The Abolition of “Fire and Re-Hire” – How Employers Respond

It might be nearly 20 years ago, but it is worth remembering that during the financial crisis of 2008, the ability to dismiss and re-engage staff was a powerful tool in the employer armoury, enabling varying contract terms and delaying redundancies and job losses. The practice allowed employers with sound business reasons to fairly introduce contract changes and provided an additional option in managing staffing terms and conditions. For example, in times of economic turmoil, an employer might use this option to reach agreement on temporary salary reductions across groups of staff rather than immediately implementing a more far-reaching redundancy cost-saving project.

The practical implications of the new legislation are very clear for employers: they cannot assume that they can simply dismiss an employee and re-offer them contracts under changed terms (or replace them with someone else) if the variation involves one of the restricted terms—unless they satisfy the narrow financial-difficulty exemption and can demonstrate a fair and proper process was followed. Instead, the emphasis must be on consultation, negotiation and exploring less intrusive means of achieving change.

From a workforce planning perspective, this may prompt revision of how employers build flexibility into staffing arrangements, how roles are structured and how change is negotiated with employees and unions.

Put more bluntly, what is an employer supposed to do if they want to change terms and conditions? The answers after the Employment Rights Bill comes into force are not that easy.

Key Provisions on “Fire and Rehire”

The ERB introduces new restrictions on employers who seek to dismiss employees in order to re-engage them (or hire others) on changed terms. In particular:

1. The Bill defines the scenario where an employer dismisses an employee because they will not agree to proposed contractual changes (or dismisses with a view to replacing the employee on less favourable terms) and then either re-engages the same person or engages someone else to perform essentially the same role under new terms.

2. As currently drafted, such dismissals will be treated as automatically unfair if they are undertaken for the reason that the employee refused to agree to a “restricted variation” in their contract.

3. The “restricted variations” are specific defined categories of terms, including reductions in pay, changes to the number of hours, shift timing or duration, reductions in time-off entitlement, changes to pensions and variation clauses that would allow the employer to change those terms unilaterally.

4. The Bill provides for a narrow exemption: if the employer can show that they were facing severe financial difficulties and the variation was necessary, then the automatic unfair dismissal rule may not apply.

5. The Bill is clear that dismissals for changes to other contractual terms (i.e., not listed as “restricted”) will continue to be dealt with under the ordinary unfair dismissal regime (rather than being automatically unfair).

6. The ERB will not come into full force immediately for these provisions: the Government has signalled that the fire-and-rehire restrictions will commence from around October 2026.

The ERB marks a major shift by turning certain contract-change processes (via dismissal and re-engagement) into automatically unfair dismissals unless exceptional circumstances apply.

What Employers Now Need to Do When Seeking Contract Changes

Given the new framework, employers who wish to change employees’ contractual terms must be much more careful. Key steps and practical implications include:

a) Negotiation and consultation
Employers should first seek to consult thoroughly with employees (and where relevant union representatives). Changes should be proposed, discussed, explained and alternatives explored. If employees do not agree, the employer must consider whether there is any less-drastic way of achieving the change than dismissing and re-engaging.

b) Avoid reliance on unilateral “fire and rehire” for restricted terms
If the proposed change is one of the restricted variations (pay, hours, shift-time, pension, holidays), the employer cannot simply proceed with dismissal and re-engagement on worse terms without risking an automatic unfair dismissal claim. Employers must therefore avoid treating dismissal and offering a new contract as the default route for such changes.

c) Consider structuring changes as “unrestricted” variations
For changes that are not restricted (for example, relocation, change in duties, job title etc), the employer still has more flexibility—but must act fairly (consult, consider alternatives) because ordinary unfair dismissal rules will still apply.

d) Document the business reason and alternatives
Where the employer invokes the financial-difficulty exemption (to justify a restricted variation via dismissal), they must be ready to show evidence of severe financial difficulties, that the variation was necessary to mitigate that difficulty and that reasonable alternatives were considered. Documentation of the decision-making process will become critical.

e) Timing and implementation
Since the change in law will not come into force until October 2026, employers have a transitional window. Employers should update internal guidance, train managers and review contract variation procedures to ensure compliance.

f) Strategic workforce planning
Because imposing changes via dismissal and replacement will become significantly riskier, employers must build in contingencies earlier: exploring voluntary change programmes, incentive schemes or restructuring via redundancy where appropriate.

Why This Change May Create Challenges for UK Workforce Models

Many UK businesses have relied on the ability to vary contractual terms in response to changing economic conditions (e.g., shifts in demand, cost pressures, new ways of working). The new rules reduce the “back-door” option of dismissal and re-engagement, particularly for key terms such as pay and hours. This means employers may face less flexibility in managing workforce costs.

The automatic unfair dismissal regime means that the cost of getting a variation wrong is higher: tribunals may award automatic unfair dismissal compensation, increased protective awards for consultation failures (which the Bill also increases) and reputational/industrial relations risks are greater. Employers may need to invest significantly in planning, consultation, legal advice and alternative structuring—raising cost and complexity.

The new regime encourages greater negotiation and consultation and may rebalance power between employers and employees/unions. Employers may need to engage more with unions or worker representatives, adapt bargaining frameworks and adjust how contract variations are pursued.

What Employers Should Do Next

Employers should check whether they have an existing variation clause in contracts and consider whether that already gives them sufficient flexibility to amend contract terms.

It is possible that a pre-existing variation clause may enable changes to be implemented without the need to consider whether the terms are restricted or not. Any such variation clause needs to be in place before the legislative provisions come into force so this is an essential check for employers before October 2026.

Variation clauses have been debated in case law over the years, including in Bateman and Others v ASDA, which looked at how those clauses might be interpreted. Any contractual right to vary must be exercised reasonably and it follows that making anything other than minor changes without express employee agreement could breach the implied term of mutual trust and confidence. Care therefore needs to be taken in balancing these risks.