Fire and Rehire – New Restrictions Under the Employment Rights Act 2025

The Employment Rights Act 2025 significantly tightens the rules around so-called “fire and rehire” practices. While the Government stopped short of introducing an absolute ban in all circumstances, the Act makes dismissals to impose certain contractual changes automatically unfair, subject only to a narrow exception where an employer can demonstrate severe financial difficulty.

These changes represent a major shift in the legal risk for employers contemplating contractual changes where employee agreement cannot be reached.

So what does the new law say, and what does it mean in practice?

What Is ‘Fire and Rehire’?

‘Fire and rehire’ refers to the practice where an employer, unable to secure agreement to contractual changes, dismisses employees and then offers re-engagement on revised terms – or replaces them with new workers on those terms.

Historically, this approach could be lawful if supported by a sound business reason and a fair process. However, high-profile cases and widespread criticism led to calls for stronger statutory protections, which are now delivered by the Employment Rights Act 2025.

The New Legal Framework

The Act draws a clear distinction between restricted variations and other types of contractual change. Dismissals connected to restricted variations are treated very differently under the new regime.

Dismissal for a Restricted Variation – Automatically Unfair

Where an employee is dismissed for refusing to agree to a restricted contractual variation, the dismissal will be automatically unfair, unless the employer can satisfy a very high statutory threshold.

Restricted variations include changes to core employment terms, such as:

• Reductions in pay
• Changes to pension arrangements
• Altered working hours
• Changes to shift patterns or their duration
• Reduced entitlement to time off
• The introduction of contractual variation clauses
• Any additional variations specified in future regulations

To rely on the financial difficulty exception, an employer must show that:

• The business is facing serious financial difficulties affecting its viability
• The proposed change is necessary to mitigate those difficulties
• No reasonable alternative is available to safeguard the business

Even where these conditions are met, an employment tribunal will still examine whether the employer followed a fair process, including meaningful consultation, proper consideration of alternatives, and whether the employer acted reasonably in all the circumstances.

This makes the defence intentionally narrow and difficult to rely upon.

Dismissal for Other Contractual Changes

Where a proposed contractual change does not fall within the restricted category, dismissal will not be automatically unfair under the Act.

However, such dismissals remain subject to the ordinary unfair dismissal framework, meaning tribunals will assess:

• The employer’s reason for seeking the change
• Whether consultation was genuine and meaningful
• Whether reasonable alternatives were explored
• Whether dismissal was within the range of reasonable responses

While employers retain some flexibility outside the restricted list, tribunals are likely to scrutinise decision-making closely, particularly where changes are imposed unilaterally.

Replacing Employees With Non-Employees

The Act also addresses situations where employees are dismissed and replaced with non-employees, such as agency workers or contractors, performing substantially the same work on different terms.

Such dismissals will also be automatically unfair, unless the employer can meet the same stringent financial difficulty test described above. This provision was introduced in response to high-profile “fire and replace” cases and is designed to prevent employers bypassing protections by changing workforce status rather than terms.

When Do These Changes Take Effect?

Although the Employment Rights Act 2025 has received Royal Assent, the fire and rehire provisions are expected to come into force later in 2026, likely around October, following the introduction of supporting regulations.

Employers should use this lead-in period to review existing practices, policies, and contingency plans.

What Employers Should Do Now

The new legislation significantly raises the legal and financial risks associated with imposing contractual changes through dismissal. Employers should:

• Engage in early, meaningful consultation before proposing contractual changes
• Carefully document any genuine financial difficulties
• Explore and record all reasonable alternatives
• Avoid dismissal unless confident the statutory tests can be met
• Seek legal advice at an early stage when change is unavoidable

The Government has made clear that these reforms are intended to eliminate what it describes as “unscrupulous fire and rehire practices”, while preserving a limited ability for businesses to restructure where survival is genuinely at stake.

Want help preparing for what’s next? Join our free seminar

Join us on 29 January from 9:30am to 12pm at our free seminar, Preparing for the Employment Rights Bill: What Employers Need To Know. This practical, jargon-free session will walk you through the key changes and offer straightforward steps to help your organisation adapt with confidence.

Places are limited, so don’t miss out—book your space today. If we can help, we will.

Disclaimer: This summary is for general awareness and insight, not legal or professional advice and readers should seek professional advice for their situation.