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Fire and rehire has always been a controversial corner of UK employment law. Employers have used it as a last resort when employees won’t agree to contract changes. Employees have experienced it as a threat. And for years, it sat in a legal grey area: not outright banned, but widely criticised.

That’s about to change.

The Employment Rights Act 2025 doesn’t ban fire and rehire, but it does fundamentally change the risk calculation for any employer who might consider it. From 2027, certain dismissals connected to contract changes will become automatically unfair, regardless of how long the employee has worked for you. The financial exposure is serious and the window to prepare is open now.

In this blog, we’ll cover:

• What fire and rehire actually means.
• What the new rules say.
• What UK businesses should be doing before the changes come into force.

Disclaimer: The information in this article is current as of May 2026 and has been prepared by 91���� UK Ltd and its related bodies corporate (91����). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. 91���� does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.

Fire and rehire key dates

Date	What changes
18 December 2025	Employment Rights Act 2025 receives Royal Assent.
April 2026	Fair Work Agency established; proactive enforcement begins.
January 2027	Unfair dismissal qualifying period reduces to six months’ service.
January 2027	Compensation cap for unfair dismissal removed.
Expected in 2027	Fire and rehire and fire and replace restrictions come into force.
October 2026	Tribunal claim time limits extended from three months to six months.

What is fire and rehire?

Fire and rehire is where an employer dismisses an employee and then re-engages them to do the same job, but on different, usually less favourable, terms and conditions.

It typically comes up when an employer needs to change something in an employee’s contract, such as their pay, their hours, or some other term and the employee won’t agree to the change. Rather than leave the contract as it is, the employer gives notice to terminate the employment and offers the employee a new contract on the revised terms. The employee can accept and re-engage on the new terms or refuse and leave.

There’s a related practice called fire and replace, where the employer doesn’t re-engage the same employee at all. Instead, they dismiss the employee and bring in a contractor, agency worker, or other non-employee to do the same work on different, usually cheaper, terms. The Employment Rights Act 2025 addresses both.

Neither is a new invention. Fire and rehire has been used across various sectors for years, most visibly when and replaced them with agency staff. That case prompted significant public backlash and accelerated the government’s focus on this area of law.

What’s changing under the Employment Rights Act 2025?

Fire and rehire will not be banned outright. But the circumstances in which it is legally safe to use will become very narrow.

Automatic unfair dismissal for refusing a restricted variation

Under the Employment Rights Act 2025, dismissing an employee because they refuse certain contract changes will become automatic unfair dismissal. 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.

However, these protections only apply to what the Act describes as “restricted variations”. These include changes to:

• Pay.
• Working hours.
• Holiday entitlement.
• Pension contributions or pension-related benefits.
• Clauses giving the employer the unilateral right to change any of the above.

If an employer dismisses an employee, or threatens dismissal, to pressure them into accepting changes to these terms, they could face an automatic unfair dismissal claim.

Fire and replace is also restricted

The Act goes further than just protecting dismissed employees. It also places restrictions on certain “fire and replace” practices, where an employer dismisses an employee and brings in a contractor, agency worker, or other non-employee worker to carry out the same role on less favourable restricted terms, such as reduced pay, pension contributions, working hours or holiday entitlement. However, the restrictions may not apply simply because the replacement worker is cheaper overall if those specific protected terms are not being reduced.

This closes off a common workaround previously used in some restructuring and cost-reduction exercises.

The one exception: genuine financial difficulty

There is only one statutory defence under the new rules where fire and rehire, or fire and replace, may still be lawful. Genuine redundancies and TUPE transfers fall outside the scope of the new restrictions altogether.

Employers may be able to rely on this exception where:

• The business is facing financial difficulties that, at the time of dismissal, were affecting or were likely in the immediate future to affect its ability to continue operating as a going concern.
• The employer could not reasonably have avoided the need to make the contractual change.

