation’s statutory functions would become financially unsustainable. In the case of local authorities, this is expected to align with formal intervention or equivalent measures, rather than ordinary financial pressure.
4. Live consultation on expenses, benefits and shift patterns
The Act does not currently treat employment expenses, benefits or shift patterns as restricted variations. These areas are the subject of a live Government consultation on whether, and to what extent, they should be brought within the restricted variation regime. The consultation closes at 11:59pm on 1 April 2026.
The consultation does not amend the law. Any expansion of the restricted list will require further regulations approved by Parliament. Until that process is complete, expenses, benefits and shift patterns do not attract automatic protection under the Act.
The consultation is significant because many employers deliver contractual change through allowances, benefits eligibility rules, shift premiums and rota structures rather than base pay or contractual hours. If these areas are added to the restricted list, dismissal and re-engagement would cease to be a viable enforcement tool for those changes once the provisions are commenced.
5. Replacement with non-employees and anti-avoidance provisions
The Act also restricts dismissals carried out for the purpose of replacing employees with agency workers, contractors or other non-employees performing substantially the same work, unless the statutory financial distress defence applies.
In addition, anti-avoidance provisions render ineffective any new contractual clauses introduced solely to circumvent the restrictions. Clauses that are already in place before commencement will remain valid, but their use will still be scrutinised where they are relied on to justify significant detriment.
6. Timing and implementation status
The Government has indicated that the fire and rehire provisions are expected to be brought into force from October 2026, subject to commencement regulations and the outcome of the current consultation on restricted variations. This timing is not yet fixed in law.
Until commencement, the existing legal framework continues to apply, including the statutory Acas Code of Practice. However, the legislative direction is now clear. Employers should assume that dismissal as a mechanism for imposing core contractual detriment will carry materially higher and less flexible legal risk once the provisions are live, and that decisions taken now may later be assessed against that framework.
Section B: Is it Legal to Fire and Rehire?
Under current UK law, dismissal and re-engagement is not unlawful in itself. However, it sits at the far end of the risk spectrum and is closely scrutinised by employment tribunals. Employers do not have a free-standing right to dismiss employees simply because agreement to contractual change cannot be reached.
The legality of fire and rehire depends on whether the employer can establish a potentially fair reason for dismissal and whether the decision to dismiss falls within the range of reasonable responses in all the circumstances.
1. The current legal test
In most fire and rehire cases, employers rely on “Some Other Significant Reason” as the potentially fair reason for dismissal. This typically covers business reorganisation, cost pressures or the need to harmonise terms following structural change.
Establishing SOSR is only the first step. The tribunal will then assess fairness under section 98(4) of the Employment Rights Act 1996. That assessment focuses on whether dismissal was reasonable in light of the employer’s objectives and the steps taken to achieve them.
2. What tribunals actually scrutinise
In practice, tribunal decisions in fire and rehire cases turn less on the label attached to the business reason and more on how the employer behaved before reaching the point of dismissal. The key areas of scrutiny usually include:
- The quality and length of consultation, including whether it was genuine rather than a formality
- Whether alternatives were properly explored and not dismissed prematurely
- The scale of the proposed detriment compared to the business objective
- Whether incentives or mitigations were offered to secure agreement
- Consistency of treatment across the workforce
Dismissal is expected to be a last resort. Where the evidence shows that the outcome was effectively predetermined, findings of unfair dismissal are common.
3. Collective consultation risk outside redundancy
A frequent point of misunderstanding is the assumption that collective consultation obligations only arise where redundancies are proposed. That is not correct.
Dismissals carried out to impose new contractual terms can still amount to dismissals for a reason not related to the individual. Where the relevant numerical thresholds are met at an establishment, collective consultation duties under TULRCA can be triggered even though the underlying aim is contractual change rather than headcount reduction.
Failure to identify this risk early can expose employers to protective awards in addition to unfair dismissal claims.
4. Automatic unfair dismissal risks that already exist
Even before the Employment Rights Act 2025 provisions are commenced, some dismissals are already treated as automatically unfair depending on the reason. Fire and rehire exercises that intersect with protected categories carry heightened risk.
Examples include dismissals connected to pregnancy or maternity, trade union activities, whistleblowing or the assertion of statutory rights. In those situations, the employer’s business rationale will not rescue the dismissal.
Employers should therefore assess not only the contractual issue in play, but also whether any affected employees fall within categories that attract existing automatic protection.
