Fire and Rehire from January 2027: What Changes Under the Employment Rights Act

From 1 January 2027, the law on fire and rehire in the UK changes substantially under the Employment Rights Act 2025. The original commencement date was October 2026, but the Government delayed the provisions to 1 January 2027 to align them with related reforms including the new six-month qualifying period for ordinary unfair dismissal claims.

The headline change is that dismissing an employee in order to force through a change to one of five protected core terms will be automatically unfair, except in narrow financial-distress circumstances. Employers who use fire and rehire as a routine contractual variation tool will need a different approach.

The Five Restricted Variations

The Act introduces a new concept of restricted variations. A restricted variation is a change to one of the following five core contractual terms:

Reductions to pay
Changes to total hours
Reductions to leave entitlement
Changes to pensions
Specified shift pattern changes (the precise scope of which is being defined by secondary regulations following a consultation that closed on 1 April 2026)

From 1 January 2027, dismissing an employee in order to impose a restricted variation that the employee has not agreed to is automatically unfair. The tribunal does not look at fairness in the wider sense in these cases. The dismissal is unfair as a matter of law unless the employer can meet the narrow financial-difficulties exemption set out below.

Source: DBT Factsheet: Fire and Rehire (February 2026). Verify the final regulations on shift pattern changes before relying on this guidance.

The Narrow Financial-Difficulties Exemption

An employer can avoid an automatic unfair dismissal finding only by satisfying a three-part test. The employer must show:

Evidence of financial difficulties that were affecting, or were likely in the immediate future to affect, the viability of the business.
The change to the restricted variation was for the purpose of eliminating, preventing, significantly reducing or significantly mitigating the effects of those financial difficulties.
The employer could not reasonably have avoided the need to make the changes.

The Government has been explicit that this is a deliberately high bar. It is intended to cover restructuring necessary to save jobs and avoid redundancy where there is no reasonable alternative, not routine cost reduction or harmonisation programmes. The exemption is calibrated slightly differently for private employers, public sector employers and local authorities, recognising the different financial contexts in which each operates.

Crucially, even if an employer satisfies the exemption, the dismissal is not automatically fair. The tribunal will then assess whether the dismissal was fair in all the circumstances under the ordinary unfair dismissal test. In doing so, the tribunal must consider:

Whether the employer consulted the employee, trade union or other employee representatives
Whether the employer offered the employee anything in return for agreeing to the variation

An employer who clears the financial-difficulties hurdle but failed to consult meaningfully or offered nothing in exchange remains exposed to an ordinary unfair dismissal finding.

Non-Restricted Variations: Enhanced Consultation

Fire and rehire to impose a non-restricted variation, such as a change to location or job role, is not automatically unfair. However, from 1 January 2027 these dismissals are subject to enhanced ordinary unfair dismissal protections. Tribunals are required to take particular account of:

Whether the employer engaged in meaningful consultation with the employee, trade unions and other representatives
Whether the employer offered the employee anything in return for accepting the change

Combined with the reduction in the unfair dismissal qualifying period from two years to six months (also commencing 1 January 2027), this means that a much wider pool of employees will be able to bring an ordinary unfair dismissal claim where they have been dismissed for refusing a non-restricted change to their contract.

Fire and Replace with Non-Employees

The Act also targets a related practice: dismissing employees to replace them with non-employees, such as agency workers or self-employed contractors, who would do substantially the same work. From 1 January 2027, such a dismissal is automatically unfair unless one of two conditions is met:

The dismissal was attributable to the fact that the employer's need for that work has ceased or reduced (for example, genuine redundancy or seasonal scaling), or
The same financial-difficulties exemption that applies to fire and rehire is satisfied

The fire-and-replace rule does not distinguish between restricted and non-restricted variations because it applies to dismissal-and-replacement scenarios that go beyond contract variation. Genuine outsourcing where the underlying work is reduced, or seasonal staffing changes, are not caught.

What Is Not Caught

Several types of dismissal and contractual change fall outside the new rules:

TUPE transfers. Variations and dismissals connected to transfers under the Transfer of Undertakings (Protection of Employment) Regulations 2006 are governed by their own variation regime and are not caught by these provisions.
Genuine redundancies. Dismissals wholly or mainly attributable to a reduction in the employer's need for the work are not affected by the new rule.
Agreed contractual variations. Where the employee agrees to the variation, the new rule does not bite. Employers retain the ability to seek consensual change.
Genuine outsourcing where work is reduced. Outsourcing decisions driven by reduced internal need for the work are not caught by the fire-and-replace rule.

