Fire and rehire: an end to unscrupulous tactics?

Before coming to power Labour committed to ending "fire and rehire" and promised to reform the law to provide effective remedies against abuse, as well as implementing a "strengthened code of practice".

So, what's the aim of the government's reforms? In its 'Fire and rehire' Factsheet the government states that it "wants to end unscrupulous fire and rehire tactics that leave working people at the mercy of bullying threats". While it recognises the importance of businesses being able to restructure to remain viable "when there is genuinely no alternative" it states that this must be based on a proper process.

The fire and rehire measures were due to come into force in January 2027, but they have now been pushed back to March.

What's the current position?

Changes to terms and conditions of employment can be made following a fair consultation process which either leads to employees agreeing to the change or, where agreement cannot be reached, and the employer has a sound business case for making the changes, by dismissal and re-engagement on the new terms and conditions.

As of 18 July 2024, employers should also follow the statutory Code of Practice on Dismissal and Re-engagement (the Code). Employment tribunals can apply an uplift or reduction in compensation in collective consultation claims where a party fails to follow the Code. This means that if a successful protective award claim is brought where the Code applies and an employer or employee has unreasonably failed to comply with it, compensation can be increased or reduced by up to 25%. The Code provides that "fire and rehire" should only be used as a last resort and that alternatives should be explored by employers. It introduces a requirement to consult for as long as reasonably practicable, states that employers should contact Acas at an early stage before they raise "fire and rehire" with the workforce, and points out that threats of dismissal should not be used to coerce employees into signing new terms and conditions.

What does the Employment Rights Act say?

The Employment Rights Act 2025 (the Act) will change the law so that a dismissal is automatically unfair (with no qualifying service needed) if the reason or principal reason is:

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 re-engage the employee, under a varied contract of employment to carry out substantially the same duties as the employee carried out before being dismissed.

In order for the provisions of the Act to apply a variation will have to be a "restricted variation". What constitutes a "restricted variation"? In essence anything related to pay, hours and holidays and any additional matters specified by the Secretary of State via regulations.

Following a consultation earlier this year the government has decided that variations to certain types of travel expenses (including mileage), accommodation expenses and accommodation as a benefit in kind will be restricted variations. It has also confirmed that a narrow category of the most extreme shift changes will be restricted variations. These are changes from day to night working (or vice versa) and weekday to weekend working (or vice versa). Night-time will be defined as 11pm to 6am in line with the definition of night-time working in the Working Time Regulations 1998.

The changes to the definition of restricted variations which have been consulted on will be made by regulations and these are expected to come into force, along with the fire and rehire provisions in March 2027.

The Act contains a couple of exemptions specifically for public sector bodies and local authorities:

public sector bodies – the exception will apply if the employer faces financial difficulties that are likely in the immediate future to affect "the financial sustainability of carrying out the employer's statutory functions"; and
local authorities – the exception will apply if financial difficulties have resulted in a "relevant intervention direction" relating to the financial management or governance of the authority.

If the exceptions apply then the dismissal will not be automatically unfair, but the employment tribunal will consider if the dismissal was fair in the circumstances. In doing this, it will consider mandatory factors including whether the employer consulted with the employee and a trade union (if one is recognised) or other employee representatives, and whether the employee was offered anything in return for agreeing to the variation.

What this means is that employers will not be able to change terms and conditions of employment based on a sound business reason for doing so. The employer will need to be in "financial difficulties". We think this will be construed very narrowly given the wording in the government's consultation paper on remedies for fire and rehire which comments that the changed law, "will ensure that employers can only use the practice of fire and rehire if they can demonstrate that they were facing financial difficulties that threatened their viability …e.g. it was the only way to prevent insolvency".

In our experience, it is rare that employers change terms and conditions of employment in circumstances akin to insolvency. What is clear is that the situations in which employers will be able to use fire and rehire will be significantly restricted in future.

In the first draft version of the Act employers could have dismissed employees and replaced them with non-employees. This loophole will be closed. Dismissal will be automatically unfair when the principal reason is replacing employees with non-employees (agency workers or contractors) carrying out substantially the same activities, unless it's a genuine redundancy situation.

Strengthening remedies

The Act has increased the cap on protective awards in collective redundancy situations from 90 days to 180 days. So in successful claims the employment tribunal can award compensation of up to 180 days from 6 April 2026 per affected employee. The risk of substantial sums being awarded is being used to encourage compliance.

There is also the impact of failing to follow the Code given the potential uplift of 25% to a protective award if an employer's failure to comply with the Code is unreasonable. In this situation, under the Act, an employer who has failed to comply with its collective consultation obligations will be facing a significant liability.

On 22 October, the government published a draft revised version of the Code (the revised Code) which reflects the changes made by the Act and which has the same legal status and effect as the original Code. It is significantly longer and more detailed. The consultation on the draft revised Code closes on 17 December 2026. The parliamentary approval process for the revised Code will begin in spring 2027, with the government stating in the introduction to the consultation that it will come into force in summer 2027.

Practical points

Although the new law isn't due to come in until March 2027, there are a few general things to bear in mind:

It will be important to try and gain consent to changes to terms and conditions.
Consider offering favourable changes along with the less favourable changes as a way of making the whole package more acceptable.
Do you have variation clauses in your existing contracts of employment? If so, these may be a way of imposing unilateral change.
Be aware that it won't be possible for you to circumvent fire and rehire provisions by inserting a variation clause into the contract of employment but existing variation clauses will continue to be valid.
Ensure that all new contracts contain variation clauses.
If you're thinking about varying terms and conditions, then do it soon before the new law comes in!