5. Position pending commencement of the 2025 Act
Until the new statutory regime is commenced, the existing unfair dismissal framework continues to apply. Employers can still pursue dismissal and re-engagement where justified, but the burden of demonstrating reasonableness remains high.
The key difference going forward is that the margin for argument will narrow significantly once restricted variations attract automatic unfair dismissal protection. Decisions taken now should be assessed not only against current law, but against how they will appear once the new framework is in force.
Section C: Fire & Rehire Code of Practice
The statutory Code of Practice on dismissal and re-engagement has been in force since July 2024. While it does not make fire and rehire unlawful, it materially alters how tribunals assess employer conduct in disputes arising from contractual change. The Code is now a central reference point in unfair dismissal litigation where dismissal and re-engagement is in issue.
1. When the Code applies
The Code applies where an employer is considering dismissal and re-engagement as a means of changing contractual terms. It is not limited to redundancy situations and is not confined to unionised workplaces. The Code is relevant regardless of workforce size, although collective consultation obligations may also arise depending on numbers.
The Code does not apply to dismissals by reason of redundancy where there is no intention to re-engage on new terms. Where the factual position is mixed, tribunals will look at substance rather than labels.
2. Core expectations placed on employers
The Code sets out a clear sequence of expected employer behaviour. Employers are expected to consult in good faith, provide information early and allow sufficient time for proposals and counterproposals to be considered.
Consultation should be aimed at reaching agreement. Employers are expected to explore alternatives and to reconsider proposals where employee feedback exposes disproportionate impact or avoidable detriment. Dismissal should not be raised as a pressure tactic and should only be introduced once it becomes clear that agreement cannot be reached.
3. Acas notification and collective alignment
Where an employer proposes to dismiss 20 or more employees at one establishment within a 90-day period, Acas notification and collective consultation duties apply. These obligations arise even where the underlying aim is contractual change rather than workforce reduction.
The Code reinforces, rather than replaces, these statutory duties. Failure to comply with collective consultation requirements can give rise to protective awards, separate from any unfair dismissal liability.
4. Tribunal remedies and compensation uplift
There is no standalone legal claim for breach of the Code. Its significance lies in the remedies available where a relevant claim succeeds, most commonly unfair dismissal.
Where a tribunal finds that an employer has unreasonably failed to comply with the Code, it may apply an uplift of up to 25% to the compensation awarded. The uplift is discretionary and applied by reference to the seriousness of the non-compliance.
Tribunals may also reduce compensation where an employee has unreasonably failed to engage with the Code’s principles, although this is less common in practice.
5. Interaction with the Employment Rights Act 2025
The Code will continue to operate alongside the Employment Rights Act 2025 once the fire and rehire provisions are commenced. However, its role will shift.
Where dismissal is used to impose a restricted variation under the new regime, the question of reasonableness will largely fall away and automatic unfair dismissal will apply, subject to the statutory defence. In those cases, compliance with the Code will not cure liability, although it may still be relevant to remedy.
Employers should therefore treat the Code as both a current compliance tool and a baseline standard that will continue to inform tribunal expectations under the future framework.
Section D: Fire & Rehire Employee Rights
Where agreement cannot be reached on proposed contractual changes, employers may consider dismissal and re-engagement. While this remains lawful in principle under the current framework, a range of statutory protections apply, and employee responses at this stage often determine litigation risk.
Understanding how employees can react, and how tribunals assess those reactions, is central to managing exposure.
1. Unfair dismissal and SOSR in practice
Dismissals connected to contractual change are commonly justified on the basis of Some Other Significant Reason, such as business reorganisation or cost pressure. Establishing SOSR does not guarantee a fair dismissal.
Tribunals will assess whether dismissal was a proportionate response to the failure to secure agreement, taking account of consultation, alternatives considered, and whether dismissal was genuinely a last resort. Evidence created at the time decisions were taken is usually decisive.
2. What happens if employees refuse the change
Employees are not required to accept a contractual change simply because it is proposed. Where an employee refuses, several scenarios can arise, each carrying different legal consequences.
If an employer imposes the change without dismissal, this will usually amount to a breach of contract unless the employee has clearly agreed. An employee may continue working under protest while reserving their legal position. Continued working alone does not always amount to acceptance, particularly where objections are made clear.
Qualifying employees may resign in response to an imposed detrimental change and claim constructive unfair dismissal. Tribunals will focus on whether the breach was sufficiently serious and whether the employee acted promptly.
3. Acceptance, working under protest and implied consent
Whether an employee has accepted a change is fact-sensitive. Silence or continued attendance at work does not automatically amount to consent, especially where the employee has raised objections or stated that they are working under protest.
