Fire and Rehire: Tighter Rules Under the Employment Rights Act 2025

What Is Fire and Rehire?

'Fire and rehire' - formally known as dismissal and re-engagement - is the practice of an employer dismissing an employee and offering to re-engage them on new, typically less favourable, contractual terms. Historically, it's been used as a last resort when employees refuse to agree to changes in pay, hours, or other conditions of employment.

While never straightforward legally, the practice became deeply controversial following several high-profile cases - most notably the P&O Ferries scandal in 2022 - which prompted widespread calls for legislative reform. The Employment Rights Act 2025 (ERA 2025) now introduces the most significant restrictions on fire and rehire that UK employment law has ever seen.

What Has Changed Under the Employment Rights Act 2025?

The ERA 2025 substantially raises the bar for employers seeking to change contractual terms through dismissal and re-engagement. The key changes include:

• Automatic unfair dismissal: A dismissal carried out for the purpose of varying an employee's contract terms will be treated as automatically unfair unless the employer can satisfy strict statutory conditions. This means employees no longer need two years' continuous employment to bring a claim - the qualifying period is removed entirely for this category of dismissal.
• Exhaustive consultation requirement: Before any dismissal and re-engagement can be considered lawful, employers must demonstrate that they have genuinely and exhaustively consulted with employees (and their representatives, where applicable) about the proposed changes. A perfunctory or tokenistic consultation process simply will not suffice.
• No viable alternative: The employer must be able to show that agreeing the contractual changes through negotiation was not reasonably practicable, and that re-engagement on the new terms was genuinely necessary - for example, to address financial difficulties that would otherwise threaten the viability of the business.
• Fire and rehire as a negotiating tactic is prohibited: The legislation makes clear that using the threat of dismissal simply as leverage to pressure employees into accepting inferior terms - without a genuine business rationale - will not be protected and will expose employers to automatic unfair dismissal claims.

Under the ERA 2025, there is no longer any 'safe' way to use fire and rehire as a routine negotiating tool. It must be a genuine last resort, evidenced by thorough consultation and a compelling business case.

When Might Fire and Rehire Still Be Lawful?

The ERA 2025 does not make dismissal and re-engagement unlawful in every circumstance. However the circumstances in which it can be used without triggering automatic unfair dismissal are now very narrow indeed. An employer may be able to rely on this route only where:

1. There is a clear, documented, and genuine business reason for the contractual change (e.g., financial distress, restructuring essential to the business's survival).
2. The employer has carried out meaningful and exhaustive consultation - including with recognised trade unions or elected employee representatives where relevant - and has genuinely considered all alternatives.
3. The employee has unreasonably refused to agree to changes that are demonstrably necessary.
4. The re-engagement offer is on terms as close as possible to the original contract, with changes limited strictly to what is necessary.

Even where all of these conditions are met, a dismissed employee may still bring a claim - and an Employment Tribunal will scrutinise the employer's conduct closely. The burden of demonstrating lawfulness rests firmly with the employer.

Practical Implications for UK Employers

For small and medium-sized businesses, these changes have significant day-to-day implications. Here is what employers should be doing now:

1. Treat Contractual Changes as a Serious Legal Matter

Whenever you need to change employment terms - whether that's reducing hours, altering shift patterns, changing pay structures or adjusting duties - approach the process carefully. Always seek to reach voluntary agreement first. Document all discussions and offers made. Every time.

2. Invest in Genuine Consultation

Consultation must be meaningful, not a box-ticking exercise. This means giving employees (and their representatives) sufficient information about why the change is needed, genuinely listening to their responses, and seriously considering counter-proposals before reaching a final decision. Frustratingly, many employers still underestimate how much scrutiny this process can attract at Tribunal.

3. Explore All Alternatives First

Before even considering dismissal, exhaust every alternative: phased implementation of changes, compromise arrangements, alternative roles, or temporary adjustments. An Employment Tribunal will expect to see clear evidence that dismissal was truly a last resort - not just a convenient shortcut.

4. Seek Legal Advice Early

Given the risk of automatic unfair dismissal - which carries uncapped compensation in some circumstances - any situation where contractual change proves impossible to agree voluntarily should trigger early legal advice. The cost of getting this wrong far outweighs the cost of professional guidance.

5. Review Your Employment Contracts and Flexibility Clauses

Now is a good time to review whether your employment contracts contain well-drafted flexibility clauses that allow for reasonable operational changes without needing to vary the contract at all. While such clauses cannot override fundamental changes (such as significant pay cuts), they can provide useful latitude for minor adjustments and reduce the likelihood of disputes arising in the first place.

The Removal of the Two-Year Qualifying Period

One of the most practically significant changes is the removal of the two-year qualifying period for unfair dismissal claims in fire and rehire cases. Previously, employees with less than two years' service had very limited recourse if dismissed. Under the ERA 2025, a dismissal found to be automatically unfair in a fire and rehire context can be challenged by employees from day one of employment. This dramatically widens the pool of workers who can bring claims and - it's worth noting - considerably increases the potential liability exposure for employers of all sizes.

What About Collective Consultation?

Where 20 or more employees at a single establishment may be dismissed as part of a fire and rehire exercise, the existing collective redundancy consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) will also apply. This requires a minimum consultation period (45 days for 100 or more affected employees; 30 days for 20-99) and notification to the Secretary of State via an HR1 form. Thankfully, the ERA 2025 doesn't replace these obligations - they simply run in parallel.

Key Takeaways for SME Employers

• Fire and rehire is now a genuine last resort, not a negotiating strategy.
• Automatic unfair dismissal applies regardless of length of service in qualifying fire and rehire cases.
• Exhaustive, documented consultation is non-negotiable before any dismissal and re-engagement.
• Employers must demonstrate no viable alternative existed and that re-engagement terms were as favourable as possible.
• Seek legal advice early - the financial and reputational risks of getting this wrong are substantial.
• Review your contracts now to ensure flexibility clauses are fit for purpose.

The ERA 2025 signals a clear shift in the balance of power towards employees on the question of contractual change. Employers who adapt their approach to workforce relations proactively will be best placed to navigate these new rules.