Fire and Rehire

January 2027

Fire and rehire – or dismissal and re-engagement, to use the more technical term – is a significant area of change.

This is where an employer dismisses an employee and offers them new employment on different terms and conditions, rather than terminating the contract full stop. It is currently used, usually as a last resort, to make changes to employees’ terms and conditions that an employer deems necessary but which employees have not been willing to agree voluntarily during a process of consultation.

There is already the risk of ordinary unfair dismissal claims for employers engaging in dismissal and re-engagement exercises, but it is possible to defend those claims if an employer can show that they have acted reasonably, for example by  consulting appropriately with employees, considering alternatives and making compromises where appropriate.

The practice has received widespread negative press coverage in recent years for example, Tesco, British Airways and British Gas.

The last government issued a statutory code of practice setting out the steps an employer should take when engaging in a dismissal and re-engagement process which is already in force. The existing code of practice  gives tribunals the power to increase compensation by up to 25% in any successful claims if an employer has unreasonably failed to follow the code. In the current government’s view, this code of practice is inadequate – and it pledged to abolish the practice of fire and re-hire as a manifesto commitment.

Restricted varitations

The new legislation says that it will be automatic unfair dismissal where the reason, or principal reason, for the dismissal is that the employer sought to make a "restricted variation" and the employee did not agree and the dismissal was to enable the employer to employ another person, or re-engage the employee under a varied contract of employment to carry out the same, or essentially the same duties.

Restricted variations include any changes that reduce pay, alter performance-based pay measures, vary terms relating to pensions, change number of hours an employee is required to work, vary the timing or duration of shifts (if it meets the conditions set out in Regulations), reduce time off or amend an existing employment contract to include a variation clause, enabling the employer to make variations to any of the above without the employees agreement. The Secretary of State will be able to add to this list through regulations.

No qualifying period of employment is required before an employee can bring an automatic unfair dismissal claim; the employee just needs to have started work.

Exemption

If an employer is facing severe financial difficulties, the changes are being made to address those difficulties and the employer could not reasonably have avoided the need to make changes, then any dismissals will not be automatically unfair under these changes, but the normal unfair dismissal rules will apply. The exemption is slightly different for public sector employers and local authorities.

Non-restricted variations

It will not be an automatic unfair dismissal where employers use fire and rehire to make non-restricted variations, such as to job roles, duties or location. However, there will be enhanced protections for ordinary unfair dismissal. Tribunals will consider whether employers have engaged in meaningful consultation and what the employer has offered the employee in exchange for their non-restricted terms. The qualifying period for ordinary unfair dismissal reduces from 2 years to 6 months on 1 January 2027.

Fire and replace with non-employees

It will be automatically unfair to dismiss employees in order to replace them with non-employees (such as agency workers) to do substantially the same work as the employees they are replacing, unless the narrow exemption for financial difficulties applies, or where the dismissal was attributable to the fact that the employer’s need for that work has ceased or reduced. A key point to note here is that for fire and replace, there is no distinction between restricted variations and non-restricted variations. 

Consultations and Code of Practice

The government ran a consultation which closed on 1 April 2026, asking for feedback on which expenses, benefits, and shift changes should be covered by the proposed protections.

The Statutory Code of Practice on Dismissal and Re-engagement will be updated in due course.