Fire and Rehire: the House of Lords propose major change to the Employment Rights Bill

Last week the government laid out proposals to amend the Employment Rights Bill. It's the last opportunity it has to amend the Bill and it has made some surprising changes. In this article we take a closer look at the proposed amendments to the provisions on ‘fire and rehire’. 

What is ‘fire and rehire’?

‘Fire and rehire’ - also known as ‘dismissal and re-engagement’ - is when an employer dismisses an employee and offers to re-employ them on new terms they've already rejected. It should only be undertaken as a last resort after the employer has fully consulted on the changes it wants to make and reasons for these.  

A new statutory code of practice on dismissal and re-engagement came into force on 18 July 2024. It sets out the steps employers must take before pursuing this approach.  

Original proposals

When the Employment Rights Bill ('the Bill') was introduced to parliament in October 2024, it said that any attempt to fire and re-hire an employee would be automatically unfair unless the employer could prove its business was in real financial trouble (as in just about to go under). Essentially, this would have meant that unless the employee agreed to the variation, the employer would be stuck with their existing terms and conditions. 

Even if the employer could satisfy this very narrow test, the tribunal still had to consider if the dismissal was fair under section 98(4) Employment Rights Act, by assessing whether the employer acted reasonably in the circumstances, including its size and the administrative resources it had available. 

This proposal - particularly the financial requirement - sparked concerns about the restrictive impact on businesses. The Employment Lawyers Association (ELA) stated that it sets a “very high bar” because it requires employers to show that without the change, the business “would go to the wall”. The ELA also stated that it fails to account for other legitimate reasons employers may need to change terms where dismissal and re-engagement is the only viable option. For example, changes might be necessary to comply with new legislation or regulatory requirements, respond to commercial demands, or reflect evolving practices, such as withdrawing company cars because of changes in the tax regime or environmental concerns.  

Proposed amendments 

The government appears to have listened and has made some concessions. The original proposal has been amended: it makes dismissal and re-engagement automatically unfair where the change relates to a ‘restricted variation’ and the employee does not agree to it - unless the employer can prove the business is facing genuine financial difficulties. A slightly different test will apply for financial difficulties in the public sector.

A ‘restricted variation’ includes any contractual change that:

• Reduces or removes pay 
• Alters how pay is calculated when an employee is paid based on the amount of work they produce
• Changes pension terms or pension scheme
• Varies working hours
• Amends the timing or duration of a shift; or
• Seeks to allow the employer to make any of the above changes, without the employee's agreement. 

The Secretary of State may by way of further regulations stipulate that a ‘restricted variation’ does not include sums payable in respect of expenses or a payment/benefit in kind.

Unless the change you are making is covered by this list, you will be able to dismiss and re-engage staff on the new terms and conditions without it being automatically unfair. The staff in question could still bring a claim for ordinary unfair dismissal, so you'll still have to act reasonably and follow a fair procedure. The tribunal will also need to consider what consultation has taken place, whether the employee was offered anything in return for agreeing to the change, and any other matters set out in future regulations. 

In addition, it is proposed to make it automatically unfair to dismiss an employee and replace them with someone who is not an employee, such as an agency worker or a self-employed individual, unless the employer can show it was essential to address serious financial hardship and couldn't reasonably be avoided. Given that these reforms stem from the actions of P&O, who dismissed their employees and hired much cheaper agency workers, it's notable that this provision is only now being proposed and was absent from the original draft of the Bill. 

What next?

The House of Lords will now debate this amendment, and others, during its report stage on 14, 16, 21, and 23 July 2025. There will then be a third reading before the Bill goes back to the House of Commons for consideration of the updated Bill. 

We don't expect the Bill will receive Royal Assent until the autumn. However, in the recently published roadmap - which you can read more about here - the government said that these changes are not expected to take effect until October 2026 with a consultation due this autumn 2025. 

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