The ending of ‘fire and rehire’ – what do the new rules really mean for employment contract changes?

Much of the detail underpinning the Employment Rights Act 2025 has been deliberately left to secondary legislation allowing government the opportunity to hear the views of all interested stakeholders including employers, business groups and trade unions. Over the past couple of weeks, the government has sought to batten down some of this detail through a stream of consultation papers including a consultation on two aspects of the so‑called “fire and rehire” provisions contained in the Act.

Before turning to the consultation itself, it is worth briefly revisiting how the new fire and rehire prevention regime is intended to operate in practice. Its implications are far broader than the label suggests.

Cast your mind back to May 2024, when Labour set out its ambition to end the “scourge” of fire and rehire in its Make Work Pay policy paper. Most reputable employers already take a firm stance against this practice: they dislike it and use it very rarely. As a result, many employers have assumed (in most cases wrongly) that the new provisions will have little or no impact on them.

However, the legal mechanism through which the government will deliver this commitment is achieved not by overtly preventing the employer from firing someone but rather by restricting an employer’s ability to change certain core contractual terms and conditions of employment (known as “restricted variations”). The new regime will operate as follows: 

Where an employer dismisses an employee who refuses to agree to a restricted variation to a protected contractual term of employment or attempts to re‑engage them on the new term or replace them with someone else on the new term, the dismissal will be automatically unfair. This assumes that there is no valid contractual variation clause - although that is a discussion for another day.

Crucially, the employer’s justification for the variation is irrelevant. Even a fair and well‑reasoned business rationale will not prevent the dismissal from being automatically unfair. The only exception is where the employer is facing very serious financial distress - effectively on the brink of insolvency. That is a high threshold, and routine cost‑saving measures during a difficult trading period, for example, are unlikely to suffice.

Restricted variations will include:

1. reductions in pay or other sums payable to the employee;
2. changes to pension provision;
3. changes to the number of hours the employee works;
4. reductions in time off; and
5. the introduction of a contractual variation clause.

Interestingly and, importantly for employers, changes to location or job role will not be restricted variations.  

The Act also provides that variations to expenses, payments and benefits in kind and to shift patterns may be excluded from the definition of a restricted variation. The consultation, which closes on 1 April, seeks views on the scope of those potential exclusions.

Changes to expenses, payments and benefits in kind (where these are contractual entitlements)

Within its consultation paper, the government has identified two possible options for treatment of the above types of contractual term. 

Under the government’s first (and preferred option), variations to expenses, payments and benefits in kind would not be treated as restricted variations at all. Employers would, therefore, be able to make changes to these terms, and while an employee dismissed for refusing to accept the change might still pursue an ordinary unfair dismissal claim, they would not benefit from the enhanced protection of automatic unfair dismissal.

The second option would exclude changes to expenses and benefits in kind from being restricted variations except for variations to certain share schemes, travel expenses and accommodation which would be protected.

The government favours the first option on the basis that it provides employers with “necessary flexibility”, while noting that employees would still benefit from enhanced ordinary unfair dismissal protection in such change scenarios (this enhancement also being introduced through the anti-fire and rehire provisions in the Act). 

Changes to contractual shift patterns

Two options have been proposed by the government when considering whether a change to a contractual shift patterns should be protected as a ‘restricted variation’ (the government having considered but ruled out further options for consultation, including, for example, whether a percentage approach should be included e.g. should it be a restricted variation to change more than 50% of an employee’s shifts).

The government’s first (and preferred) option would treat changes from day to night working (and vice versa), and from weekday to weekend working (and vice versa), as restricted variations. Other changes to shift patterns would fall outside the automatic unfair dismissal regime.

Drawing on existing definitions in the Working Time Regulations 1998 and the Agency Workers Regulations 2010, “night work” would cover the hours between 11pm and 6am, and “weekend work” would mean work on a Saturday or Sunday.

On this approach, a change that introduced a requirement to work nights or weekends where none previously existed would amount to a restricted variation. By contrast, requiring more hours to be worked at night or at weekends would not, provided this did not also involve an increase or reduction in overall hours, which would, in itself, constitute a restricted variation (see above).

The alternative option is that no changes to shift patterns should be treated as a restricted variation.

Again, the government favours the first option, arguing that it strikes the right balance between employer flexibility and protection for employees against extreme changes to working patterns.

So where does this leave us?

In its original form, the Employment Rights Bill would have entitled employees to claim automatic unfair dismissal where any contractual term was unilaterally changed, and they were dismissed for refusing to accept it. As the Bill progressed through Parliament, that protection was narrowed so that it now applies only to core terms.

Some have characterised this as a watering down of the government’s commitment to end fire and rehire, pointing to the current consultation as further evidence of a retreat. That view, however, underplays the scale of the upcoming change.

Under the current law, an employer may be able to lawfully dismiss an employee who refuses to accept a contractual change provided they have a sound business reason for introducing the change and they follow a fair process. 

From January 2027, where such a change amounts to a restricted variation that will no longer be possible. (Assuming the financial distress threshold is not met) no matter how compelling the justification for the variation, an employer will not be able to dismiss an employee for refusing to agree to the restricted variation unless it is prepared to lose an automatic unfair dismissal claim. Given that changes to terms and conditions often affect large numbers of employees and with the cap on unfair dismissal compensation due to be removed on or around the same time, the financial risk in so doing could be very considerable – not least as the existing Code of Practice addressing the practice of fire and rehire already allows for (up to) a 25% uplift in compensation where the Code is not followed and we would expect this penalty to remain when the Code is revised in due course.

The government has been clear that its aim is to rebalance power in “fire and rehire” situations in favour of employees. Even in their revised form, and this consultation notwithstanding, the ERA provisions will do exactly that.

The new provisions are expected to come into force in January 2027. Changing terms and conditions of employment is never an exercise to be entered into lightly but employers already contemplating making changes may want to review their timing for implementation in light of the new safeguards. Equally, employers may want to review their standard template contracts of employment to consider how (if at all) these might be revised to account for the upcoming changes – more information for employers is available here. 

Further detail on these reforms and the Act more widely is available on our Employment Rights Act hub.  

We have been advising employers across a wide range of sectors on the implications of the Employment Rights Act 2025. If we can help your organisation, please get in touch. 

some employers still use the threat of fire and rehire to force detrimental contract changes on employees. The government has been clear that unscrupulous fire and rehire practices have no place in our economy.

https://assets.publishing.service.gov.uk/media/6980c121f0e5cf1ed2612e2a/consultation-on-fire-and-rehire-changes-to-expenses-benefits-and-shift-patterns.pdf