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 (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 Employment Rights Bill inserts new provisions that significantly reduce the ability of employers to impose changes to contracts through fire and rehire or fire and replace. The Employment Rights Bill will make 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 (note that previously this was just to ‘variations’ and so was unrestricted); or
• to enable the employer to employ another person or re-engage the employee under a varied contract of employment, or replace the employee with a non-employee (e.g. an agency worker), to carry out the same duties, or substantially the same duties carried out beforehand.

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
• 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.

There is a (very) limited exception which will apply 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 difficult exceptions for public sector employers and local authorities.

This exception appears to be a high hurdle for an employer. 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:

• any consultation carried out by the employer;
• in the case of restricted variations, 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.

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. However, employers will need to satisfy a tribunal that the dismissal was fair in the usual way and the provisions set out a list of 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.

The Employment Rights Bill 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). See the Redundancy Collective Consultation section for more details.

The net effect of 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 may 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, softening of the drafting during the Employment Rights Bill’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. However, employers will be keen to see what is added to the list of restricted variations by regulations in the future to see if this changes.

Employers may consider the use of “flexibility” 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 Employment Rights Bill has become law, or of course in respect of “unrestricted matters” (such as duties or place of work).

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Timing and developments

Included in the Employment Rights Bill.

The Government has said that it will consult on the fire and rehire measures in Autumn 2025 and 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.

The Government has said 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.
• October 2026 – fire and rehire measures.