Government consultation on new 'fire and rehire' restrictions: what employers need to know

The Government has launched a consultation on the fire and rehire reforms being brought in by the Employment Rights Act 2025, asking for views on whether changes to contractual expenses, benefits and shift patterns should count as 'restricted variations'.

Although these proposals will not become law until January 2027, they signal a substantial shift in how employers will be able to approach contractual variations in the future. This blog provides a summary of the consultation and the key issues employers should be thinking about.

Changes to fire and rehire

Fire and rehire refers to the practice of dismissing employees and offering to re-engage them on new terms, typically where agreement to contractual changes cannot be reached. While lawful under current legislation (if a fair process is followed), it has always been high risk and politically sensitive

The Employment Rights Act 2025 will significantly restrict this practice. It will be automatically unfair to dismiss or replace an employee in order to impose changes to certain core contractual terms, such as pay, pensions, total hours and holiday entitlement – described as “restricted variations" – unless an employer is in severe financial difficulty and has no reasonable alternative. This is a high threshold: routine cost-saving or protection of profit will not be sufficient.

Dismissals relating to variations of non-core terms (unrestricted variations), such as location or job role, will not be automatically unfair. However, enhanced protections will still apply in order for such dismissals to be fair, such as meaningful consultation with employees and representatives.

The introduction of variation clauses into contracts will also be restricted once the new rules take effect, although employers may still include them before that date.

It is important to note though that, even once the new provisions are in force, contractual changes will remain possible where they are agreed with individual employees or through collective bargaining.

When will restrictions to fire and rehire take effect?

The Government has updated its implementation timetable (as outlined here), confirming that while the anticipated timing of most ERA reforms remains unchanged, the introduction of fire and rehire restrictions has been deferred from October 2026 to January 2027.

The consultation on expenses, benefits and shift pattern protections remains open until 1 April 2026, and any resulting measures will require Parliamentary approval before they take effect.

What is the Government consulting on?

The consultation seeks views on whether two categories of contractual terms should be treated as restricted variations – that it, terms that cannot be changed via fire and rehire unless the narrow financial difficulties exemption applies:

1. Employment expenses and benefits

The Government asks whether fire and rehire protection should extend to cover contractual allowances, expenses, and benefits in kind (for example, car allowances, subsistence payments or guaranteed benefits).

The Government takes the view that expenses and benefits should not be included in the scope of a restricted variation, but suggests a second option where share schemes, travel expenses and accommodation come within scope.

2. Shift patterns

In the consultation, the Government indicates that it is minded to include a narrow set of shift related changes within the definition of a restricted variation – specifically, those that would have an extreme impact on employees, such as requiring a move from day to night working or from weekday to weekend working (and vice versa).

At the same time, the Government is seeking views on whether all shift pattern changes should be excluded from the scope of restricted variations altogether. If this approach were adopted, it would mean that it would not be automatically unfair to use fire and rehire to implement changes to shift patterns.

Significance and next steps

The changes to fire and rehire could potentially have significant ramifications for employers. Their impact will not be confined to the “classic” fire and rehire scenarios of large scale contractual variations or wholesale reorganisations. Instead, the breadth and practical complexity of what will constitute a restricted variation is likely to impact far more routine, day-to-day operational changes. Employers may find themselves far more limited in their ability to make contractual changes.

A further, often overlooked consequence of the proposed fire and rehire restrictions is the impact on situations where an employer wants to replace an employee with someone who is not an employee, such as a self‑employed contractor or an agency worker, because that option is cheaper or offers greater flexibility.  Under the new framework, any dismissal carried out for the purpose of bringing in a non‑employee alternative could be treated as an automatically unfair dismissal.  This is particularly relevant for employers who rely on fixed‑term contracts because in law, the expiry of a fixed‑term contract counts as a dismissal.  Under the new fire and rehire changes, allowing a fixed term contract to expire with the intention of engaging a contractor instead may inadvertently trigger an automatically unfair dismissal of the original fixed term employee. Employers who use fixed‑term arrangements to retain flexibility should be aware that these rules could significantly restrict that approach.

Against that backdrop, proactive preparation is advisable. Practical steps include:

• Audit existing contracts to understand where obligations are tightly drafted, where flexibility exists, and where it does not.

• Build in appropriate flexibility now, before the changes take effect. This may include adding unilateral variation clauses into contracts where none exist, or increasing the scope of employer discretion in contracts.

• Plan ahead. Although these changes do not take effect until January 2027, employers considering contractual changes would be well advised to start the process in good time before that date.

• Be prepared for more active negotiation with staff and representatives to seek agreement to proposed contractual variations. This may require employers to offer additional incentives to secure consent, or make promotions or pay rises conditional on employees accepting updated terms.

Taking these steps early will put employers in a far stronger position, both to navigate the evolving rules and to mitigate the operational and legal risks that may accompany them.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2026