Employment Rights Act 2025: the fire and rehire consultation explained

The government has confirmed, via its updated timeline, that the changes to fire and rehire will now come into force in January 2027. In the meantime, it is consulting on some of the finer details. We explain what is changing and set out the specific points on which stakeholders can provide their views and input.

What is the current position?

Dismissal and re-engagement (or ‘fire and rehire’) refers to the practice of dismissing an employee and offering to re-employ them - or someone else - on new contractual terms. 

The code of practice on dismissal and re-engagement, in force since 18 July 2024, requires employers to first explore alternatives to dismissal and consult meaningfully with employees. Although not legally binding, tribunals will consider if it has been followed and where applicable a tribunal can increase compensation awarded by up to 25% because of an unreasonable failure to follow it.

What is changing? 

The government considers that the current framework does not provide sufficient protection for employees. The Employment Rights Act 2025 ('the Act') introduces significant restrictions on the use of fire and rehire. It makes it automatically unfair to dismiss an employee in order to impose a ‘restricted variation’ of their contract without their agreement, unless the employer is in severe financial difficulty and has no reasonable alternative.

A ‘restricted variation’ includes a wide range of changes:

• Reducing pay
• Where pay is linked to measures of work done (such as targets), changing those measures/targets
• Changes to pensions (although pension terms are not usually contractual)
• Changes to the total number of hours worked
• Reducing the amount of holiday
• Changes to shift patterns (more detail will be specified in separate regulations)
• The inclusion in a contract of employment of a term enabling the employer to make any of the above changes without the employee's agreement.

If the contractual change you want to make is not included in the list above, you may still dismiss and re-engage employees on the new terms without the dismissal being automatically unfair. However, employees could still bring a claim for ordinary unfair dismissal. You will therefore need to act reasonably and follow a fair procedure, including conducting meaningful consultation. This will become even more important when the qualifying period for bringing an ordinary unfair dismissal claim reduces to six months and the cap on compensatory awards is removed. 

What specific areas is the consultation inviting views on? 

The Make Work Pay: fire and rehire - changes to expenses, benefits, and shift patterns consultation, published on 4 February 2026, seeks views on the scope of two of the restricted variations.

Employment expenses and benefits in kind

The consultation considers whether some or all expenses and benefits/payments in kind should not be included as restricted variations. 

The consultation defines benefits in kind as, “non-cash benefits provided by employers to employees which form part of the remuneration package as a ”perk". These are usually taxable as employment income and commonly include private use of a company vehicle or private health insurance."

It defines expenses as, “Costs incurred by an employee in connection with carrying out their duties of employment, which may be paid or reimbursed by the employer. These typically include costs incurred on train tickets for corporate events or subsistence when travelling for work.”

The government recognises that employers may need to make operational changes to how they cover employees' expenses or provide benefits in kind. It believes employers should have flexibility to update contracts in these areas where business needs require it - for example, if a third-party provider alters its terms so the benefit can no longer be offered, or if expense costs rise unexpectedly. The government also notes that these may warrant fewer protections as changes are unlikely to have the same impact on employees as changes to regular pay.

It is therefore seeking views on whether:

1. All expenses and benefits/payments in kind should be excluded from the definition of restricted variations - this is the government's preferred option. Under this approach, you could use dismissal and re-engagement to change contractual terms relating to expenses and benefits/payments without the dismissal being automatically unfair. However, you would still need to act reasonably and follow a fair process to avoid an ordinary unfair dismissal claim. Before you do that, review the existing employment contract to check whether the terms relating to expenses and benefits/payments in kind are actually contractual and, if they are, whether the contract already provides sufficient flexibility to make the proposed changes so that you don't have to ‘fire and rehire’. 

Or:

2. All expenses and benefits/payments in kind should be excluded apart from certain types of share schemes, travel expenses and accommodation. In this scenario, dismissing an employee to change terms relating to share schemes, travel expenses and accommodation would be automatically unfair, but changes to all other expenses and benefits in kind would not.

Shift patterns

The government recognises that employers need flexibility to make reasonable operational changes to working schedules, but it also accepts that major changes can have a significant impact on employees' lives. It is therefore considering whether additional protection is needed to prevent employees using fire and rehire to impose substantial changes to contractual shift patterns. 

The government is seeking views on two options: 

1. Shift variations from day to night working (or vice versa), and weekday to weekend working (or vice versa), will be restricted variations:  under this approach, certain changes - moving from day to night working (or vice versa) or from weekday to weekend working (or vice versa) - would be classified as restricted variations, so it would be automatically unfair to dismiss an employee to impose such a contractual change.
2. No types of shift pattern changes are in scope of the restricted variation of the timing or duration of a shift: under this option, dismissals relating solely to the timing or duration of a shift would not give rise to automatic unfair dismissal. However, if the employer combines a shift change with another restricted variation - such as total number of hours worked or a reduction in pay - a dismissal would still be automatic unfair dismissal in those instances.  

The government's preferred approach is option 1. 

Next steps

The consultation closes at 11:59pm on 1 April 2026. The government will then review the responses, which will inform the secondary legislation. It has also confirmed that it will update the code of practice and intends to launch a public consultation on the revised version later in 2026. 

Although this consultation does not invite views on the wider fire and rehire regime, instead seeking feedback on two specific issues, it is nevertheless important to engage with the process, particularly if the proposed changes are likely to affect your organisation. We therefore encourage you to respond to this consultation - and future ones - to help shape how the new rules operate in practice. 

You can learn more about this change, along with the wider package of employment law reforms introduced by the Employment Rights Act 2025, and what your business can do to prepare, in our webinar ‘2026 Annual employment update: everything you need to know to prepare your business for the year ahead’ on Thursday 26 February 2026 at 10am. Please register here. 

We also offer a wide range of support and services at all stages of the Employment Tribunal process. You can find out more about this in our brochure. 

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