Fire And Rehire: What The Employment Rights Act 2025 Means For Your Business

For many employers, dismissal and re-engagement (or Fire and Rehire) has been a reluctant final step when agreement on contractual change could not be reached. When an employee refuses to accept a change to their contract, and reasonable attempts at agreement have been exhausted, the option of terminating the existing contract and offering re-employment on revised terms has at least remained available. It was rarely used, and never comfortable, but it shaped the dynamics of contractual negotiations.

That position is about to change significantly. The Employment Rights Act 2025 introduces new restrictions on fire and rehire that are currently scheduled to take effect from January 2027. For employers, the implications are practical rather than theoretical. Understanding the scope of the changes now is important, both for businesses considering contractual changes in the coming months and for those whose employment contracts have not been reviewed for some time.

What is fire and rehire?

Fire and rehire describes the practice of dismissing an employee and then re-engaging them, usually on amended terms. A related approach, sometimes called fire and replace, involves dismissing the employee and recruiting someone new to carry out the same role under a revised contract. In both cases, the aim is to secure contractual change where agreement has not been reached.

Under the current legal framework, dismissal and re-engagement is not automatically unlawful. An employer must have a fair reason for the dismissal, most commonly that there is a genuine business need to change terms and conditions. The key question a Tribunal will ask is whether the employer acted reasonably in the way it handled the situation. That means being able to demonstrate a clear commercial rationale, consulting properly with employees, considering alternatives and only moving to dismissal if agreement could not be reached. It is not a straightforward route, and employers who approach it carelessly risk losing at Tribunal. However, where the business case is sound and the process has been handled carefully, it has remained possible to implement change in this way. For employees with under two years’ service, an ordinary unfair dismissal claim has not generally been available, which has historically limited an employer’s financial exposure in these situations.

The practice moved firmly into the public spotlight following the P&O Ferries dismissals in 2022, when 800 workers were dismissed and replaced with agency staff. That episode prompted wider debate about whether dismissal should be used as a tool to force contractual change. In response, a statutory Code of Practice on Dismissal and Re-engagement was introduced in 2024. The Code does not prohibit fire and rehire, but it raises expectations around how it should be handled. Employers are required to consult meaningfully, to share relevant information and to treat dismissal as a genuine last resort. If an employer fails to follow the Code without good reason, a Tribunal can increase compensation by up to 25 per cent.

Even after the introduction of the Code, dismissal and re-engagement remained lawful in principle. The Employment Rights Act 2025 moves beyond regulating the process and instead restricts when the practice can be used at all.

What is changing?

The Act creates a new category of automatically unfair dismissal. When the new regime takes effect in January 2027, if an employer dismisses an employee because they refused to accept changes to certain core contractual terms, or dismisses them in order to re-engage them or someone else (including a contractor, agency worker or other non-employee) on revised terms to perform substantially the same role, that dismissal will be automatically unfair.

For employers, this is a significant shift. In an ordinary unfair dismissal claim, an employer can defend its decision by showing that it acted reasonably in the circumstances. In an automatic unfair dismissal claim, that argument is largely removed. If the dismissal falls within the prohibited category, the employer will not be able to justify it simply by pointing to commercial pressure or business convenience.

There is a limited exception where the business is facing serious financial difficulties affecting the viability of the business and the proposed changes are genuinely necessary to allow the organisation to continue trading or fulfil its statutory functions. This is not a general defence based on profitability or commercial strain.. An employer would need to demonstrate that the contractual variation was essential to avoid insolvency or collapse that the change is necessary to mitigate the difficulties and that no reasonable alternative was available. The threshold is deliberately high.

Outside that narrow exception, the consequences are significant. Employees will be able to bring claims for automatic unfair dismissal without any qualifying service period. This means that even a recently recruited employee will be protected from dismissal connected to restricted variations.

In addition, compensation for these claims will not be subject to the usual statutory cap. The potential financial exposure is therefore materially greater than under the current framework. In some cases, a Tribunal may also order reinstatement or re-engagement on the original terms, meaning the employer could be required to reverse the change entirely.

Which contractual changes are restricted?

The key question for employers is what kinds of changes fall within these new restrictions.

The legislation refers to “restricted variations”. In practical terms, these are changes to what the Government considers the core elements of the employment relationship. They include contractual terms relating to pay, required working hours, pension entitlements, shift times and shift length, and time off rights. These are the structural foundations of the contract. Dismissal used to impose changes in these areas will, in most cases, be automatically unfair once the new regime is in force.

The Act also anticipates attempts to work around the restriction. An employer cannot dismiss an employee in order to insert a new flexibility clause that would later allow unilateral changes to those same core terms. The protection applies not only to the immediate change, but to attempts to create the mechanism for future change.

