HOT TOPIC | JUNE 2026 - The end of fire and rehire? Navigating restricted variations
From 1 January 2027, the landscape of UK employment law will undergo a seismic shift.
Under the Employment Rights Act 2025, the practice of "Fire and Rehire" (dismissal and re-engagement) will become automatically unfair in almost all circumstances.
For all employers, particularly, SMEs, this is no longer a ‘last resort’ tactic. If your business relies on contractual flexibility to stay agile, you need a new roadmap for restructuring, cost-cutting, and the management of contractual terms.
In our Hot Topic this month, we break down this area of the ERA 2025 and provide the latest information on the "restricted variation" rules to ensure your business stays compliant and protected.
We cover:
· Introduction – the current legal framework
· The new legal framework
· The 'restricted variation' trap
· Exceptions
· Preparing the business.
1. Introduction – the current legal framework
In many businesses, changing operational needs require adjustments to employee terms and conditions. The need for contractual changes is often driven by new technology, shifting customer demand, productivity improvements, or general restructuring. Consequently, requiring modification to certain contractual terms.
Employers retain the right to modify employment contracts for genuine business reasons, provided they follow a fair procedure and adhere to the Acas Code of Practice on Dismissal and Re-engagement. If a contract supports the change and a robust process is followed, employers can ultimately enforce new terms through two primary methods:
Fire and Rehire: Terminating the existing contract and immediately offering the employee a new contract under the revised terms.
Fire and Replace: Terminating the employee's contract entirely and replacing them with a new hire who accepts the less favourable terms.
These practices are both risky, because of the threat of both a claim of unfair dismissal, breach of contract, and possible a wrongful dismissal. If you remember P&O Ferries back in 2022 carried out mass dismissals, with no process and hired other people on lower terms. This case is what is driving the change in law under the Employment Rights Act 2025. For background, you can read our article about the P&O Ferries mass redundancies on our Knowledge Base, in which it explains the legal issues that cost the company more than £36 million and around 40 employees receiving payments exceeding £100,000.
You can read more about the current legal framework an employer must adopt when changing contractual terms in our Knowledge Base article.
2. The new legal framework
Scheduled for January 2027 the law is changing around forcing through contractual changes, where it will become automatically unfair to dismiss an employee for refusing to accept certain changes to core contractual terms (these will be known as restricted variations). So, both practices we saw adopted by P&O Ferries, of ‘fire and rehire’ and ‘fire and replace’ will be outlawed.
There will be an exception clause within the law but this but employers will have an extremely high threshold to justify it (see below).
This is going to be significant therefore for employers and their ability to remain agile, when needing to respond to changing operational needs and external market and economic conditions.
3. The ‘restricted variation’ trap
We expected the new law to apply where the proposed variation in the contract is a restricted variation, and, according to the latest information published by the Government, this means:
A reduction in pay
A variation to pensions
A variation in hours of work
A variation in timing or duration of shifts (which meets conditions specified by the Secretary of State
A reduction in entitlement to time off
The addition of a variation clause, allowing any restricted variations to be made without the employee’s agreement or
Any other variation specified in Regulations.
We must wait for further Regulations to be introduced to confirm exactly what constitutes a restricted variation.
Note, that a dismissal for an ‘unrestricted variation’, whilst it still needs a robust process that follows the Code of Practice on Dismissal and Re-engagement, it will continue to be a potentially fair dismissal, subject to new statutory fairness checklist.
4. Exceptions
As indicated above, there will be an exception clause within the law that in some very limited circumstances, a dismissal for refusing to accept a restricted variation will not be automatically unfair. But we expect this to be an extremely high threshold to justify.
The employer would need to show:
it had serious financial difficulties affecting (or likely to affect) business viability;
the proposed contract changes were intended to address or mitigate those
financial problems; and
it had no alternative – the changes were unavoidable to keep the business afloat.
This is essentially an insolvency-adjacent test, and all three conditions must be met before an employer can argue that a dismissal for refusing to accept a ‘restricted variation’ wasn’t automatically unfair.
5. Preparing the business now
1) Prepare Immediately: Businesses should use the next six months before these rules take effect to review existing contractual terms. It is vital to ensure they remain fit for purpose, cost-effective, and operationally viable. Because the upcoming regulations will make securing employee agreement much more difficult, any necessary contractual changes should be addressed now.
2) Management awareness: Managers may still assume they can fall back on the fire and rehire practice if talks stall, so ensure they understand this won’t be a lawful option in most cases from January. Instead, the new approach needs to be more collaborative by involving employees early, using pilot schemes or phased introduction of contractual changes.
3) Strengthen your consultation processes: If you have a recognised union or employee forum, involve them early in any planned changes. When the new rules come in, we expect tribunals will look at whether representatives were properly consulted. So, if you don’t have consultation structures in place, set them up so you are ready to run proper one-off consultations. Always document the business reasons and the steps taken to avoid dismissal before even considering it.
4) Prioritise Genuine Engagement: If contractual changes are required, businesses must achieve them through proper consultation, meaningful negotiation, and incentivised consent, rather than relying on "fire and rehire" practices.
5) Strengthen Documentation: Effective consultation must be backed by robust paperwork. Businesses should review and update their change management procedures and template communication letters now.
6. Watch our webinar
We ran a webinar on this topic, watch on demand here: https://www.hrsolutions-uk.com/webinars/the-end-of-fire-and-rehire-navigating-restricted-variations/
7. New webinars added to our events page
We have also added new events to our webinar schedule:
The AI powered employee – should employers be worried?
Today, a disgruntled employee with a smartphone can generate a 10-page, legally cited grievance in under 60 seconds. From drafting complex appeals to "hallucinating" case law, AI is changing the speed and volume of employee relations.
In this webinar we explore how to manage a workforce that is using AI to write their own scripts, grievances, and legal claims. In particular, looking at:
The rise of the instant grievance
Spotting the AI ghostwriter
The reasonable investigation trap
Confidentiality and the data leak
The future of AI regulation in the UK
The human centric response
Updating your policies for 2026
Workplace harassment – a practical webinar for employers
Non-compliance risks – a guide for employers
Workplace harassment – a practical webinar for employers
UK employment law is undergoing significant changes in tackling harassment in the workplace, having started back in 2024 with the implementation of the Worker Protection (Amendment of Equality Act 2010) Act 2023, and now under the Employment Rights Act 2025 which will bring in further changes in October 2026. This is because unfortunately, workplace harassment continues.
According to the Office for National Statistics Crime Survey for England and Wales, in the year ending March 2025, 22.5% of people said they had experienced sexual harassment at their place of work in the previous 12 months, 7.1% of the harassment was carried out by a colleague and 6.2% of people experienced general workplace harassment by a third party.
In this webinar, we will cover:
The different pillars of harassment, including the new harassment by third parties
What is meant by the proactive legal duty to prevent harassment
The role of employer, and the line manager in meeting their preventative duty
The consequences of inaction
Understand what the minimum standards in taking all reasonable steps to prevent workplace harassment.
Non-compliance risks – a guide for employers
The Employment Rights Act 2025 represents the most monumental shift in UK employment legislation in decades. With key enforcement dates dropping throughout 2026 and culminating in major shifts on 1 January 2027, employers face severely heightened legal and financial risks. In this webinar, we will cover:
State enforcement is no longer fragmented. It is a single, heavily empowered super-regulator
The window of exposure for employers is doubling, meaning old disputes can linger much longer.
A poorly handled dismissal could bankrupt a small business or severely damage a corporate bottom line.
Legacy HR handbooks and casual management styles are an immediate liability.
How employers can implement robust strategies to minimise risk.