Revised ERA 2025 confirms that 'fire and rehire' restrictions are likely to take effect on 1 January 2027

The UK Government published a for implementing the Employment Rights Act 2025 ('ERA 2025') on 16 July 2026. This confirms that the Government is expecting to bring into effect on 1 January 2027 its proposals significantly to restrict 'fire and rehire' as a means of achieving certain variations of employment contracts. 

Although the Government is still consulting on certain aspects of the measures, it seems increasingly likely that they will come into force on that date. Employers may therefore wish to inform themselves and take some preparatory steps now.

Although the measures do not involve an outright ban on varying a contract with an employee, they will significantly restrict employers' ability to force through an amendment to a contract if an employee does not agree to it. Under current law, if an employer has a sound business reason to insist on a contract amendment, it can ultimately force through the change by terminating the existing contract of the unwilling employee and rehiring them on new terms containing the amendment. Provided the business rationale is sound and the procedure adopted a reasonable one, the employer is (today) likely to be able to defend successfully any unfair dismissal claim that follows. 

Under the new rules this will change. Certain types of amendment, namely those concerning pay, hours, holiday and pension will be referred to as 'restricted variations'.  An employer using the 'fire and rehire' route to force through a restricted variation will be found to have automatically unfairly dismissed the employee concerned. From the same date, 1 January 2027, the resulting compensation will theoretically be unlimited, deepening the impact of this change. 

The rules go further and make it automatically unfair to dismiss employees in order to replace them with persons who are not the employer's employees, such as agency workers, unless it is genuinely the case that there has been a downturn in work. This is a significant change to the existing law on redundancy dismissals.

The current consultation, responses to which are currently being analysed by the Government, looks only at what should fall within the scope of restricted variations. The Government is considering excluding benefits in kind from the scope of 'pay' for example. It is also consulting on whether and to what extent changes to shift patters should be restricted variations.

Comment

These new measures represent a very significant and intentional intervention in employers' ability to run their businesses. The legislation is complex and raises many issues in addition to the ones raised in this article.

One thing that is clear is that existing variation clauses will remain valid and employers will not be prevented from putting variation clauses in the contracts of new joiners. The extent to which variation clauses are going to assist employers is unclear at present, but employers should review their template contracts to make sure that they do contain a well-drafted provision. 'Fire and rehire' has historically been the last resort for most employers and many have been able to rely on variation clauses to achieve their aims. The difficulty may be that employers' bargaining position is weakened by employees' realisation that they can no longer be forced to accept a restricted variation against their will.

If you would like advice on how to prepare for these forthcoming changes, or any of the other changes to employment law contained in the ERA 2025, please get in touch with the member of the employment team with whom you usually deal.

This article is authored by Christina Morton, senior knowledge lawyer in the UK employment team.