Government confirms scope of new 'fire and rehire' restrictions

When the relevant provisions in the Act take effect in Britain, now expected in March 2027, it will become automatically unfair to dismiss an employee in order to impose certain changes to contractual terms, known as ‘restricted variations’, unless the employer can satisfy a narrow financial difficulties exception. The core restricted variations already include changes to pay, hours of work, pension and holidays/ time off. Including a new variation clause which would enable the employer to make these types of changes will also be a restricted variation.

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Following consultation, the government has now confirmed additional detail on the definition of ‘restricted variations’ (50-page / 528KB PDF). As regards expenses and benefits in kind, travel expenses, including mileage, accommodation expenses and long-term accommodation provided as a benefit in kind will also be protected as a restricted variation. It will therefore be automatically unfair to dismiss an employee in order to change a contractual entitlement to these benefits, subject to the financial difficulties exception. Changes to share schemes, and other kinds of expenses and benefits, will not constitute a restricted variation.

The protection applies where the relevant expense or benefit is contractual. The government has confirmed that employers can continue to change non-contractual expenses policies without triggering the restricted variation provisions. Contractual flexibility also remains relevant: where a contract already gives the employer flexibility to change an expense or benefit, exercising that flexibility will not itself require a contractual variation.

The government has also sought to clarify when shift-pattern changes will constitute a restricted variation. A restricted variation will arise where a contractual change requires an employee to move from day to night working, or vice versa, or from weekday to weekend working, or vice versa. Night-time will mean the period between 11pm and 6am. Availability windows will remain outside the restricted variation regime.

Employment law expert Joe McMorrow of Pinsent Masons said this change creates some potentially significant dividing lines. He highlighted, for example, that moving a daytime shift back several hours without crossing into night-time will not be a restricted variation, whereas a smaller contractual change that takes an employee across the 11pm boundary could be. The government has acknowledged that its approach has some “hard edges” but considers that clear rules provide the appropriate balance between employee protection and operational flexibility.

Changes to expenses, benefits and shifts falling outside the restricted categories will not, however, be risk free, according to McMorrow. Where an employer dismisses an employee to implement an unrestricted variation, tribunals will still be required to consider additional factors in a strengthened unfair dismissal fairness test, including the employer’s consultation with employees and trade unions and anything offered to employees in return for accepting the change.

The government also intends to issue an updated code of practice on dismissal and reengagement that will set out best practice requirements. Failure to comply with the code can lead to an uplift to the compensatory award by up to 25% in relevant unfair dismissal cases. A consultation on a proposed new code has been opened and closes on 17 December 2026.

The draft code reflects the much tighter statutory regime introduced by the Act and covers fire and rehire on different terms and conditions and the new protections which will prevent employers dismissing employees and re-engaging them with non-employees, such as agency workers. It provides guidance on the limited financial difficulties exception that may allow an employer to dismiss and re-engage in order to make an otherwise restricted contractual change or replace employees with non-employees.

McMorrow said: “Employers hoping that the new code would soften the edges of the financial difficulties exception may be disappointed. If anything, the guidance reinforces just how high the bar is intended to be. The government describes the statutory regime as imposing ‘strict limits’ and frames the exception in terms of businesses facing severe financial difficulties, rather than simply those seeking to reduce costs, improve efficiency or respond to ordinary commercial pressures. Employers contemplating relying on the exception will therefore need to think very carefully about both the evidence supporting their financial position and the steps they have taken before reaching the point of dismissal.”

The new fire and rehire protections are intended to take effect in March 2027, later than previously planned. The existing statutory code of practice is also due to be revoked in March, with a new code expected in summer 2027.

McMorrow said: “Employers should resist treating the revised March 2027 implementation date as an invitation to squeeze in major fire and rehire exercises. Some employers have been planning significant change projects around the original January deadline, but an extra two months is unlikely to provide sufficient runway for businesses starting from scratch.”

“Instead, employers should use the time to get their contractual house in order. That means reviewing whether existing variation clauses provide sufficient flexibility, considering broader clauses for future contracts, and being much clearer about which expenses, benefits and working arrangements are contractual. The government’s latest response makes that distinction increasingly important,” he added.

In its consultation paper, the government said that, if considered necessary, it will make use of powers in the Act to “urgently legislate” if fire and rehire practices falling outside the scope of the proposed definition of “restricted variations” are prevalent. The government has also committed to actively monitor how the fire and rehire provisions operate in practice and consider further legislative measures, including, if necessary, interim injunctions and interim relief.

“The reference to interim injunctions is particularly noteworthy,” said McMorrow. “Preventative remedies of this kind are unusual in employment law and could fundamentally change the risk profile of fire and rehire or replace by opening the possibility of intervention before a dismissal takes effect.”