Changes in the Employment Rights Act 2025 are designed to stop employers dismissing employees and re-engaging them on less favourable terms simply to force contractual changes.
Under the current law, employers who wish to change employees' contractual terms and conditions must first seek agreement from employees. If agreement cannot be reached, an employer may be able to dismiss employees and offer to re-engage them on new terms, a practice commonly known as "fire and rehire".
While this approach is controversial and generally regarded as a last resort, it is not necessarily unlawful in itself. The key question is whether the employer has a genuine business reason for the change, has consulted appropriately with affected employees, and has acted reasonably throughout the process. If these requirements are met, a dismissal may be considered fair, even where employees refuse to accept the proposed contractual changes.
What is changing?
From January 2027, if an employer dismisses an employee in order to impose certain key contractual changes and then offers re-employment on new terms, the dismissal will generally be automatically classed as unfair.
The protection applies to changes involving the following restricted variations:
- Pay reductions
- Changes to total working hours
- Reductions in leave entitlement
- Pension changes
- Certain shift pattern changes (subject to detailed regulations)
It is possible that sums payable in respect of expenses and benefits in kind may be added to this list.
Are there any exceptions?
Only in very limited circumstances. An employer will need to demonstrate that:
- It is experiencing financial difficulties that are affecting, or are likely soon to affect, the viability of the business.
- The proposed contractual changes are necessary to address those financial difficulties.
- The employer could not reasonably have avoided making the changes.
The Government has stated that this is intended to be a high threshold and is aimed at genuine business survival situations rather than routine cost-cutting exercises.
What about other contractual changes?
Changes that do not involve the restricted terms, such as:
- workplace location;
- job duties; or
- job title
will not automatically fall under the fire-and-rehire ban. However, any dismissal used to impose those changes will still be assessed under normal unfair dismissal rules.
Why is this significant?
Under current law, employers may be able to justify dismissal and re-engagement if they have a sound business reason, consult appropriately and act reasonably. From 1 January 2027, employers will have far less scope to use fire and rehire for core contractual terms because dismissals linked to restricted changes will usually be automatically unfair.
Key takeaway for employers
Employers should review the Employment Rights Act 2025 Fire and Rehire Factsheet, employment contracts and change-management procedures before the new rules take effect.
From January 2027, employers should focus on:
- Obtaining employee agreement to contractual changes wherever possible.
- Using consultation and negotiation rather than dismissal and re-engagement.
- Ensuring any proposed changes linked to financial distress are fully evidenced and documented.
The practical message is that fire and rehire will no longer be a routine tool for reducing pay, changing hours or cutting benefits. Employers will need either employee consent or evidence of serious financial necessity to justify such changes.
This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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