For many employers, “fire and rehire” has never been a preferred route — but its presence in the background has often shaped negotiations when agreement proved difficult.
That is about to change.
From 1 January 2027, the Employment Rights Act 2025 will significantly restrict the use of dismissal and re-engagement. In practice, it will render the approach automatically unfair in most cases where it is used to force through key contractual changes, marking a notable shift in the balance between employer flexibility and employee protection.
With that deadline now fixed, the question is no longer if this will affect employers — but when and how.
What Fire and Rehire Actually Is
The practice is straightforward in concept. An employer seeks to change employment terms, but the employee does not agree. Rather than allowing the situation to remain at a standstill, the employer terminates the existing contract and offers re-engagement on revised terms, effectively leaving the employee with a choice between accepting the new conditions or leaving the organisation.
Although simple in structure, the practice has become increasingly controversial. Public attention intensified in 2022, when P&O Ferries dismissed nearly 800 employees without notice and replaced them with agency workers on lower rates of pay. That episode brought “fire and rehire” sharply into the public spotlight and accelerated calls for legislative reform, transforming what had been a relatively niche HR practice into a matter of wider political and legal significance.
In response, the previous government introduced a statutory Code of Practice on dismissal and re-engagement, requiring employers to engage in meaningful consultation and to treat dismissal strictly as a last resort. However, even with these safeguards in place, the practice has remained lawful where supported by a sound business rationale and a fair process.
That position is set to change from January 2027.
What Is Actually Changing
The Employment Rights Act 2025 does not introduce a complete ban on fire and rehire. While earlier proposals suggested a broader prohibition, the legislation ultimately adopts a more targeted approach.
Instead, it imposes a significant restriction: in most circumstances, it will be automatically unfair to dismiss an employee in order to impose certain contractual changes through fire and rehire, referred to as “restricted variations”.
From 1 January 2027, a dismissal will be automatically unfair where:
- the reason (or principal reason) for dismissal is that the employee refused to agree to a restricted variation to their contract; or
- the employer dismisses the employee in order to re-engage them, or replace them, in substantially the same role on less favourable terms involving a restricted variation through fire and rehire.
What counts as “restricted variations”?
These are changes to core terms and conditions of employment, including:
- remuneration (pay);
- working hours;
- annual leave entitlement;
- pension arrangements;
- specified changes to shift patterns (to be defined in further regulations).
These are precisely the types of changes employers have historically sought to introduce using fire and rehire when agreement could not be reached. Under the new framework, using fire and rehire for these purposes will, in most cases, result in an automatically unfair dismissal, with no qualifying period of service required.
The exception: serious financial difficulty
There is a limited statutory exception where fire and rehire may still be used without resulting in automatic unfair dismissal. To rely on this, an employer must demonstrate that:
- it is facing serious financial difficulties affecting, or likely to affect, the viability of the undertaking;
- the proposed changes are necessary to avoid, prevent or mitigate those difficulties; and
- the employer could not reasonably have avoided the need to implement those changes.
This sets a deliberately high threshold. General commercial pressures, cost-saving exercises, or a desire to improve profitability will not be sufficient.
Even where this exception may apply, employment tribunals will still assess whether the employer has acted reasonably, including whether it has complied with obligations to inform and consult with employees (and, where applicable, recognised trade unions or employee representatives).
Further clarification is expected through an updated Acas Code of Practice on fire and rehire, which will provide practical guidance on how employers should approach these situation
What This Means in Practice
Until the new rules take effect, dismissal and re-engagement remains lawful (though high risk) where:
- there is a legitimate business reason; and
- a fair and meaningful consultation process is followed.
From January 2027, however, the use of dismissal to impose changes to restricted terms will be severely constrained.
Organisations considering contractual changes should therefore be aware that the window to act under the current framework is closing.
Practical Steps for Employers
1. Review employment contracts
Identify which terms may fall within the definition of restricted variations and assess the robustness of existing variation clauses.
2. Document business rationale contemporaneously
Where financial pressures exist, ensure evidence is recorded at the time. Retrospective justification is unlikely to carry weight.
3. Strengthen consultation processes
Tribunals will increasingly scrutinise whether all reasonable alternatives were explored before any dismissal decision.
4. Train managers and HR teams
Ensure those responsible for employee relations understand that dismissal and re-engagement will no longer be a viable fallback option in most cases.
How The Infinity Group Can Help
At The Infinity Group, we support organisations in understanding their obligations under the Employment Rights Act 2025 and in developing practical, compliant frameworks to meet them. We also provide ongoing legislative updates to ensure your approach remains robust and up to date.
Through our umbrella solutions, we can assume full employer responsibility, acting as the legal employer on your behalf and helping to reduce both administrative and legal risk while maintaining full compliance.For organisations seeking a more straightforward and secure approach to the upcoming changes, outsourcing employer responsibility to our team offers a confident way forward. Get in touch today to discuss how we can support your organisation.