Fire and Rehire – What Employers Need to Know

The controversial practice of “fire and rehire” has attracted significant media and political attention in recent years.  Employers have sometimes relied on it to change contractual terms by dismissing staff and offering re-employment on new, less favourable terms. While legally possible, it has long been regarded as high risk and damaging to employee relations.

The Employment Rights Bill (ERB) now introduces statutory restrictions on the practice, expected to take effect in October 2026.  These reforms will make it much harder for employers to rely on dismissal and re-engagement as a tool for restructuring.

What’s Changing?

Once the new provisions come into force, certain contractual variations will be designated as “restricted”.  Employers will not be permitted to dismiss and re-engage employees purely as a way of imposing these changes.

The law will also introduce a narrow exemption where employers can show “serious financial distress”.  This will allow some use of fire and rehire in situations where a business is on the brink of collapse.  Further detail will be provided by secondary legislation, including how ‘restricted’ changes will be defined and what evidence will be needed to prove financial distress.

Tip: Employers considering contract changes before 2026 should act now to avoid being caught by the new restrictions.  Any restructure planned after October 2026 should factor in that dismissal and re-engagement will no longer be a straightforward option.

Risks of Fire and Rehire

Even under current law, fire and rehire is risky.  Tribunals expect employers to consult fully, act fairly, and explore alternatives.  Dismissing without following a fair process can lead to unfair dismissal claims.  The reputational damage is also significant, with high-profile cases drawing negative press and public backlash.

Tip: Keep records of all consultation meetings and alternatives considered. If changes are challenged later, evidence that you engaged constructively with employees will be crucial.

Safer Alternatives

Employers still have flexibility to make contractual changes, but safer methods should be prioritised.  This includes:

• Building express variation clauses into contracts, especially around working hours, location, and shift patterns
• Using collective consultation processes where changes affect groups of employees
• Offering incentives, such as one-off payments, in exchange for agreement to changes.

Tip: Review template contracts now to ensure they include reasonable flexibility clauses.  It is far easier to rely on an agreed contractual variation clause than to impose changes by dismissal.

Preparing for 2026

The ERB reforms do not ban contractual change altogether, but they make clear that dismissal and re-engagement should be a last resort, only available in exceptional cases of financial crisis.

Tip: Start planning ahead.  If you anticipate needing to change terms and conditions in the next 12–18 months, map out the business reasons, review contracts for flexibility clauses, and create a consultation strategy.  Being proactive will reduce risk and help maintain employee trust.

Conclusion

The Employment Rights Bill will fundamentally change how employers approach contractual change.  Fire and rehire will still exist in law, but in practice it will be confined to extreme circumstances where a business is on the edge of insolvency.

Employers who adapt now by tightening contracts, investing in consultation processes, and documenting business needs will be best placed to navigate the reforms successfully and avoid both legal and reputational fallout.

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.