Employment Rights Act: How Will The Fire And Rehire Provisions Apply In Practice?

The Employment Rights Act 2025 seeks to restrict the controversial practice of "fire and rehire". A recently launched government consultation now gives us a glimpse into the potential scope of the government's plans.

The original proposal for the ban on fire and rehire included in the Employment Rights Bill covered changes to any contractual term without employee agreement. The only exception was when the business was in extreme financial difficulty. This meant that no matter how outdated the term, how sensible the change, or how unreasonable the employee's unwillingness to agree to it, any subsequent dismissal would be automatically unfair.

As the Employment Rights Bill progressed through parliament, this ban was relaxed a little and will now only preclude dismissals arising from changes to core contractual terms.

We look at the current position, explain the government's plans and consider the potential impact for employers.

What is fire and rehire?

Fire and rehire is shorthand for an employer dismissing an employee and then re-employing them under a new contract. The term generally also refers to a "fire and replace" scenario: where the employee is dismissed and replaced by somebody else.

The fire and rehire practice is currently lawful if employers can establish a fair reason for dismissal (usually falling into the category of some other substantial reason). For employers, the financial risk is usually less when utilising this tactic for employees with less than two years' service, as this is the current qualifying service for an unfair dismissal claim.

For many employers, this strategy would only be used as a final attempt to push through changes to an employee's contract, especially where the employee has refused to agree to the change by consent, following a reasonable consultation process. This could arise, for example, when harmonising terms across a business, responding to financial challenges by removing benefits or introducing new patterns of working.

In practice, most employers will look to agree the change with their employees. Enforcing a change can be problematic for employee relations and so careful communication, negotiation and incentivisation generally brings a much better outcome than simply enforcing the change. The theoretical ability to ultimately force through a contractual change does, however, give employers some material leverage in these negotiations.

The fire and rehire practice came under the spotlight after the high-profile P&O Ferries scandal, which saw the firing of 800 workers in 2022, who were then replaced with agency staff. Following this, a Code of Practice was published in July 2024, which encouraged employers to act fairly and responsibly. The Code emphasises that using this strategy should be a last resort only.

The government recognises that whilst many employers approach an exercise to change terms and conditions proportionately, there are a "few who would exploit employees". The government's option assessment highlights evidence that less than 1% of employers might engage in the practice each year. There is some criticism that the government is looking to solve a problem that does not exist.

Even though fire and rehire is seldom resorted to in practice, the changes to the rules are still relevant for most employers because they impact how easily you will be able to update and modernise contractual terms in the future. They aim to shift more power towards employees.

What will be changing?

The Employment Rights Act goes further to prevent this practice. An employer's ability to use fire and rehire to change terms and conditions will be significantly restricted.

Dismissals to impose certain key contractual terms (known as "restricted variations") will be automatically unfair if the reason for the dismissal is the employee not agreeing to these changes or so that the employer can employ another person on varied terms to carry out substantially the same role.

No qualifying service will be required to bring an automatic unfair dismissal claims on these grounds and (from 1 January 2027) employees would be able to claim uncapped compensation or (in some cases) reinstatement or reengagement on their original terms.

There will also be enhanced protections for changes to non-core terms that aren't restricted, aimed at ensuring meaningful consultation with employees.

What is a restricted variation?

The government's focus is on "integral" elements of the employment relationship. Restricted variations will include changes to an employee's contractual:

• pay (more on this below)
• required number of working hours
• pension
• shift times and length (more on this below)
• time off rights, and
• other changes to be defined in regulations.

In an anti-avoidance move, imposing a new flexibility clause on an existing employee allowing the employer to make one of the above changes unilaterally will also be restricted.

Changes to non-contractual elements will still be allowed so you can, for example, withdraw a fully discretionary scheme allowing time off as long as it's not contractual. Also, you will be allowed to include flexibility clauses in employment contracts for new hires and rely on existing flexibility clauses in contracts of your existing employees. We explain in more detail below.

What changes to pay and shift patterns would be restricted?

A consultation was launched on 4 February 2025 which gives us some further insight into exactly what variations will be captured. The consultation focuses on contractual expenses, benefits and shift patterns.

Expenses and benefits

The starting position in the Act is that changes to any "sum payable" to an employee is a restricted variation. But the government recognises that some expenses and benefits are less important to employees (compared to, say, salary).

The consultation indicates that the government's current preferred option is to exclude all expenses and benefits in kind. This would mean a dismissal to effect a change relating to these terms would not be automatically unfair – albeit the employer would still need a fair reason to dismiss.

This option would allow employers more flexibility to make changes to some terms relating to pay.

Example: A large technology supplier experiences an increase in client demand to have virtual sales meeting, significantly reducing the need for Sales Managers to visit clients on site. With profit margins also under pressure, the business looks to make savings before considering redundancies. They propose to remove the private use of company vehicles for all Sales Managers, which is currently a contractual benefit.

The Sales Managers do not agree to the change – many view their contractual right to a high-end company car as a perk to the job and an important part of their overall remuneration package. The business explores alternatives, such as potentially introducing an electric vehicle scheme, but the Sales Managers are still not happy. After a full consultation process, the business eventually dismisses the Sales Managers, immediately offering them re-employment on revised terms.

Because the underlying change relates to a contractual benefit, if the government proceeds with their preferred option, the dismissals would not be automatically unfair. The Sales Managers could still bring an ordinary unfair dismissal claim but the employer would be able to argue that it had a fair reason to dismiss (which we consider below).

The other option being considered by the government, is to carve out of the exclusion share schemes, travel expenses and accommodation expenses, meaning they would remain restricted variations. The government is seeking views on what expenses and benefits (if any) should be restricted but it could include changes to, for example, reduce the limit for business class travel or remove any accommodation provided as part of a role. For most employees, terms relating to expenses tend to be non-contractual and so employers can often implement changes without using such draconian tactics.

