Fire and Rehire: Major Restrictions Introduced by the Employment Rights Act 2025

The Employment Rights Act 2025 (the “Act”) marks a decisive shift in the UK’s approach to “fire and rehire”, significantly curtailing employers’ ability to impose key contractual changes by dismissing and re‑engaging staff. Although some detail will follow in secondary legislation and guidance, the direction of travel is now clear: fire and rehire will move from being a high‑risk option to one that is largely prohibited in practice.

Until now, dismissal and re‑engagement have been technically lawful provided a fair process is followed. In July 2024, the statutory Code of Practice on Dismissal and Re‑engagement came into force, requiring meaningful consultation and allowing tribunals to uplift compensation by up to 25% where the Code is breached. However, the Code stopped short of banning the practice outright.

The Act goes considerably further by introducing statutory limits on when dismissal and re‑engagement can lawfully be used. 

Under the Act, it will be automatically unfair to dismiss an employee because they refuse to agree to certain detrimental contractual changes, or in order to re‑engage them (or another worker) on new terms to perform substantially the same role.

These protected changes – referred to as “Restricted Variations” – include changes to core contractual terms such as:

• Pay and Remuneration
• Pensions
• Total working hours
• Holiday entitlement and Time‑Off Rights
• Shift patterns and certain benefits

This means that employers will no longer be able to rely on dismissal and re‑engagement to impose changes to these terms where agreement cannot be reached. 

The Act includes a limited exception where the employer can demonstrate that the changes are strictly necessary due to severe financial difficulty and that there is no reasonable alternative to dismissal and re‑engagement.

This sets a deliberately high threshold. Routine cost‑saving, workforce harmonisation or protection of profit margins will not be sufficient. The exception is expected to apply only where the viability of the business as a going concern is genuinely at risk. 

The new protections extend beyond re‑engaging the same employee. Dismissing staff in order to hire new workers on inferior terms to carry out substantially the same duties (“fire and replace”) will also fall within the scope of the Automatic Unfair Dismissal provisions. 

Importantly, the Act does not prevent employers from changing terms and conditions where:

• changes are genuinely agreed with individuals; or
• changes are negotiated through collective bargaining with recognised trade unions or employee representatives.

However, the leverage traditionally created by the threat of dismissal will be significantly reduced, fundamentally altering negotiation dynamics. 

Although the Act received Royal Assent in December 2025, the fire and rehire provisions will not take effect immediately. The Government has confirmed that:

• The restrictions on fire and rehire are now expected to come into force in January 2027 (having previously been scheduled for October 2026); and
• The first consultation started earlier this month and this is expected to close on 1 April 2026. The consultation is expected to address the precise scope of “Restricted Variations”, including expenses, benefits and shift patterns. 

While there is still time before the new regime takes effect, employers should be using this period to prepare. Key steps include:

• Reviewing contract templates, particularly flexibility and variation clauses, before the new restrictions apply.
• Re‑thinking change management strategies, as dismissal and re‑engagement will no longer be a viable fallback in most cases.
• Strengthening consultation processes, building on the existing 2024 Code of Practice requirements.
• Assessing financial risk, particularly given the wider changes in the Act, including reduced Unfair Dismissal qualifying periods and the potential removal of the compensation cap. 

The Act represents a fundamental rebalancing of power in contractual change exercises. Employers who continue to treat fire and rehire as a tactical option risk Automatic Unfair Dismissal claims and significant liability. Early planning and a renewed focus on agreement‑based change will be essential.

If you would like any advice or assistance with this, please do contact Ruby Rai, Head of Employment on ruby.rai@thomasflavell.co.uk or calling our office on 01926 887700.