Employers should avoid assuming acceptance where objections have been raised. Treating continued working as agreement in those circumstances is a common trigger for breach of contract and constructive dismissal claims.
4. Collective consultation duties
Where dismissal and re-engagement is proposed for 20 or more employees at one establishment within a 90-day period, collective consultation obligations under TULRCA can arise, even though the objective is contractual change rather than redundancy.
Failure to identify and comply with collective consultation requirements can result in protective awards of up to 90 days’ pay per affected employee, in addition to any unfair dismissal liability.
5. Existing automatic unfair dismissal protections
Some dismissals are already treated as automatically unfair depending on the reason, regardless of process or business justification. Fire and rehire exercises that intersect with these areas carry elevated risk.
Examples include dismissals connected to pregnancy or maternity, whistleblowing, trade union activities, or the assertion of statutory rights. Where these factors are present, the employer’s reliance on SOSR or business necessity will not prevent liability.
Employers should therefore assess individual circumstances as well as the overall contractual strategy before proceeding.
Section E: Considerations When Changing Employment Contract Term
Changing contractual terms sits at the centre of most fire and rehire disputes. The way contracts are drafted, interpreted and relied on will often determine whether dismissal and re-engagement is defensible under current law and whether it becomes legally untenable once the Employment Rights Act 2025 regime is commenced.
1. Contractual variation and flexibility clauses
A contract of employment cannot be unilaterally varied without agreement. Some contracts contain flexibility or variation clauses that allow employers to make changes, but these clauses are interpreted narrowly. Tribunals approach them cautiously, particularly where the proposed change results in material detriment.
Even where a flexibility clause exists, the employer should act proportionately, in good faith and within what was reasonably contemplated when the clause was drafted. Reliance on a broadly worded clause to justify significant changes to pay, hours or other core terms is unlikely to succeed.
2. Imposing change without dismissal
Where employers impose contractual changes without dismissing employees, the risk shifts from unfair dismissal to breach of contract and constructive dismissal. Unless the employee has agreed, an imposed change will usually amount to a breach.
Employees may continue working under protest while preserving their legal position. Employers should not assume that ongoing performance equates to acceptance, particularly where objections have been raised. Treating silence or continued attendance as consent is a common source of claims.
3. Consultation as a risk control, not a formality
Consultation is not simply a procedural step. Tribunals examine whether consultation was genuine, informed and capable of influencing the outcome. Employers are expected to explain the rationale for change, provide supporting information and engage meaningfully with counterproposals.
Where consultation appears predetermined or time-compressed to reach dismissal, findings of unfair dismissal are more likely. The evidential record created during consultation often carries more weight than post-event justification.
4. Decision-making in light of ERA 2025
Employers should now assess proposed contractual changes against the future restricted variation framework. Changes affecting pay, pensions, working hours or statutory holiday will attract automatic unfair dismissal protection once the Act is commenced. Consultation quality will not cure liability in those cases.
Even where changes fall outside the current restricted list, employers should assume that reliance on dismissal to impose detriment will be viewed more critically as commencement approaches, particularly if the change relates to areas under active consultation such as benefits, expenses or shift patterns.
5. Preparing contract architecture and governance
Ahead of commencement, employers should review contract templates, flexibility clauses and change-management processes. This includes identifying where contractual flexibility is relied on in practice, mapping allowances and benefits used to deliver change, and ensuring escalation routes exist where proposed changes touch core terms.
Decisions taken now should be capable of standing up to scrutiny under both the current regime and the incoming statutory framework.
Section F: Need Assistance?
Under the law as it currently applies, dismissal and re-engagement remains lawful in principle but carries significant legal risk. Employment tribunals expect employers to have acted reasonably, to have consulted properly and to have treated dismissal as a last resort rather than a negotiating tactic. Failures in process, timing or evidence tend to drive liability more than the underlying business objective.
Once the stricter fire and rehire provisions of the Employment Rights Act 2025 come into force, dismissal as a mechanism to impose restricted variations will carry automatic unfair dismissal risk, subject only to a narrow statutory defence. The margin for legal argument will reduce significantly.
For expert guidance on the use of fire and rehire, either under the current rules or to prepare for future restrictions, contact us.
Section G: Fire & Rehire FAQs
What is fire and rehire?
Fire and rehire refers to the practice of dismissing employees and offering re-employment on new contractual terms where agreement to vary those terms cannot be reached. It is also known as dismissal and re-engagement.
