“Fire and rehire”, the practice of dismissing employees and offering re-engagement on revised, often less favourable contractual terms, has become one of the most controversial issues in UK employment law. It is commonly used where you want to change pay, hours, benefits or other key contractual terms but cannot obtain workforce agreement.
In July 2024, the UK Government introduced a statutory Code of Practice on Dismissal and Re-engagement. The Code emphasises that dismissal and re-engagement should be used only as a last resort. Employers are expected to conduct meaningful consultation, genuinely explore alternatives, and avoid using the threat of dismissal as a negotiating tactic.
Further reform has followed under the Employment Rights Act 2025 (the “ERA 2025”), which introduces significant new restrictions on fire and rehire practices. These changes are expected to take effect in January 2027 and will materially alter the legal and practical risks associated with contractual change.
Summary
- What “Fire and Rehire” Is and Why It Became Controversial
- What Is Currently Lawful and Why Is It Still Risky?
- The Risks Associated With Fire and Rehire
- The Statutory Code of Practice on Dismissal and Re-engagement
- What Is Changing Under the Employment Rights Act 2025?
- What Counts as “Restricted Variations”?
- Automatic Unfair Dismissal and the “Financial Difficulties” Exception
- Is a Fair Process Still Required and What Does It Involve?
- What Should Employers Do Now?
In this article, we explain what fire and rehire involves in practice, the key legal considerations when varying employment contracts, the impact of the statutory Code of Practice, and what employers need to understand about the forthcoming reforms.
What “Fire and Rehire” Is and Why It Became Controversial
Employers may need to change contractual terms such as working hours, pay, shift patterns or place of work in response to changing business needs. However, the legal starting point is clear: contractual terms generally cannot be changed without employee consent. Unilateral changes may amount to a breach of contract and expose you to legal claims.
The safest approach is therefore to seek agreement to the proposed changes through individual discussions or collective consultation with employee representatives or recognised trade unions.
Where agreement cannot be reached, some employers terminate existing contracts and offer immediate re-engagement on revised terms. This practice, commonly referred to as fire and rehire or dismissal and re-engagement, is sometimes used to introduce less favourable terms, harmonise employment conditions, address operational inefficiencies or improve financial performance.
This practice is controversial because employees may feel pressured to accept worse terms, such as reduced pay or longer hours, to avoid losing their jobs. That can create concerns about unbalanced bargaining power and the quality of consultation.
What Is Currently Lawful and Why Is It Still Risky?
Under current UK law, fire and rehire is not unlawful in itself, but it is regarded as a high-risk strategy and should be used only as a genuine last resort.
For dismissal and re-engagement to be lawful, employers need to establish a fair reason for dismissal under the Employment Rights Act 1996. In most cases, employers rely on “some other substantial reason” (SOSR) under section 98.
To succeed, you would usually need to demonstrate a sound business rationale for the proposed changes and show that dismissal was reasonable in the circumstances.
A meaningful consultation process is critical. You should clearly explain the proposed changes and the business case behind them, consider employee feedback, and explore alternatives.
Where 20 or more employees are at risk of dismissal within a 90-day period, statutory collective consultation obligations may arise under the Trade Union and Labour Relations (Consolidation) Act 1992. Failure to comply can result in substantial protective awards.
If dismissals proceed, you should also follow a fair procedure, including providing appropriate notice and offering a right of appeal.
The Risks Associated With Fire and Rehire
Even where technically lawful, fire and rehire carries significant legal and commercial risks.
Some employees may accept the new terms “under protest”, meaning they continue working but make it clear they do not agree to the changes. That may allow them to bring a breach of contract claim later, arguing that the employer imposed the change unlawfully.
Employees may bring claims for unfair dismissal or wrongful dismissal if you cannot demonstrate a fair reason or reasonable process. Tribunals scrutinise both the business rationale and the consultation undertaken.
The employee relations impact can also be considerable. Fire and rehire may damage trust and morale, particularly where employees feel consultation was superficial or predetermined. This can lead to reduced engagement, higher staff turnover and, in unionised workplaces, the possibility of industrial action.
Public and stakeholder scrutiny can also amplify reputational harm. High-profile employers, such as British Airways and Tesco Supermarkets, have faced criticism after using fire and rehire practices, attracting political and union attention.
