Fire and rehire is the practice of dismissing an employee and immediately offering to re-engage them on new, usually less favourable, terms. Employers turn to it when they need to change something in the contract, such as pay, hours, or shift patterns, and the employee will not agree to the change. It is lawful at present, provided the employer has a fair reason for the dismissal and follows a reasonable process, and the statutory Code of Practice expects it to be used only as a last resort. From January 2027, the law governing it becomes considerably stricter.
Changes of this kind are exactly where owner-managers tend to need advice, and it is work we do regularly at GAP HR. We have supported small businesses since 2003 and hold more than 300 clients on retainer. We would always want to be involved if a client was considering a fire and rehire, because it is one of the highest-risk steps in employment law.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
When Might An Employer Consider Fire And Rehire?
Employers usually consider a fire and rehire when a business needs to alter terms and conditions and cannot secure the employee’s agreement. The change might be a reduction in pay, a move to different shift patterns, the removal of a contractual benefit, or a change to working hours. Where the contract contains no clause permitting the variation, the employer cannot simply impose it, and if the employee declines to agree, the arrangement reaches an impasse.
Fire and rehire is the mechanism some employers use to break that impasse. The existing contract is terminated on notice and a fresh one offered on the revised terms. It is a blunt instrument, and it carries real legal exposure even under the current law.
Why Is Fire And Rehire So Legally Risky?
Any dismissal can give rise to an unfair dismissal claim where the employee has the necessary qualifying service, and a dismissal for refusing a contractual change is no exception. The employer has to show a fair reason for the dismissal, usually ‘some other substantial reason’, and a fair process, and tribunals scrutinise these cases closely.
There is also the practical fallout. Firing and rehiring staff damages trust, harms morale among those who remain, and can attract unwelcome attention, particularly where a number of employees are affected at once. Where 20 or more employees at one establishment are to be dismissed and re-engaged within a 90-day period, collective consultation obligations apply, because a dismissal of this kind counts as a redundancy for consultation purposes. Failing to consult properly can lead to a protective award, the maximum for which doubled from 90 to 180 days’ pay per employee for dismissals on or after 6 April 2026.
What Process Should An Employer Follow?
Consultation comes first, and it must be meaningful. That means explaining why the change is needed, exploring alternatives, listening to the response and being willing to adapt. A statutory Code of Practice on dismissal and re-engagement already applies, and a tribunal can increase compensation by up to 25% where an employer has unreasonably failed to follow it.
The change should be a real last resort, reached only after other options have been tried. Employers should be able to evidence the business reason, the alternatives considered, the consultation undertaken, and anything offered to the employee in return for accepting the new terms. Where the workforce is unionised or has elected representatives, they should be involved.
How Does The Employment Rights Act 2025 Change Fire And Rehire?
The Employment Rights Act 2025 significantly restricts an employer’s ability to fire and rehire, with the relevant provisions expected to take effect on 1 January 2027. The central change concerns what the Act calls ‘restricted variations’, which are changes to an employee’s core terms, namely pay, pensions, working hours, time off, and certain shift changes that regulations are expected to limit to major moves such as from day to night or weekday to weekend working. Inserting a clause that would let the employer make any of those changes without agreement is itself a restricted variation.
From the commencement date, dismissing an employee because they will not agree to a restricted variation, or in order to re-engage them or bring someone else in on those varied terms to do substantially the same job, will be automatically unfair.
Automatically unfair is a much harder position for an employer to defend, because the usual arguments about reasonableness fall away once the reason is established, and there is no qualifying service requirement, so employees are protected from their first day. A single narrow exception applies where the employer can show that the change was needed to address financial difficulties affecting, or about to affect, its ability to carry on as a going concern, and that the variation could not reasonably have been avoided. Even where that exception is met, the dismissal can still be found unfair on ordinary principles.
The financial stakes rise at the same time. From 1 January 2027, the cap on unfair dismissal compensation is removed altogether, and the qualifying period for an ordinary unfair dismissal claim drops from two years to six months.
What About Changes That Are Not Restricted Variations?
Not every contractual change falls within the restricted category. Alterations to matters such as place of work or job duties sit outside it, and a dismissal for refusing one of those will not be automatically unfair.
That said, such dismissals can still be ordinarily unfair, and the Act requires tribunals to weigh particular factors when judging fairness, including the reason for the variation, the extent of consultation, and what the employer offered the employee in exchange for agreement. With the qualifying period falling to six months, far more employees will be able to bring that kind of claim. The government intends to consult on a revised Code of Practice later in 2026. In short, the reforms narrow the room for manoeuvre across the board, not only for core terms.
What Should Employers Do Now?
The sensible course is to avoid needing fire and rehire in the first place. Review your contracts for well-drafted, lawful flexibility and variation clauses, so that reasonable changes can be made by agreement rather than by dismissal. Where a change is truly necessary, begin consultation early and treat re-engagement as the option of absolute last resort.
Any employer contemplating a change to terms ahead of January 2027 should take advice before acting. Timing matters, because a notice period that straddles the commencement date may bring the dismissal within the new regime, and getting the timing or the process wrong can be an expensive mistake.
How Can GAP HR Help With Fire And Rehire?
We help employers change terms and conditions the right way, through proper consultation and agreement wherever possible, and we advise on the rare occasions when dismissal and re-engagement is the only route left. We will also review your contracts so that avoidable disputes never arise.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