Is fire and rehire legal in the UK?
Fire and rehire is not currently unlawful in itself. However, it carries significant legal risk and is closely scrutinised by employment tribunals. Once the relevant provisions of the Employment Rights Act 2025 are commenced, dismissal to impose certain contractual changes will attract automatic unfair dismissal protection.
What changes under the Employment Rights Act 2025?
Once commenced, the Act will treat dismissals carried out to impose specified “restricted variations” as automatically unfair, subject to a narrow statutory defence based on severe financial distress. The focus will shift away from whether the employer acted reasonably and onto whether dismissal was used to force through a protected contractual change.
What counts as a restricted variation?
At present, restricted variations are expected to include changes to pay, pensions, working hours and statutory holiday entitlement. The Government is consulting on whether expenses, benefits and shift patterns should also be included. The final scope will be set out in secondary legislation.
Are benefits, expenses and shift patterns already covered?
No. Benefits, expenses and shift patterns are not currently confirmed as restricted variations. They are the subject of a live Government consultation, which closes at 11:59pm on 1 April 2026. Any extension of protection will require further regulations approved by Parliament.
Does the Acas Code of Practice still apply?
Yes. The statutory Acas Code of Practice on dismissal and re-engagement applies now and will continue to apply once the new regime is commenced. While compliance with the Code will not prevent liability where automatic unfair dismissal applies, it may remain relevant to remedies.
When do the new fire and rehire rules take effect?
The fire and rehire provisions of the Employment Rights Act 2025 are expected to commence from October 2026. This timing is subject to commencement regulations and the outcome of ongoing consultation.
Do collective consultation rules apply to fire and rehire?
Yes. Where an employer proposes to dismiss 20 or more employees at one establishment within a 90-day period, collective consultation obligations can arise even if the objective is contractual change rather than redundancy.
Can an employee refuse a contractual change?
Yes. Employees are not required to accept contractual changes. If changes are imposed without agreement, this may give rise to breach of contract or constructive dismissal claims. Continued working does not always amount to acceptance, particularly where objections are raised.
Are there alternatives to fire and rehire?
Employers are expected to explore alternatives such as renegotiation, voluntary changes, temporary measures or redundancy before resorting to dismissal and re-engagement. Dismissal is expected to be a last resort under both the current framework and the incoming regime.
Section H: Glossary
| Term | Definition |
|---|---|
| Fire and Rehire | A practice where an employer dismisses an employee and offers to re-employ them on new, often less favourable, terms and conditions. |
| Employment Rights Bill | Proposed legislation aimed at reforming employment practices, including restrictions on the use of fire and rehire tactics. |
| Automatically Unfair Dismissal | A dismissal that is deemed unfair by law, regardless of the employer’s reasoning, such as refusing to accept a contract change under the bill. |
| Substantially the Same Role | A job that is essentially identical in duties and responsibilities, even if the terms of employment have changed. |
| Consultation | The process by which an employer discusses proposed changes to terms and conditions with affected employees or their representatives. |
| Statutory Code of Practice | An official set of guidelines that employers must follow when considering dismissals and re-engagement, including fire and rehire. |
| Tribunal | An independent judicial body that hears and decides employment disputes between employers and employees. |
| Compensation Award | The financial payment made to an employee by an employer following a successful employment tribunal claim. |
| Viability of the Business | The financial health and sustainability of a business, which may be cited as justification for changes to employment terms. |
| Genuine Occupational Requirement | A legal justification for treating employees differently in specific roles where being of a particular characteristic is essential for the job. |
Section I: Additional resources and official guidance
| Resource | What it covers | Link |
|---|---|---|
| Acas Code of Practice on dismissal and re-engagement | Statutory expectations on consultation, process and use of dismissal and re-engagement, including tribunal uplift risk | gov.uk |
| Employment Rights Act 2025 overview | Government summary of reforms affecting unfair dismissal, fire and rehire and workforce protections | gov.uk |
| Fire and rehire consultation on expenses, benefits and shift patterns | Live consultation on extending restricted variations to non-pay contractual terms, closing 1 April 2026 | gov.uk |
| Unfair dismissal guidance | Current legal framework for fair and unfair dismissal, including SOSR and tribunal assessment | gov.uk |
| Collective consultation and redundancy rules | Thresholds and obligations under TULRCA that can apply to dismissal and re-engagement exercises | gov.uk |
| Acas guidance on changing employment contracts | Practical guidance on contract variation, consultation and alternatives to dismissal | acas.org.uk |
