Fire & Rehire

Currently, there is not an outright ban on the practice of fire and rehire or fire and replace. However, using this method to change terms and conditions of employment is considered a last resort and is usually a higher risk strategy given the ability for employment tribunals to increase awards (such as a protective award) for an employer’s failure to comply with the Code of Practice on dismissal and re-engagement (following the Code coming into force in July 2024).

The Government stated previously that it wanted to introduce reforms to the law to abolish ‘fire and rehire’ and ‘fire and replace’. Although not quite an outright ban, the ERA 2025 inserts new provisions that significantly reduce the ability of employers to impose changes to contracts through fire and rehire or fire and replace.

Restricted variations

The ERA 2025 makes a dismissal automatically unfair if the reason or principal reason for the dismissal is:

• That the employer sought to make a ‘restricted variation’ (or many variations which include a restricted variation) to an employee’s contract of employment to which the employee did not agree; or
• To enable the employer to employ another person or re-engage the employee under a varied contract of employment, to carry out the same duties, or substantially the same duties carried out beforehand, and where the varied terms involve a ‘restricted variation’.

A ‘restricted variation’ includes a variation:

• That reduces or removes pay entitlements, or that varies the measures that determine pay based on the work done or performance;
• To terms relating to pensions or pension schemes;
• To hours of work or the timing or duration of shifts; or
• That reduce an employee’s entitlements to time off

The Government has powers to (i) add to this list of restricted variations and (ii) clarify what payments, expenses or other contractual benefits are not considered to be restricted variations. There is also an anti-avoidance provision, which makes the inclusion of a variation clause (or so-called flexibility clauses) that would enable the employer to make changes to any of the above restricted matters without the employee’s agreement a restricted variation.

A consultation was published on 4 February 2026 seeking views on the extent to which changes to expenses, benefits and shift patterns should be considered “restricted variations” and therefore covered by the protections. Two options have been put forward for feedback in respect of expenses and benefits in kind, but the Government’s current preferred option is that all expenses and benefits or payments in kind will be excluded from being a restricted variation.

The consultation also seeks feedback on the inclusion of changes to shift patterns as restricted variations. The Government has put forward two options for the treatment of shift patterns, but its preferred option is foreshift changes from day to night working (or vice versa), and weekday to weekend working will be restricted variations.

There is a (very) limited exception which will apply, so that the dismissal will not be automatically unfair, where employers can demonstrate that the employer was in significant financial difficulties. Basically, this is where the employer was in financial difficulties likely to affect the employer’s ability to carry on the business as a going concern and in all the circumstances the employer could not reasonably have avoided the need to make the variation or replace the employee. There are also different financial difficultly exceptions for public sector employers and local authorities.

This exception appears to be a high hurdle for an employer and although the dismissal will not be automatically unfair if the exception applies, an Employment Tribunal must still assess whether the dismissal was fair in all the circumstances. In doing so it must consider certain factors, including:

• Any consultation carried out by the employer;
• Anything offered to the employee in return for agreeing to the restricted variation; and
• Any other matters to be set out in regulations.

These factors do not replace the usual tests for fairness of a dismissal and would generally be considered by a tribunal anyway.

We note here that the ERA 2025 will also double the maximum protective award for collective redundancy consultation from 90 to 180 days (however the Government’s earlier proposal to introduce “interim relief” was dropped) to the extent that the dismissals engage collective redundancy consultation obligations. See Redundancy Collective Consultation for more details.

Non-restricted variations

Dismissals for other types of variations which are not captured by the definition of “restricted variation” (such as mobility clauses) will not be considered automatically unfair. This would be the case where the reason or principal reason for the employee’s dismissal is:

• That the employer sought to vary the employee’s contract of employment, the variation was not a ‘restricted variation’ and the employee did not agree to the variation; or
• To enable the employer to employ another person or to re-engage the employee under a varied contract of employment, to carry out the same duties, or substantially the same duties carried out beforehand, and none of the amended terms involve a ‘restricted variation’.