For these reasons, while dismissal and re-engagement currently remains legally possible, it should be approached with considerable caution.
The Statutory Code of Practice on Dismissal and Re-engagement
In July 2024, the Government introduced a statutory Code of Practice on Dismissal and Re-engagement, setting out expectations for employers considering fire and rehire. While the Code does not render the practice illegal, it significantly influences how employment tribunals may evaluate employer behaviour.
The Code applies where an employer is contemplating dismissal and re-engagement as a method of altering contractual terms. It applies broadly across workplaces but does not apply where an employer is proposing genuine redundancies without seeking to re-engage employees on new terms.
While the ERA 2025 has already been enacted, the relevant fire and rehire provisions are not yet fully in force. The existing unfair dismissal framework therefore continues to apply alongside the Code of Practice.
The Government is expected to update the Code as part of the wider reforms, with a revised version anticipated in 2027.
Procedural Expectations
The Code establishes clear procedural standards. Before raising the prospect of dismissal and re-engagement, the employer should contact ACAS for early conciliation support.
Employers must consult in good faith and in a transparent manner. This includes:
- providing relevant information early, including the business case for the proposed changes
- allowing sufficient time for employees or representatives to consider proposals and respond
- genuinely considering feedback and potential alternatives
Consultation should be aimed at reaching agreement. The Code emphasises that dismissal should not be used as a negotiating tactic and should only be raised once other options have been exhausted.
Tribunal Uplift
While employees cannot bring a standalone claim for breach of the Code, it can still influence the outcome of related claims, most commonly unfair dismissal, by affecting the remedies available.
If a tribunal finds that an employer has unreasonably failed to comply with the Code, compensation may be increased by up to 25%.
Failures in consultation, transparency or procedural fairness can significantly increase financial exposure.
What Is Changing Under the Employment Rights Act 2025?
The ERA 2025 introduces significant restrictions on fire and rehire practices.
Under the new law, it will be automatically unfair to dismiss an employee because they refuse to accept changes to certain core contractual terms, referred to as “restricted variations”. These typically relate to fundamental elements such as pay, working hours, annual leave and other protected core terms.
Importantly, this automatic unfair dismissal protection will apply from day one of employment, a change from the current requirement of two years’ service to bring a claim.
The ERA 2025 does not prevent employers from seeking contractual changes through consultation and negotiation. However, dismissing employees to force acceptance of new terms will generally result in automatic unfair dismissal where the proposed change is a restricted variation.
The Act also introduces protection preventing employers from dismissing employees in order to replace them with non-employees performing the same role, such as contractors or agency workers.
This is particularly relevant for fixed-term contracts, as the expiry of a fixed-term contract counts as a dismissal in law. Allowing a contract to expire in order to replace the individual with a contractor may therefore create risks.
The legislation recognises that exceptional circumstances may arise where changes are necessary to keep a business operating, but the threshold for relying on this defence is expected to be very high.
The legislation also treats the inclusion of certain unilateral variation clauses, or “flexibility clauses” in employment contracts as part of the restricted-variation framework, where those clauses would allow core terms to be changed without the employee’s agreement. The effectiveness of these clauses will become limited.
What Counts as “Restricted Variations”?
Restricted variations are changes to core contractual terms considered particularly detrimental to employees. Under the current framework set out in the Act and related consultation materials, these include:
- Reductions or removal of pay or salary
- Reductions or removal of pension entitlement
- Changes to total working hours
- Reductions to annual leave entitlement
- Specified changes to shift patterns
Practical example
An employer asks employees to accept a 10% salary reduction due to declining profits. Employees who refuse are dismissed and offered re-employment on the lower salary. This is a core contractual change of the sort that the reforms are designed to restrict. Dismissing an employee for refusing such changes and attempting to re-engage them on the lower salary may be automatically unfair unless the employer can reliably demonstrate severe financial distress and that no reasonable alternatives were available.
Consultations on Fire and Rehire
The Government also consulted in early 2026 to consider whether the definition should be expanded to include certain allowances or benefits in kind, such as travel expenses or accommodation benefits.
The consultation also considers whether disruptive shift pattern changes, such as moving from day to night shifts or weekday to weekend work, should be included. The consultation closed on 1 April 2026.