The more impactful carve out in practice would likely be restrictions to changes to any entitlement to share allocations or share options. A contractual entitlement to shares can form a significant part of an employee's overall remuneration package particularly in senior roles and in certain sectors, such as financial services.

Shift patterns

The other area the government is seeking views on is whether changes to contractual shift patterns should be restricted. The government recognises that a business may legitimately need to adapt to customer demand or changing circumstances, affecting shift patterns. On the other hand, even small changes to shift times can have a big impact on employees.

The government has indicated that the preferred option is to restrict shift changes from day to night working, and weekday to weekend working will be restricted. These were identified as the most extreme shift changes.

Example: A manufacturing company operate a five day rota, Monday to Friday. The company gains a significant new client and needs to introduce a 7-day rota for all operatives to keep up with demand. One of the operatives has young children and resists the proposed change, arguing that she would be unable to continue in the role if it required weekend working. The employer offers an inflated rate of pay for weekend working, but the employee is still unhappy.
If the government were to proceed with their preferred option, this change to weekend working would be a restricted variation, meaning any dismissal would be automatically unfair.

This option would still mean that wider or more general changes to shift patterns would not be restricted. This could include introducing slightly longer shifts or an increase in some nighttime working (which the government defines as 11pm to 6am, reflecting the definition used in working time legislation).

The other option the government is seeking views on is to carve out shift pattern changes entirely, so no such changes would be restricted. However, if an employer dismissed employees as a way to impose a package of changes, such as a change in shift patterns plus a reduction in hours and pay, this would still be automatically unfair.

What about changes that are not automatically restricted?

If an employee is dismissed and re-engaged to impose a contractual change which is not a restricted variation, then the dismissal will not be automatically unfair.

This includes changes to contractual terms the government considers "non-core", such as location and job role.

Whether such a dismissal is fair or not will still be judged according to the usual unfair dismissal tests. However, the Act requires tribunals to take account of the reason for the variation, any individual or collective consultation and anything the employee was offered in return for the change (all matters which tribunals would have considered in any case). So, it is possible that changes that would have been lawful in the past will now be deemed unlawful.

Example: As part of an internal reorganisation, an advertising agency is looking to streamline their front of house and office support functions. The receptionist team will now need to take on additional office coordination duties. Their title will change from Receptionist to Office Co-ordinators but their pay, hours and other contractual terms will remain the same. After a short consultation period, the Receptionists all object to the changes and are eventually dismissed.

Changes to job title and duties are not a restricted variation. However, a Tribunal is now required to take into account the reason for the change and the fact that nothing was offered to the Receptionists in return for their agreement. The quality of consultation would also be taken into account, including whether the agency genuinely engaged with the objections and explored alternatives. The dismissals could still therefore be unfair

The Code of Practice will also still apply, although this will be updated.

Changes within the scope of agreed and enforceable flexibility clauses are also allowed. This is operating within the contract, rather than changing the contract.

Example: If an employer has undergone a recruitment drive and needs to change their office space to allow for the increased headcount, a change of office location would impact an employee's contractual place of work. However, this could be permitted by an existing contractual mobility clause (provided such clause is reasonably enforced). If there were no mobility clause, place of work is also not a restricted variation.

When will the changes happen?

Although originally expected later this year, the restrictions on fire and rehire will now take effect in January 2027. The enhanced protections for ordinary unfair dismissal claims (for changes to non-core terms), will also take effect at the same time.

How can employers prepare?

There will inevitably be times employers need to make changes to contractual terms. For example, if a company has recently acquired a new business and is looking to align roles and integrate reporting lines with its existing staff. The final wording in the Act is less likely to bite on some of the key changes that reasonably come with the evolution of a business, such as the re-design of job duties and reporting lines.

The fire & rehire ban will nonetheless still present a major block to changing outdated or unprofitable pay, pensions and hours structures. Employers will be allowed to hire new recruits on different terms and make pay rises conditional on employees agreeing to change - but will not lawfully be able to terminate the contracts of existing employees to impose change to core terms unless the business is facing financial collapse. This can also create a two-tier workforce which raises challenges from an employee relation and administrative perspective.

There are a number of steps employers can take now to prepare:

• Audit your contracts: understand what the contracts say about shift patterns and if a set working pattern is referred to. It will also be important to understand what contractual expenses and benefits clauses exist.
• Consider working practices: consider what shift patterns operate in practice and whether these still suit your business needs (with an eye on any anticipated changes in business need).
• Use fire and rehire (even more) cautiously: even though the changes won't be implemented until 2027, any use of fire and rehire is controversial in the current climate. With these changes on the near horizon, reputational risks are even greater. If businesses are considering contractual changes which could result in dismissal and re-engagement, they may wish to do so sooner rather than later.
• Focus on other methods to effect change: to demonstrate that fire/rehire is the 'last resort' we think more emphasis will be placed by the Tribunals on demonstrating this. So, evidencing that you have tried to effect the change by negotiating with or incentivising the employee will increasingly be important. As such, avoid making assumptions that employees will not agree to the change and jumping straight to the dismissal/re-engagement process.
• Review your flexibility clauses: Employers will still be able to include flexibility clauses in contracts of new hires and rely on existing flexibility clauses in contracts of existing employees. The scope to operate flexibility clauses is heavily restricted by case law, but a way to get ahead of the changes is by ensuring flexibility clauses are drafted as widely and as effectively as possible, focusing on the key contractual areas identified above.

The government's consultation on fire and rehire – changes to expenses, benefits and shift patterns will remain open until 1 April 2026 and can be accessed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.