Fire and Rehire: New Restrictions Coming for UK Employers

From January 2027, the Employment Rights Act 2025 restricts the practice known as "fire and rehire": dismissing employees and offering to re-engage them on worse terms.

If you have used this approach in the past to push through changes to employment terms, the rules are changing. Here is what is changing, when, and what you should do instead.

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What Is "Fire and Rehire"?

Fire and rehire (sometimes called "dismiss and re-engage") refers to the practice where an employer:

1. Proposes a change to employment terms (pay cut, reduced hours, changed shift patterns, removal of benefits)
2. Faces employee resistance or refusal to agree
3. Issues notice of dismissal, with an offer to re-employ on the new, inferior terms

In some cases the dismissed employees accept the new terms (often under economic pressure). In others they do not, and the employer proceeds with the dismissal.

The practice is not new. It has been used by employers in various industries when they want to change terms and conditions but cannot get agreement through negotiation. High-profile cases at P&O Ferries (2022) and various other companies brought it into the public eye.

The ACAS Code of Practice on Fire and Rehire, published in 2023, discouraged the practice and set out better alternatives. But it did not make it unlawful. The Employment Rights Act 2025 goes further.

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What the Employment Rights Act 2025 Changes

The ERA 2025 fire and rehire provisions take effect in January 2027.

The Act amends the Employment Rights Act 1996 to make it much harder to use fire and rehire as a way of changing employment terms. Specifically, dismissal for the reason of refusing to accept a variation to contract terms will be automatically unfair unless:

• The variation is genuinely necessary for the survival of the business (a high bar), and
• The employer has followed a proper process before resorting to dismissal

This means:

• You cannot simply dismiss employees who refuse a pay cut you want to implement
• You cannot issue dismissal notices as leverage in contract negotiations
• You cannot re-engage employees on worse terms without clear justification

Dismissals for reasons connected to refusing contract changes will be scrutinised by employment tribunals as potentially automatically unfair, with no qualifying period (meaning even new starters are protected).

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What Is Still Lawful After January 2027?

The ERA 2025 does not prohibit all changes to employment terms. It restricts the use of dismissal as a tool to force through those changes.

Changes to employment terms that remain lawful:

• Negotiated changes where employees genuinely agree
• Changes permitted by the contract (for example, a mobility clause allowing you to change the place of work)
• Changes that reduce rather than increase obligations on the employee
• Redundancy (where the role genuinely disappears)

What the legislation targets: Using dismissal and re-engagement as a business tool to bypass proper negotiation, particularly where the employer is financially healthy and the purpose is simply to reduce costs.

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The Right Way to Change Employment Terms

If you need to change employment terms, there is a lawful route. It takes longer and requires genuine engagement with your employees, but it is the only safe approach from January 2027.

Step 1: Identify What You Need to Change and Why

Document the specific terms you need to change and the genuine business reason. Be specific. "We need to reduce costs" is not enough. "We need to reduce our payroll cost by £X by [date] to maintain solvency following [specific event]" is better.

The stronger your documented business reason, the stronger your legal position.

Step 2: Consult Genuinely

Consult with affected employees (or their representatives) before making any proposals formal.

Genuine consultation means:

• Explaining the business problem you are trying to solve
• Sharing financial or operational data that supports your case
• Listening to employee proposals for alternative solutions
• Being genuinely open to modifying your proposals

This is not just a formality. If you have already decided what you want and are just notifying employees, that is not consultation. Tribunals can tell the difference.

If you recognise a trade union, you must consult with the union first. If you have 20 or more employees and are considering changes that affect 20 or more people, you may trigger collective consultation obligations (similar to the collective redundancy process).

Step 3: Allow Time

Do not rush the process. Give employees enough time to consider the proposals, seek advice, and respond. For significant changes (pay cuts, major changes to hours), a consultation period of several weeks is appropriate.

Step 4: Seek Agreement

If employees agree to the change (ideally in writing), implement it. Ensure the consent is genuine, not coerced.

If employees do not agree, do not move immediately to dismissal. Consider:

• Can you modify the proposal?
• Are there alternative solutions the employees have proposed?
• Is there a phased approach that is more acceptable?
• Is the change truly essential, or can it be avoided?

Step 5: If Agreement Is Not Possible

If, after a genuine and lengthy consultation process, you cannot get agreement and the change is genuinely essential for the survival or continued viability of the business, you may reach a position where dismissal and re-engagement is a last resort.

