Rachel Hatton, partner and employment law solicitor at Nelsons, discusses “fire and rehire” and the legal changes that will affect this practice from January 2027.

The current government made it known during the 2024 general election campaign that it wished to bring an end to the perceived unethical conduct of employers when in relation to fire and rehire strategies.

Fire and rehire is the practice of terminating an employee’s existing contract and offering a new contract with altered terms, often relating to pay, hours or benefits. This approach has historically been used by employers to reduce business costs, enable workforce restructuring and/or adjust working patterns to meet business needs.

It is potentially deemed lawful under the Employment Rights Act 1996, because an employer can rely on the potentially fair reason of some other substantial reason (SOSR) for the dismissal and re-engagement of employees.

New updates

From January 2027 the rules around fire and rehire are set to change significantly. The intended changes will mean employers can no longer rely on SOSR to force through major contract changes.

Under the new rules, there will be “restricted variations” that will cover the things that impact an employee the most; pay and pension, working hours and, potentially, core benefits. The restricted variation definition provides employees with considerably more protection than they would previously have had, and leaves employers in a situation where they can only lawfully make changes to non-contractual elements of an employee’s contractual terms.

Crucially, employees won't need to have worked for their employer for two years to claim unfair dismissal in these cases - they are protected from day one.

If an employer fires someone for refusing to accept restricted variations and then replaces them with a new hire, the dismissal will be automatically unfair. Further, an employee will not require any qualifying service to bring such a claim.

If an employer fires someone for refusing to accept restricted variations and then replaces them with a new hire, the dismissal will be automatically unfair.

However, it is not a total freeze and employers can still make some changes through the fire and rehire approach. Non-restricted variations to an employee’s contract, including location and job role, can still be made through fire and rehire without it being classed as an automatic unfair dismissal.

However, the courts will still ultimately decide whether a fair procedure has been followed, through a tribunal. This will assess whether there is a valid reason for the change, what consultation process the employer has followed, whether it was meaningful, and if what the employee is getting in return represents a fair exchange.

Bring prepared

With unethical conduct very much in the spotlight, employers would be well advised to revisit contracts of employment by carrying out a comprehensive internal audit.

Flexibility clauses in contracts should be reviewed to make sure they are drafted widely, to allow for legitimate contract variations. Working hours and practices, together with shift patterns, should be reviewed to make sure they have been updated and cover current business requirements.

If the audit uncovers issues then remedial action should be taken that is planned, structured, fair and able to stand up to tribunal scrutiny, in light of the controversy of fire and rehire generally in today’s climate.

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