How This Differs from the Current Position

Under the existing law, fire and rehire is lawful where the employer can show a sound business reason for the contractual change (such as economic pressure, changing working practices, or harmonisation of terms across the workforce) and that it acted reasonably in all the circumstances. The ACAS Statutory Code of Practice on Dismissal and Re-engagement sets out the expected procedural conduct, and an employment tribunal can uplift any compensation award by up to 25% where an employer has unreasonably failed to follow it.

The new Act does not replace the existing Code or the 25% uplift, both of which remain in force in the run-up to January 2027. What it adds is the automatic unfair dismissal route for restricted variations.

After January 2027, an employer who dismisses an employee for refusing a pay cut, an hours change, a pension change, a leave reduction or a specified shift change cannot rely on a sound business reason as a defence. The only available defence is the narrow financial-difficulties exemption.

The Tribunal Risk Profile from January 2027

The combined effect of the changes coming into force on 1 January 2027 materially raises the tribunal exposure on contractual change processes:

Six-month qualifying period for unfair dismissal. Employees acquire ordinary unfair dismissal protection after just six months of service, down from two years. A dismissal in month seven or eight is now within tribunal reach.
Automatic unfair dismissal for restricted variations. No reasonableness defence; only the financial-difficulties exemption.
Enhanced scrutiny for non-restricted variations. Tribunals must specifically weigh consultation quality and any consideration offered in return.
Existing 25% Code of Practice uplift continues. Where employers fail to follow the dismissal and re-engagement Code, awards can still be uplifted by up to 25%.

For larger consultation exercises, the doubled collective consultation protective award (180 days' pay per affected employee, in force from April 2026) compounds the financial exposure where employers also fail to consult collectively where required.

What Employers Should Do Now

Audit your contractual change pipeline. If you have planned cost reductions, harmonisation programmes or restructuring projects involving pay, hours, pensions, leave or shift pattern changes, the route via dismissal-and-rehire becomes considerably more difficult from January 2027. Programmes already in progress should be assessed against the timeline.
Build genuine consultation into the process. Whether the variation is restricted or non-restricted, meaningful consultation is now central to defending any tribunal claim. Document who was consulted, when, what alternatives were considered, and what was offered in exchange for any change.
Update disciplinary and dismissal policies to remove fire-and-rehire as a routine contractual variation tool. The dismissal section of your policy should reflect the new restricted-variation regime and the financial-difficulties exemption.
Review the contractual variation clauses in your contracts. Flexibility clauses do not provide a free hand under the new regime. Where your contracts rely on broad variation clauses, take advice on whether they remain workable.
Refresh manager training on what the six-month qualifying period and the new restricted-variation rule mean for the day-to-day handling of performance, terms-and-conditions changes and dismissal decisions.
Treat the financial-difficulties exemption as a last resort. The bar is high and it requires evidence. Using the exemption requires documented financial analysis showing viability impact, alternatives considered, and that the variation was the proportionate response. A board-approved business case is the practical minimum.
Map the interaction with collective consultation. Where 20 or more dismissals are proposed in the same establishment within 90 days, the collective consultation duty under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 applies. Failure to consult collectively can attract a protective award of up to 180 days' pay per affected employee from April 2026.

Until 1 January 2027

The current law continues to apply until commencement. Employers who need to make material contractual changes should still:

Follow the existing ACAS Statutory Code of Practice on Dismissal and Re-engagement
Document the business case for the change in detail
Consult employees and (where applicable) recognised trade unions or elected representatives
Consider what to offer in exchange for the change
Keep contemporaneous records that would withstand later tribunal scrutiny

Tribunals can already uplift compensation by up to 25% where the Code is not followed, and this remains the case throughout 2026.

How Policy Pros Can Help

Policy Pros writes the HR policies and procedures that need to change ahead of the January 2027 commencement, including disciplinary and dismissal procedures, contractual variation processes, redundancy procedures, and the management guidance documents that line managers actually use. We can also review existing employee contracts and handbooks to identify clauses that need updating before the new rules take effect.

If you have a contractual change programme in progress, or expect to need one in 2026 or 2027, our policy review service can audit your current documentation against the new framework and produce updated versions on a fixed-price basis. For broader Employment Rights Act 2025 readiness, see our ERA 2025 timeline summary and our 6 April 2026 employer checklist.