The restrictions apply to existing employees. Employers remain free to recruit new staff on different terms and to include carefully drafted flexibility clauses in new contracts. That preserves a degree of forward-looking commercial freedom. However, over time it may result in different groups of employees working under materially different contractual frameworks, which can present employee relations and administrative challenges of their own.

Where the boundaries are still being defined

While the core structure of the regime is clear, some of the detail has been shaped by consultation and secondary legislation.

One area concerns pay-related elements such as expenses and benefits. The Act’s starting point is broad, treating changes to any “sum payable” as restricted. However, the Government has indicated that its preferred approach is to exclude expenses and benefits in kind from the automatic unfair dismissal category. This however remains subject to ongoing consultation. If confirmed, this would mean that dismissals used to remove or amend certain contractual benefits would not automatically be unfair, although they would still need to satisfy the ordinary unfair dismissal test. This distinction is likely to matter most in sectors where variable reward, allowances or equity-based incentives form a significant part of overall remuneration.

Shift patterns are another area where the line is being carefully drawn. The current intention is to restrict only the most disruptive changes, such as moves from weekday to weekend working or from daytime to night shifts. More limited operational adjustments may remain possible, provided they are handled fairly and proportionately. For employers operating shift-based workforces, the final shape of these regulations will be particularly important. The specific categories of protected shift-pattern changes are still under consultation and have not yet been finalised.

Taken together, these refinements illustrate the broader theme of the legislation. The focus is on protecting fundamental contractual structures, not preventing all operational flexibility.

Changes outside the restricted category

Not every contractual change will fall within the restricted category. Changes to job role, duties, reporting lines or place of work, for example, are not treated as core terms for these purposes.

However, that does not mean dismissal linked to such changes is without risk. The Act reinforces that Tribunals must look carefully at why the change was proposed, how consultation was conducted and whether employees were offered anything in return for agreeing. In practice, this places greater emphasis on process and proportionality even outside the restricted category. Employers will need to show that change was genuinely necessary and that reasonable alternatives were considered.

This is where well-drafted flexibility clauses assume greater importance. Where a contract already permits certain adjustments and those clauses are exercised reasonably, the employer may be able to implement change without terminating the contract at all. That is not dismissal and re-engagement; it is operating within the framework the parties have already agreed. Reviewing and strengthening those clauses, where appropriate, will be a practical step for many businesses.

The wider reform landscape and timing

The new restrictions are expected to take effect in January 2027. The implementation timetable reflects the need to finalise consultation outcomes and secondary regulations, as well as to update the statutory Code of Practice.

The date matters for another reason. The same period is expected to see the reduction of the qualifying period for ordinary unfair dismissal claims from two years to six months and the removal of the statutory cap on compensatory awards. Employers will therefore be operating in an environment where more employees can bring claims and the potential financial exposure is greater, at the same time as the scope for using dismissal to secure contractual change is narrowed.

These reforms should not be viewed in isolation. They form part of a broader recalibration of dismissal law.

Preparing now

Although the implementation date may feel some distance away, the groundwork for compliance should begin sooner rather than later.

A structured review of existing employment contracts is an obvious starting point. Employers should identify where core terms such as pay structures, working hours, pension arrangements and time off rights are fixed, and where genuine flexibility exists. Understanding the contractual baseline is essential before planning any future change.

Flexibility clauses warrant particular attention. Their wording, scope and enforceability should be assessed carefully. Where they are absent or narrowly drafted, the opportunity to introduce or strengthen them by agreement may diminish as the new regime approaches.

For organisations already contemplating changes to terms and conditions, timing is likely to be a strategic consideration. Acting before the new regime takes effect means operating under the current legal framework, albeit subject to the 2024 Code and the ordinary unfair dismissal test. Waiting until after implementation may remove dismissal and re-engagement as an available option for certain core changes. Each situation will require careful assessment of legal risk, employee relations impact and reputational considerations.

Above all, employers should invest in the quality of their consultation processes. Transparent communication, early engagement and a genuine willingness to explore alternatives will not only reduce legal risk but may also avoid the need to consider dismissal at all.

Looking ahead

The Employment Rights Act 2025 does not freeze employment contracts in time. What it does is limit the circumstances in which dismissal can be used to compel agreement to fundamental changes.

For employers, the emphasis will increasingly fall on planning, negotiation and careful drafting. Those tools remain available. Used thoughtfully, they will allow businesses to adapt while managing risk in a more constrained legal landscape.

Buckles will continue to monitor developments as the secondary regulations are finalised. If you would like advice on how these changes may affect your organisation, or support in reviewing your contracts and flexibility clauses, our Employment Team would be pleased to assist.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.