Restructures and fire and rehire

Current position

If an employer wants to change its employment contracts but the affected employee(s), or their trade union through collective agreement, don’t agree, the employer can dismiss those employees and offer them new employment under the revised terms that were not initially accepted.

This process of ‘fire and rehire’ is typically a last resort, as it carries clear risks of breach of contract, failure to consult (where 20 or more employees are affected) and/or unfair dismissal claims in an Employment Tribunal.

Proposal

The government’s original proposal was to make it automatically unfair to dismiss an employee for refusing to vary their employment terms. However, this original proposal has been reconsidered; it’s now proposed that dismissal will be automatically unfair where an employee refuses to agree to changes to the following terms of their contract:

• Pay (including pension)
• Hours of work
• Annual leave
• A provision allowing an employer to change any of the above terms at a later date without the employee’s express consent.

An employer in financial difficulty could change these terms without it being automatically unfair, where this couldn’t reasonably be avoided. Such an approach should be considered with caution.

It wouldn’t be automatically unfair if an employer were to fire and rehire employees to change their employment contracts in a way not restricted under the ERA (as per the four points above).

An amendment now being considered in parallel aims to protect employees from ‘fire and replace’, where employees are dismissed and replaced with agency workers or self-employed contractors. This would give employees grounds for a claim for automatic unfair dismissal.

Impact

The intention is to protect employees from dismissal in these circumstances and strengthen their negotiating position when employers seek to amend their contract of employment.

It will become more difficult for employers to change their employment contracts, though not as difficult as originally proposed.

Timeline

Consultation will continue into 2026, with changes expected to take effect in October.

Employer actions now

Review your employment contracts and consider whether any proposed changes could be implemented now. The starting point should be to seek amendments to contracts with employees’ consent. Where this isn’t possible, and changes relate to pay, holiday or hours, employers could consider fire and rehire until the ERA comes into effect.