How the law is changing on ‘fire and rehire’

What’s changing?

Ending ‘fire and rehire’ had been a cornerstone of the government’s election manifesto, and although there have been some changes to the original proposals, the new law is still designed to make it much more difficult to dismiss an employee and offer re-engagement on new terms which are to the employee’s detriment.

If an employer makes a change classed as a ‘restricted variation’ without the employee’s agreement and they are subsequently dismissed, it will automatically be classed as unfair dismissal. This will essentially mean that it will no longer be possible for an employer to dismiss employees and offer them re-employment on new terms and conditions where it is looking to implement a detrimental change in employment terms.

‘Restricted variations’ to contractual provisions include employers making reductions or removal of pay or pension benefits.

The terms also cover the nature of shifts, both in terms of hours worked and timings of them, and any reduction to previously contracted annual leave entitlements. Seeking to impose a clause which enables an employer to vary an employee’s contract in any of these areas will also be classed as a restricted variation itself.

However, an automatic unfair dismissal will not be triggered where changes are minor, “routine and non-detrimental”, or in circumstances where the change relates to a place of work.

Even where the change is not a ‘restricted variation’, and therefore not automatically unfair, an employment tribunal will be bound to consider how the employer has gone about implementing the change. That consideration will factor in issues such as consultation and any ‘sweeteners’ offered in exchange for the new terms. So, for employers, it is essential to follow a fair process – a fair process is currently required to effect change in this way, but there is also scope within the ERB for the government to issue regulations to fix more detail of what that process should look like.

The ERB also contains new rules to make it automatically unfair to dismiss an employee where they are to be replaced by “an individual who is not an employee of the employer” and that person will undertake the same or substantially the same activities as the employee performed prior to dismissal.

This is intended to catch circumstances where employees are replaced with agency workers, and this is a new standalone right. It will not apply where the business’ need for the activities to be performed has or will cease or diminish.

However, the ERB also includes provision that dismissal will not be classed as automatically unfair if employers can prove that the restricted variation was to reduce or eliminate risks which might have impacted the ability for the business to continue as a going concern, and that there was no reasonable way to avoid the need to make the contractual changes.

Public sector contracts will require the employer to prove that carrying out the role was not financially sustainable with regards to their statutory position in the previous circumstances.

Timeline

• Winter 2025: consultation will open on the proposals;
• October 2026: final implementation of the new laws.

What this means for employers

For employers, the ramping up of these new protections means they will need to look at existing contracts to understand what flexibility provisions are in place, and to what extent they can be utilised to effect change without triggering the restricted variation provisions. Consideration should also be given as to whether any proposals to change existing terms and conditions in the future should be brought forward prior to the fire and rehire protections coming into force.

Drawing up contracts for new starts should certainly take account of the forthcoming ERB changes and build in a degree of flexibility around changing terms from the beginning of employment.

The shift in restrictions on replacing existing staff with agency workers means early planning is essential, particularly if this is something that forms strategic planning.

As the end of ‘fire and rehire’ is scheduled to come into force in October 2026, employers should be thinking about these points now in order to be as prepared as possible.