Changes to “Fire and Re-hire” rules

Ending so-called fire and re-hire practices was one of the Government’s manifesto pledges.

As part of the Employment Rights Act 2025 we can now see the requirements that employers will need to comply with in order to change employment terms and conditions.

Background

It has long been an accepted practice that employers can dismiss employees who refuse to accept contractual changes and offer them re-engagement on the new terms and if employees refuse to accept, their dismissals will be potentially fair for Some Other Substantial Reason.

In more recent times, the practice was labelled “fire and re-hire” and began to be criticised when used by higher profile employers at scale and attracted adverse media and political attention.

As a result, the Labour party included a proposed ban on this practice as part of their election campaign. Now that the Employment Rights Act 2025 has become law, we can see the extent of the changes and consider the impact on employers.

New law

The new provisions in the Employment Rights Act 2025 makes it automatically unfair to dismiss an employee where “restricted variations” have been proposed and the employer proposes to dismiss any employees who have refused to accept the variations and replace them with another employee on new terms or to offer them the new terms.

Dismissal means terminating employment, allowing a fixed term contract to expire without renewal and constructive dismissals (i.e. where an employee resigns because of the proposed changes).

Restricted variations are any contractual changes concerning pay, calculation of pay, annual leave and the right to make changes to contracts.  There is scope for more changes to be added to this list via secondary legislation.

Dismissals where an employee has refused to accept a restricted variation will be automatically unfair unless the employer can show that they are in dire financial difficulties (for public sector employers this will be a test of whether carrying out their statutory functions is unsustainable) and that they could not reasonably have avoided the variation and that the following relevant factors have been taken into account:

For variations which are proposed that are not restricted variations (so other contractual changes such as changes to location, working patterns, duties and job titles), the relevant factors will still need to be considered.

In addition, the new rules include separate provisions that protect employees from being replaced by agency workers and contractors who will undertake the same duties. Dismissals in these circumstances will also be unfair unless the employer can show that the reason for the proposal is a cessation of or reduction in the work required.

Comment and tactics for employers

This new regime is a massive change for employers. It has been confirmed that the new rules will take effect in 2027 after further consultation planned for later this year.

Contractual changes which amount to restricted variations will become extremely difficult to implement as employers will need to show that they are in dire financial straits not just that changes will make the business more profitable or productive.

Employers will instead have to focus on seeking agreement to changes and incentivising employees to accept.

Employers should consider now whether their contracts can be amended, in advance of the new rules coming into force, to make sure there is as much discretion as possible to limit the number of changes which will amount to contractual changes at all.

Employers are now on notice that schemes to replace sections of their workforce with agency workers or self-employed contractors or consultants will become much more difficult in future and so any such proposals should be accelerated if possible.