Fire and rehire
Fire and rehire occurs when employers dismiss employees and then offer to re-employ them on less favourable terms and conditions of employment.
Currently, fire and rehire dismissals are lawful if the employer can show that it has a ‘sound good business reason’ for making contractual changes and that it acted reasonably in treating that reason as a sufficient reason for using fire and rehire. The ‘sound good business reason’ test only requires employers to show that the change would lead to a discernible advantage to the business, there is no requirement for the employer to show that the survival of the business is under threat. In short therefore employers have had a wide discretion to use fire and rehire as a mechanism to enforce contractual changes.
Changes to the law on fire and rehire are expected to come into force in January 2027, when it will become automatically unfair for employers to use fire and rehire if the reason for the dismissal is to impose a ‘restricted variation’.
In broad terms, a restricted variation means:
> A reduction in pay
> A variation in pension rights
> A variation in the number of hours which an employee is required to work
> A variation in the timing or duration of a shift
> A reduction in the amount of time off which an employee is entitled to take
Adding a term to a contract enabling the employer to make any of the above variations without the employee’s agreement
It will also become automatically unfair for employers to dismiss employees and replace them with agency workers or contractors doing substantially the same work on terms that change one or more restricted variation.
The government has consulted on further narrowing restricted variations. In February 2026, it set out a proposal to limit two forms of restricted variations:
- Employment expenses and benefits in kind: the government suggests excluding from protection all variations to expenses and benefits in kind so they would no longer be “restricted variations”.
- Shift patterns: the government suggests limiting protection to provide that only a narrow list of more extreme shift changes (e.g., day to night work, or weekday to weekend work) would be restricted variations.
This would further limit workers’ protections against the unilateral variation of core terms. Consultation closed in April 2026, and the government is currently preparing its response.
Employers can avoid an automatic unfair dismissal claim through a “financial difficulties exemption” (to be construed narrowly), which requires them to show that the reason for the variation “was to eliminate, prevent, or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely to affect in the immediate future” the ability of the employer to carry on the business.
The exception will apply to a public sector employer if its financial difficulties affect the financial sustainability of carrying out its statutory functions; it will apply to a local authority if there has been a relevant intervention by central government.
If the contractual change is not a restricted variation or if the financial difficulties exception applies, then the dismissal will not be automatically unfair. Instead, in determining whether the dismissal was fair or unfair, employment tribunals will be required to consider: the reason for the change, the extent of any consultation with and their representatives and anything which the employer offered to the employees in return for agreeing to the change.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
Visit our main Employment Rights Act Hub for further information.