Restricting "Fire and Re-hire" Practices
Overview: New Restrictions on 'Fire and Re-hire'
The Employment Rights Act 2025 significantly tightens regulations around 'fire and re-hire' practices, making it considerably more difficult for employers to dismiss staff and re-engage them on new terms. Employers must now meet stringent criteria, primarily related to financial viability, to avoid automatic unfair dismissal claims when implementing contractual changes.
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What's New? Key Changes to 'Fire and Re-hire' Rules
Automatic Unfair Dismissal: From October 2026, dismissing an employee for refusing new contract terms will generally be deemed automatically unfair.
Strict Financial Exception: Employers can only justify 'fire and re-hire' for "restricted variations" if they prove genuine financial difficulties threatening business viability, and that the changes are unavoidable and aimed at mitigating these issues.
Defined 'Restricted Variations': The new rules specifically apply to changes in fundamental terms such as pay, pensions, working hours, and shift patterns.
These changes require employers to exercise extreme caution and ensure robust justification and fair processes when contemplating any alterations to employment contracts.
How to Prepare
Review your contracts: Understand which terms are considered "restricted variations" under the new Act.
Consultation is key: If you need to make changes to terms and conditions, ensure you follow a thorough and meaningful consultation process before considering any other action.
Document the business case: If you believe you may need to rely on the "financial difficulty" exception, maintain meticulous records to prove the business case and show the changes were unavoidable.
Dismissal and Re-engagement Becomes Automatically Unfair
The practice of "fire and re-hire", where an employee is dismissed and immediately offered re-engagement on new, often less favourable terms, will be heavily restricted under the Employment Rights Act 2025. The changes are expected to take effect in October 2026.
Under the new law, dismissing an employee for failing to agree to a change in their contract will be automatically unfair, unless the employer can meet a strict set of criteria.
The Financial Difficulty Exception
An employer may only use dismissal and re-engagement for certain contractual changes if they can provide evidence of financial difficulties affecting the business's viability. The employer must demonstrate that:
Financial difficulties were affecting, or were likely to affect, the business.
The changes were intended to prevent, reduce, or mitigate the effects of these difficulties.
The need to make the change was genuinely unavoidable.
"Restricted Variations" Only
It is important to note that these new restrictions only apply to a specific list of "restricted variations". These include fundamental terms such as:
Pay
Pensions
Working hours and shift patterns
Changes to other contractual terms, like an employee's duties or their primary place of work, do not fall under these specific restrictions, though they are still subject to general employment law principles.
Employment Rights Act 2025 Download a summary
After more than a year of debate, the Employment Rights Bill became law on 18 December 2025 as the Employment Rights Act 2025. This is the biggest shake-up of employment law in a generation, with over 28 changes rolling out between December 2025 and into 2027. While this phased approach to the reforms gives employers time to prepare, now is the moment to get ahead. Explore what’s changing and what it means for your organisation, including key updates on sickness absence, paternity leave, parental leave, trade union access, and more.
Prepare for the Employment Rights Act 2025
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