However, employers will need to satisfy a tribunal that the dismissal was fair under ordinary principles for unfair dismissal and the ERA 2025 lists factors that tribunals must consider in assessing the fairness of such a dismissal. These include the reason for the variation, any consultation carried out by the employer, anything offered in return for the variation and any other matters in future regulations.

Replacing employees with non-employees

The ERA 2025 makes a dismissal automatically unfair if the reason or principal reason for the dismissal is to enable the employer to replace the employee with an individual who is not an employee of the employer (such as an agency worker). Broadly speaking this applies where:

• The replacement individual carries out activities that are the same, or substantially the same activities as the employee, or the employee taken together with one or more other employees of the employer, carried out before being dismissed; and
• The employee’s dismissal is not wholly or mainly attributable to the fact that the requirements of the employer’s business for those activities to be carried out have ceased or diminished or are expected to cease or diminish.

As for restricted variations, there is a similar significant financial difficulties exception. Again, if the exception applies although the dismissal will not be automatically unfair, an Employment Tribunal must still assess whether the dismissal was fair in all the circumstances, considering certain factors specified (including any consultation carried out by the employer and any other matters to be set out in regulations).

The net effect of all these changes will mean that fire and rehire (and fire and replace) will likely become an absolute last resort. Clearly, the policy intent behind these changes is to prevent the more extreme high-profile examples of fire and rehire practices that played out in recent years. However, these provisions will likely have unintended consequences and impact employers who may not consider themselves engaging in the types of mass fire and rehire exercises behind the policy intent.

However, the softening of the drafting during the ERA 2025’s passage in Parliament will give employers some reassurance that certain changes, such as office moves or changes to job duties will not trigger the automatically unfair dismissal protections as had originally been proposed (although will still need to be fair on ordinary principles and applying the statutory factors). However, employers will be keen to see what the Government decides to add to the list of restricted variations and what it ultimately decides following its consultation on expenses and shift patterns covered by the definition of ‘restricted variations’.

Employers may consider the use of ‘flexibility’ (or variation) clauses in template contracts where appropriate. These clauses usually reserve discretion to the employer to make changes without agreement from the employee (as agreement is essentially already baked into the contract) – but on current principles care is required to ensure they are drafted carefully and clearly and not exercised in such a way as to breach mutual trust and confidence.

Under the new rules, flexibility clauses that enable an employer to make changes to any terms relating to ‘restricted variations’ without employee agreement will be a restricted variation. As such, trying to impose such a flexibility clause without agreement would be caught by these rules and employers may face the risk of any dismissal being automatically unfair. However, this does not appear to prohibit such flexibility clauses where they are in contracts before the fire and rehire changes come into force, or where such a clause is included in the contract at the outset of employment after the provisions become law, or of course in respect of ‘unrestricted matters’ (such as duties or place of work). The consultation on changes to expenses, benefits and shift patterns also notes the Government’s intention that the new fire and rehire provisions in ERA 2025 do not affect employers’ ability to change employment conditions via means other than fire and rehire, for example through valid variation clauses or through non-contractual changes, such as changes to policies, which will not be affected.

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Timing and developments

Included in the ERA 2025.

A consultation was published on 4 February 2026 (which closes on 1 April 2026) seeking views on the extent to which changes to expenses, benefits and shift patters should be considered “restricted variations” and therefore covered by the protections.

The Government has also promised to monitor the level of compliance with the current Code of Practice on dismissal and re-engagement and will update it to reflect the changes in law for fire and rehire in the ERA 2025. The Government will also issue further guidance in respect of scenarios where the collective redundancy consultation obligations are triggered.

The Government updated timeline indicates that the measures relating to fire and rehire will take effect as follows:

• April 2026 – doubling the collective redundancy protection award from 90 to 180 days (see Redundancy Collective Consultation)
• January 2027 – fire and rehire measures. (We note that the Government’s previous roadmap had said October 2026, but this has been pushed back)