Fire & Rehire

Policy

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 brought 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 Employment Rights Bill inserts new provisions that significantly reduce the scope for imposing changes to contracts through fire and rehire or fire and replace. It does this by making a dismissal automatically unfair if the reason or principal reason for the dismissal is:

• that the employer sought to vary the employee’s contract of employment 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, as the employee carried out before being dismissed.

There is a (very) limited exception where employers can demonstrate that:

• the reason for the variation was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business as a going concern or otherwise to carry on the activities constituting the business; and
• in all the circumstances the employer could not reasonably have avoided the need to make the variation.

This exception is clearly a high hurdle for the employer as it must demonstrate both a significant financial threat to the business and that the variation was unavoidable. If the exception applies, the dismissal will not be automatically unfair, however an Employment Tribunal must still assess whether the dismissal was fair in all the circumstances, considering certain factors, including:

• whether any consultation was carried out by the employer with the employee and/or a trade union or any person representing the employee about varying the contract of employment;
• anything offered to the employee in return for agreeing to the variation; and
• any other matters to be set out in regulations.

In addition, a Government Consultation last year, proposed introducing the right for employees to apply for ‘interim relief’ when making a claim for unfair dismissal in a fire and re-hire scenario. The Government’s response confirmed that it is now not taking this proposal forward.

However, as a result of the same consultation, an amendment to the Employment Rights Bill has been made that will double the maximum protective award for collective redundancy consultation from 90 to 180 days. See the Redundancy collective consultation section for more details.

The net effect of these changes will mean that fire and rehire 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 the press recently – but on their current drafting the provisions may have unintended consequences. The provisions could potentially impact employers who may not consider themselves engaging in ‘traditional’ fire and rehire exercises but where, although the employer may not be in such financial difficulties as contemplated by the exception, there are good business reasons for wanting to change terms and conditions of employment. For example, adjusting an employee’s working hours to accommodate a new client contract, or requiring office working for a home worker for one day a week.

Employers may try to get round this practice by including ‘flexibility’ clauses into the contract, such as mobility clauses dealing with where the employee works and clauses in relation to duties or hours of work. 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). However, such clauses would need to be drafted carefully and clearly and not exercised in such a way as to breach mutual trust and confidence. The Government may also seek to introduce restrictions on this in due course.

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Timing and developments

Included in the Employment Rights Bill.

The Government launched a Consultation on 21 October 2024 on increasing or lifting the cap of the protective award and the potential role of interim relief. On 4 March 2025 the Government confirmed it would not be pursuing introducing interim relief but that it would be doubling the protective award and has introduced an amendment to the Employment Rights Bill to this effect (see the Redundancy collective consultation section).

Further regulations are also required on the factors for a fair dismissal for when the financial exception applies.

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 Employment Rights Bill. The Government will also issue further guidance in respect of scenarios where the collective redundancy consultation obligations are triggered.

Implementation is currently anticipated no earlier than 2026, though firm details on timing have not yet been provided.