Changes that are minor, routine or non-detrimental, or which relate to non-core terms such as job role or workplace location, will generally fall outside this category. However, even where a change is not a restricted variation, tribunals will still examine the process used, including the quality of consultation and whether employees were offered incentives to accept the new terms.
Automatic Unfair Dismissal and the “Financial Distress” Exception
A dismissal is automatically unfair where the reason for dismissal falls within a category specifically prohibited by the ERA 2025. From January 2027, this will include dismissing an employee because they refuse to accept a restricted contractual variation or replacing them with someone willing to accept those terms.
Employees will no longer need two years’ service to bring an automatic unfair dismissal claim under the Employment Rights Act 1996.
Where the prohibited reason for dismissal is established, the tribunal may treat the dismissal as unfair without applying the usual “band of reasonable responses” approach used in ordinary unfair dismissal cases.
The exception is narrow. The current framework refers to employers in severe financial difficulty who have no reasonable alternative. This threshold is intentionally high; routine cost-saving measures or difficult trading conditions are unlikely to suffice.
Even where that exception applies, the dismissal will simply avoid being automatically found unfair. The employer must still demonstrate fairness under the usual framework.
For non-restricted variations, the Government has also indicated that enhanced ordinary unfair dismissal protections will apply, with a reduced qualifying period of six months rather than two years.
Is a Fair Process Still Required and What Does It Involve?
Even with the proposed restrictions under the ERA 2025, you may still need to follow a fair process when attempting to implement contractual changes through dismissal and re-engagement, particularly where proposed changes do not fall within the new restricted-variation regime.
Key elements of a fair process may include:
- Meaningful consultation with employees and any recognised trade unions in good faith, explaining the proposed changes and allowing time for feedback
- Providing relevant information and clearly setting out the business reasons for the proposed changes
- Exploring alternatives such as voluntary agreement or incentives
- Avoiding dismissal as a negotiating tactic
- Following a fair dismissal procedure, including proper notice and a right of appeal
- Complying with collective consultation obligations where 20 or more employees are at risk of dismissal within 90 days
Tribunals will still assess whether you acted reasonably and followed a fair process when implementing contractual changes.
What Should Employers Do Now?
Although the legal framework is changing, there are practical steps you can start taking now.
- Review employment contracts and policies to identify outdated or weak flexibility clauses. Employers may wish to strengthen contractual flexibility now, for example by introducing unilateral variation clauses where none exist or widening the scope of employer discretion within contracts.
- Accelerate planned contractual changes and consider implementing any necessary restructuring or updates to terms and conditions before the new legislation comes into force.
- Review consultation procedures with employees and trade unions
- Strengthen employee engagement and union relationships to increase the likelihood of voluntary agreement to contractual changes
- Train managers and HR teams so that everyone understands the developing legal framework.
Next Steps
The proposed restrictions on fire and rehire are likely to make it harder for you to change unfavourable or outdated terms without employee consent.
Planning ahead now may help your organisation adapt to the evolving legal framework and reduce legal and operational risk.
If you would like advice on preparing for these changes or assistance reviewing employment contracts, our employment law team would be happy to help. We can support you in planning ahead, reducing legal exposure and managing workplace change in a compliant and practical way. Contact our employment team at Witan Solicitors on 0300 303 2071 or email us to discuss how we can assist.
FAQs
Does the new law ban all contractual changes?
No. Employers may still seek to agree contractual changes through consultation and negotiation. The main change is that dismissing employees to force certain core changes is expected to carry much greater risk.
Are all fire and rehire dismissals automatically unfair?
No. The automatic unfair dismissal regime is aimed at restricted variations and certain replacement scenarios. Other contractual changes may still be assessed under the ordinary unfair dismissal framework, although the protections are being strengthened.
When are the reforms expected to take effect?
The current government roadmap indicates that the main fire and rehire reforms are expected to take effect in October 2026, but some of the detailed secondary legislation and implementation points are still being worked through.
Why is consultation still so important?
Because consultation remains central to both the current Code of Practice and the fairness analysis that tribunals may apply. Even where an employer believes contractual change is necessary, a weak process may still increase legal risk.