This is expected to be a high threshold. Wanting to reduce costs or improve profitability alone is unlikely to be enough.

The ACAS Code of Practice: what employers must follow

Beyond the Act itself, there’s a separate set of obligations employers must follow before any dismissal is even considered.

The government’s Code of Practice on Dismissal and Re-engagement, that ACAS consulted on, sets out the standards employers are expected to follow. The Code requires employers to:

• Explore all alternatives to dismissal before raising the prospect of termination.
• Consult with employees and their representatives meaningfully and in good faith.
• Give employees reasonable time to consider any proposed changes.
• Not use the threat of dismissal as a negotiating tactic.

The Code is not legally binding in itself, but it carries significant weight. Employment tribunals are required to take it into account when deciding cases. If an employer is found to have unreasonably failed to follow the Code, a tribunal can increase any eligible award by up to 25%.

What this means in practice: if your business ends up in a tribunal claim related to contract changes, the question won’t just be whether the dismissal was fair. It will also be whether you followed the Code throughout the process. Skipping genuine consultation, applying pressure or moving too quickly can all push you into that 25% uplift territory, on top of an already uncapped compensation award from 2027.

What do the changes mean for existing contracts?

From 2027, employers will not be able to use dismissal and re-engagement to impose new clauses giving themselves the unilateral right to vary restricted terms. However, existing valid variation clauses already in contracts appear to remain enforceable and employers can still hire new employees with variation clauses, provided those clauses don’t cover the restricted matters.

If you have variation clauses in your current contracts, now is the time to review them and take advice on whether they will hold up under the new rules.

Why this matters more than it might seem

Even employers who have never formally fired and rehired anyone can fall into this territory. Contract variation discussions are more common than many businesses realise and the line between a legitimate consultation process and an unlawful threat of dismissal is not always obvious in practice.

Consider a manager who, during a difficult conversation about changing someone’s hours, says something like: “If we can’t reach an agreement, we may have to look at other options.” That kind of remark, documented in meeting notes, could be characterised as a threat of dismissal. Under the new rules, that could form part of an automatic unfair dismissal claim should the employee be dismissed.

The Act also removes the compensation cap for unfair dismissal from 2027. At present, compensatory awards are limited to around £123,453 or 52 weeks’ pay, whichever is lower. Once that cap is gone, the financial exposure from a single poorly handled contract variation discussion becomes much harder to predict.

How to prepare: Practical steps for employers

The 2027 changes are still ahead of you. Here’s what to do now to reduce your exposure.

Step	Action
Review employment contracts	Audit all contract templates for variation clauses covering pay, hours and holiday. Take advice on whether those clauses will remain valid post-2027.
Audit planned contract changes	Assess whether any changes to terms and conditions should happen before 2027. What’s manageable today carries considerably more risk in 7 to 8 months’ time.
Train your managers	Cover what counts as a restricted variation, how to conduct fair and transparent consultation, why contemporaneous notes matter and when to escalate to HR or legal.
Remove any suggestion of coercion	Consultation must be genuine, not a formality. Avoid ultimatums and coercive timelines. Document everything, including meeting notes, emails and correspondence.
Get advice early	If changes to pay, hours, pension or holiday are on the table, seek HR or legal advice before starting any process. The cost of getting this wrong after 2027 will far outweigh the cost of guidance now.

Stay compliant with 91����

The fire and rehire restrictions in the Employment Rights Act 2025 represent a genuine shift in the risk profile of contract change discussions. From October 2026, extended tribunal time limits will begin to apply, and by 2027 the combination of automatic unfair dismissal protections, uncapped compensation, and longer time limits for bringing claims will mean that a single poorly handled conversation could carry serious financial consequences.

The changes aren’t in force yet, but the preparation work starts now. Review your contracts, train your managers and get advice before any variation process begins. The employers who act early will be in a far stronger position than those who wait until the rules change.

If you need support navigating what’s ahead, 91����’s HR Advisory team is here to help.