Fire and rehire restrictions delayed until March 2027

New restrictions on dismissing an employee for refusing to agree to a variation of contract have been delayed from January to March 2027. In addition, the government has confirmed which types of benefits, expenses and shift timings will attract the highest level of protection from variation. This article summarises the changes and concludes with practical steps for employers.
  

The new rules in brief

“Fire and rehire” is the common shorthand for when an employer seeks to vary an employee’s contract of employment and, having failed to secure the employee’s consent to the variation, dismisses them. This may or not be followed by an offer of re-engagement, but on the varied terms.

To date, this kind of dismissal has been potentially fair. Broadly speaking, an employer would have to show a business reason for the change and engage in consultation about it. In some cases, depending on the numbers of employees involved, collective consultation obligations might be triggered too.

The Employment Rights Act 2025 will greatly constrain this type of dismissal, as well as some cases where an employer seeks to replace an employee with someone else. The new rules state that:

1. It will be automatically unfair to dismiss an employee –

    
   a) because they refused to agree to a restricted variation (see below);
    

   b) to enable the employer to rehire the employee to do the same or substantially the same job but on a new contract containing a restricted variation. This restriction will also apply to replacing the employee with someone else on such a contract; or

    
   c) to replace them with a non-employee, e.g. an agency worker, to do the same or substantially the same work. This will also be the case if the employer rehires the individual on a non-employment basis, doing the same or substantially the same work.

2. It will be potentially unfair to dismiss for the same reasons as 1(a) and (b) above in connection with a “non-restricted” variation. The fairness of a dismissal for these reasons will be judged by similar standards to the current law. Although the dismissal will not be automatically unfair, a heightened standard of fairness will apply as compared with other types of dismissal. For example, an employment tribunal would expressly have to consider the reason for the variation, consultation, and whether the employer offered anything in return.

There are technicalities within the rules but, broadly speaking, the only exemption from the automatic dismissal provisions is if the employer is in financial dire straits.
 

Restricted variations

Each of the following will be a restricted variation (which cannot be forced on employees):

• A reduction in or removal of an element of pay. This will clearly include basic pay, contractual bonuses, contractual commission etc. On 22 October 2026, the government confirmed the position for the following other elements of pay in this context –
    

  • it includes travel expenses (including mileage), accommodation expenses, and accommodation as a benefit in kind.

  • It does not include any other expenses or benefits in kind.

  • It does not include changes to share schemes.

• A variation to a measure of work that affects pay.

• A variation of any term or condition relating to pensions or pension schemes.

• A variation of the number of hours which an employee is required to work.

• Certain variations of the timing or duration of a shift. On 22 October 2026, the government confirmed that only the following would be caught:
    

  • A change from day to night shifts and vice versa. A night is defined as 11pm to 6am.

  • A change from weekday to weekend shifts and vice versa.

• A reduction in the amount of time off which an employee is entitled to take.

• The inclusion in a contract of employment of a term enabling the employer to make any variation within any of the preceding paragraphs without the employee’s agreement. (See further below).
    

Wider restrictions than you might think

It will be apparent that category 1(c) above – replacement with a non-employee – goes beyond the classic concept of fire and rehire. For example, it might cover dismissals by an employer who outsources services and where there is no automatic transfer of employment under TUPE.

The other categories could also have unforeseen consequences. One such example is in relation to fixed-term contracts. Non-renewal counts as a dismissal. If the employer’s reason for non-renewal were to employ a new fixed-term employee on, say, a reduced salary or slightly fewer hours, that might engage the new rules on automatic unfair dismissal.
  

Timing

These restrictions were due to come into force in January 2027 but have been pushed back to March 2027.
 

Code of practice

A statutory code of practice on dismissal and reengagement has been in place since 2024. The government has launched a consultation on an updated version, to reflect the new rules on automatic unfair dismissals. The proposed updated code is also more detailed. The broad themes in the code include:

• Dismissal and reengagement should be a last resort.

• Dismissal as a potential outcome should not be mentioned too early in the process.

• Employers should consult with affected employees.

• Where applicable, employers should collectively consult with any recognised trade union or employee representative body.

• Consultation should be meaningful and both sides should enter discussions with a view to trying to reach agreement.

• The employer should consult on anything it can offer in return for the employee’s agreement to the variation.

The code might seem more apt for dealing with non-restricted variations, on the basis that dismissal for refusing a restricted variation, even if only as a last resort, would be automatically unfair. Nevertheless, it is also relevant to the latter because of rules on compensation. As is also the case currently, if an employer unreasonably fails to adhere to the code, an employment tribunal could increase compensation by up to 25%. The tribunal could also decrease by the same percentage if the employee unreasonably fails to adhere. However, most of the obligations are on the employer.
  

Practical steps

The reality is that it will be harder to insist on contract variations from March 2027, even when an organisation has sound business reasons. Nevertheless, there are still options available. For example:

1. As a first step, it is worth auditing:

    
   a) Pay and benefits arrangements to check whether they are contractual or not. Genuinely non-contractual elements of pay, e.g. a discretionary bonus, will not be caught by the new rules.
     

   b) What existing contractual flexibilities and variation powers you already have, e.g. in relation to shift timings.

2. For new joiners, ensure you include variation clauses permitting you to make changes. There are usually implied limitations on how far you can rely on such clauses. Nevertheless, they can be effective in some cases, as the government acknowledges in its consultation documentation and the fact that trying to add one of these clauses to an existing employee’s contract would be a restricted variation.

3. Incentivise acceptance of the change. For example, this could involve a one-off payment, or it could be some other beneficial change.

4. Make a promotion or annual pay rise conditional on acceptance of the new terms.

For organisations that are currently having to consider changes to terms and conditions, it would clearly be beneficial to try to reach resolution before March 2027, in case dismissals are ultimately considered necessary. If this does prove necessary, employers should remember that, from 1 January 2027, the qualifying period for unfair dismissal will reduce to six months’ continuous service and compensation will no longer be capped. When the new fire and rehire rules come into force, the automatically unfair protections will be a day-one protection.

Please reach out to your usual Stephenson Harwood contact to discuss any of the issues in this article.

Sources:

Plan to Make Work Pay and Employment Rights Act: timeline update - GOV.UK
Make Work Pay: revised code of practice on dismissal and re-engagement - GOV.UK