Under the ERA 2025, this must be a genuine last resort, not a first or second resort. The test that tribunals will apply is essentially: was the employer's need to make this change so significant that it would be unreasonable for the employment to continue on the existing terms?

This is a high bar. It will be met in genuine financial crises. It will not be met in cases of opportunistic cost-cutting.

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Practical Implications for Employers

Review Your Change Management Process

If your current process for changing employment terms is:

1. Decide what you want
2. Tell employees
3. Threaten dismissal if they do not agree

...this process is no longer viable from January 2027. Replace it with a genuine negotiation process.

Review Long-Term Contracts

If your employment contracts contain terms that you might want to change in the future, consider whether there are variation clauses that allow changes by agreement or in specified circumstances. Flexible clauses (for example, for shift patterns or place of work) can reduce the need to use fire and rehire.

Consider What "Genuine Business Need" Looks Like

From January 2027, the question tribunals will ask is not just whether you followed a process, but whether the change was genuinely necessary. Build your documentation now:

• Financial records supporting business need
• Board minutes or management reports demonstrating the decision-making process
• Evidence of genuinely exploring alternatives

Be Particularly Careful in Collective Settings

If you are proposing changes that affect 20 or more employees, the collective consultation obligations are substantial. Failure to follow collective consultation process exposes you to up to 90 days' protective award per employee (for collective redundancy) and similar risks for mass contract changes.

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P&O Ferries: The Case That Changed the Law

In March 2022, P&O Ferries dismissed 800 seafarers without any prior warning or consultation, replacing them with agency workers on lower pay. The company's CEO later admitted in a parliamentary hearing that this was done deliberately and illegally, on the assumption that paying settlements would be cheaper than proper process.

The backlash led to the ACAS Code of Practice in 2023, and eventually to the ERA 2025 statutory protections. The P&O case made clear that self-help measures to bypass employment rights would attract regulatory and public consequences even where individual claims were settled.

The ERA 2025 restrictions are intended to ensure that this situation cannot be repeated as a business strategy.

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Fire and Rehire Checklist for Employers

Before January 2027:

• [ ] Audit your employment contracts for terms likely to need changing in the next two years
• [ ] Review your contract change process to ensure it includes genuine consultation
• [ ] Train managers: dismissal as a negotiating tactic is no longer viable
• [ ] Review any planned contract changes: start the consultation process now if changes are needed
• [ ] Document your business reasons for any proposed changes

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FAQ: Fire and Rehire

When do the ERA 2025 fire and rehire restrictions take effect?

January 2027. If you plan to make significant changes to employment terms, start the consultation process well before then. Changes you want to implement in 2027 need to be in consultation by mid-to-late 2026 at the latest.

Can I still make employees redundant if they refuse new terms?

Genuine redundancy (where the role is disappearing or the work is reducing) is not affected by the fire and rehire restrictions. If the role is genuinely going, and you cannot redeploy the employee, you can make them redundant following the full redundancy process. What you cannot do is call it redundancy when it is really a refusal to accept a pay cut.

What if we genuinely cannot afford the current employment terms?

If the business genuinely cannot survive on current terms, you have a stronger case for forcing through changes. Document the financial position clearly. But even in a genuine financial crisis, the process still matters: consult genuinely, explore alternatives, and engage employees in the solution. A tribunal will look at both the substance (genuine need) and the process (proper consultation).

Do the restrictions apply to changes employees benefit from?

The fire and rehire restrictions are designed to prevent changes that are detrimental to employees. If you want to improve terms (increase pay, improve benefits), employees are unlikely to refuse, and there is no fire and rehire issue.

What if an employee is on a fixed-term contract and the fixed-term expires?

Non-renewal of a fixed-term contract on the same terms is not fire and rehire. However, if you offer to renew on significantly worse terms, that could engage the new restrictions if it is designed to avoid the protections.

Can I make someone redundant and then re-hire them as a contractor on lower costs?

This is one of the scenarios the ERA 2025 and associated regulations are specifically targeting. If the purpose is to reduce employment costs rather than to genuinely restructure, tribunals will look at the substance of what is happening, not just the label attached to it.

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Get Your Contracts Reviewed Before January 2027

The fire and rehire restrictions take effect in January 2027. If you have employment terms you might want to change, review your options now, while you have time to consult properly.

EmployerKit Audit from £49. We check your contracts and flag any terms that may need attention before January 2027.

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Last updated: April 2026