What the New Restrictions on Fire & Rehire Mean for Employers

August 28, 2026

Industry Updates , News

Changes to employment contracts can be difficult for employers to navigate, particularly where changes to pay, hours and benefits are required. While ‘Fire & Rehire’ has been an option in certain situations, the Employment Rights Act 2025 is set to face new strict controls and, in most cases, will be automatically treated as unfair dismissal.

With the new fire and rehire protections expected to take effect from January 2027, employers will need to think carefully about how they approach contractual changes and the alternatives available. In this guide, explore what ‘fire and rehire’ means, how the Employment Rights Act is changing the rules, the common mistakes to avoid, and what the changes could mean for businesses.

What is Fire & Rehire?

Fire and rehire, also known as dismissal and re-engagement, is a very controversial workplace practice.

It applies to a situation in which an employer dismisses an employee and then rehires them on new terms. It can be used by employers to vary the terms of an employee’s contract where they have been unable to reach agreement with the employee, typically because the proposed terms are less favourable than those under their existing contract of employment.

The changes can relate to a range of contractual terms, including pay, working hours, benefits, holiday entitlement or working patterns.

What is Changing Under the Employment Rights Act 2025?

The changes for fire and rehire come into effect from January 1^st 2027, with terms and conditions being significantly restricted:

Restricted Variations

These include changes to important contractual terms such as:

Reductions to pay
Changes to total hours
Reductions to leave entitlement
Changes to pensions
Certain changes to shift patterns

Therefore, dismissing an employee in order to impose a restricted variation that the employee has not agreed to is automatically unfair.

Non-Restricted Variations

Not all contractual changes will be classed as restricted variations under the new rules. Where an employer seeks to make a non-restricted variation, such as a change that falls outside the specified protected terms, dismissing an employee for refusing to agree to the change will not automatically be unfair.

However, employers will still need to proceed carefully. Where an employee is dismissed in order to impose a non-restricted variation, an employment tribunal will be required to consider factors including the employer’s reasons for making the change, any benefits offered in return and the consultation that took place when deciding whether the dismissal was fair.

In other words, although the Act does not prevent employers from making nonrestricted contractual changes, dismissing an employee because they refuse to accept the change can still carry legal risks and may result in an unfair dismissal claim.

Narrow Financial Difficulty Exception

The Act provides for a narrow exception where an employer is experiencing financial difficulties so severe that dismissing employees to make the contractual changes cannot reasonably be avoided. This is intended to apply only in exceptional circumstances, meaning employers will not be able to reply on financial pressure or a desire to reduce costs alone to justify fire and rehire.

Fire and Replace Will Be Restricted

The act also targets a related practice of dismissing employees to replace them with non-employees, such as agency workers or self-employed contractors. In these cases of hiring individuals who would do substantially the same work will generally be automatically unfair, subject to limited exceptions.

Qualifying Period is Changing

Currently, employees generally need two years’ service to bring an ordinary unfair dismissal claim but, from January 2027, this qualifying period is expected to reduce to six months. This is particularly relevant to employers considering contractual changes because employees who do not benefit from the automatic fire-and-rehire protection may still have greater access to ordinary unfair dismissal protection.

When Might Employers Still Be Able to Change Employment Contracts?

The new restrictions do not mean that employers can no longer change employment contracts. Employers can still propose changes where there is a genuine business reason for doing so, and employees can agree to new terms through consultation and negotiation.

The key issue will be how the change is approached. Employers should engage with affected employees, explain the reasons for the proposed changes and consider whether there are alternative ways to achieve the same outcome.

Where agreement cannot be reached, employers will need to carefully consider the nature of the proposed change and the legal position before taking any further action.

What Does This Mean for Employers?

For employers , the new restrictions mean that contractual changes will need to be approached more carefully. Going with fire and rehire will no longer be a straightforward option for imposing certain changes where employees do not agree.

Employers should focus on early consultation and consider alternative ways of achieving the desired outcome and take legal advice where necessary before making significant changes to employment terms.

Common Mistakes to Avoid

Failing to properly consult employees – Employers should be given a genuine opportunity to understand and respond to proposed changes.

Rushing to process or not allowing enough time – Employers should allow sufficient time to consider alternatives and seek agreement.

Using the threat of dismissal to pressure employees into accepting new terms – Employers should avoid using dismissal as a way to pressure employees into accepting new terms.

Assuming financial difficulties automatically justify fire and rehire – The financial difficulty exception is deliberately narrow.

How to Prepare Before The Law Changes

Employers should start preparing now by:

Reviewing planned contractual changes
Update disciplinary and dismissal policies
Review the contractual variation clauses in contracts
Refresh manager training

Preparing early will give more time to consult and consider alternative solutions before the new restrictions come into force next year.

At Premier Legal, we can support employers in understanding the new rules, how they may affect your business, and how to navigate contractual changes with confidence. If you have questions about the changes or need advice on your approach, get in touch with our team today, we’re more than happy to help.