Welcome to the Bellevue Brief, Bellevue Law’s podcast series. In a recent episode of our special season focussing on the ERA, Founder Florence Brocklesby and Employment Associate Chloe Grant explored one of the most significant – but perhaps least publicised – areas of change coming under the ERA: the reform of dismissal and re-engagement, more commonly known as fire and rehire.
These developments have the potential to impact not only employers who engage in dismissal and re-engagement, but also the much more common practice of variation of contractual terms. Below we break down the key points from Chloe and Florence’s discussion and highlight what employers should be doing now to prepare.
What Is Fire and Rehire – and Why Is It Controversial?
‘Fire and rehire’ occurs when an employer dismisses employees and offers to re-engage them on new, often less favourable terms. While potentially lawful under current legislation, the practice is fraught with risk – legal, operational, and reputational.
A number of high-profile disputes have kept the issue in the spotlight, not least:
- P&O Ferries (2022), where approximately 800 employees were dismissed, some via pre-recorded video and replaced with agency workers on lower terms.
- Similar conflicts at British Gas, British Airways and Tesco, many arising during the pandemic.
These controversial and high profile cases prompted government reviews and eventually influenced the ERA reforms in this area. In July 2024 Acas introduced a statutory Code of Practice on dismissal and re-engagement, requiring employers to consult meaningfully, avoid premature threats of dismissal, and act transparently. While the Code is not legally binding, Employment Tribunals can increase compensation by up to 25% if an employer fails to follow it.
What’s Changing Under the Employment Rights Act 2025?
The government has stopped short of banning fire and rehire outright. Instead, the ERA introduces a framework that will make it significantly harder for employers to impose contractual changes, particularly without employee agreement.
Three changes stand out:
- Automatic Unfair Dismissal for Refusing a Restricted Variation
The ERA introduces a new concept, that of the ‘restricted variation’, a core contractual term central to an employee’s working conditions. Restricted variations include (but are not limited to):
- pay
- pensions
- annual leave
- shift patterns
- core working hours
The government is consulting on whether additional terms such as certain benefits or allowances should fall within this definition.
Under the ERA, it will be automatically unfair to dismiss an employee who refuses such a change, or to attempt to re-engage them on new terms.
- Protection Against Fire and Replace
The ERA makes it automatically unfair to dismiss an employee in order to replace them with a non-employee, such as an agency worker, performing the same or similar work, such as in the P&O case described above. This applies even where no restricted variation to terms and conditions is involved.
- Removal of the Cap on Unfair Dismissal Compensation
As discussed on an earlier episode [link to unfair dismissal episode blog], from January 2027, the cap on unfair dismissal awards will be removed, potentially significantly increasing financial exposure for employers who get this wrong.
A Narrow Exception: Only for Employers on the Brink of Insolvency
The only situation where dismissal for refusing a restricted variation may be lawful is where the employer is facing severe financial distress, effectively imminent insolvency. Routine commercial pressures won’t meet this threshold.
Practical Impacts for Employers
As Chloe and Florence discuss in the podcast, this reform has potentially wide-ranging impacts, going well beyond traditional ‘fire and rehire’ scenarios.
- Contractual flexibility will be significantly reduced
Many businesses vary core terms occasionally, sometimes annually, sometimes as part of organisational change. Under the ERA, any variation of a restricted term will require genuine employee agreement.
- Flexibility clauses will offer limited protection
Even existing broad flexibility clauses are unlikely to allow unilateral changes once the reforms take effect.
- Unionised workplaces face even greater complexity
Where a union is recognised:
- collective bargaining will intersect with restricted variations
- consultation obligations will become more structured
- union resistance may strengthen, given automatic unfair dismissal protections
- negotiation timelines may become longer
- High-risk areas include:
- harmonisation of terms after acquisitions
- restructures and reorganisations
- rapid shifts in duties or responsibilities (common in start-ups and scale-ups)
- pay or benefit changes linked to market conditions
In short, the reforms apply to every employer who needs to update contractual terms not just those who have historically used fire and rehire.
When Will These Changes Take Effect?
The government’s consultation on key definitions closes 1 April 2026 with secondary legislation and updated Codes of Practice expected thereafter. While fire and rehire restrictions were originally planned to come into effect in late 2026, they have been pushed back to January 2027 as a result.
What Should Employers Do Now?
To prepare for January 2027, Florence and Chloe outlined five practical steps:
- Audit contracts and identify areas of reliance on flexibility
Map out:
- pay review mechanisms
- hours and shift patterns
- benefits
- job duties and reporting lines
Identify where you anticipate needing changes in the next 2–3 years.
- Review your consultation processes
The ERA will heighten expectations around:
- transparency
- information sharing
- alternative options
- timing and engagement
- Do not rely solely on flexibility clauses
They will not shield employers from automatic unfair dismissal risks.
- Consider timing strategically
If significant contractual changes are anticipated, there may be a window to act before January 2027, provided it is appropriate and lawful to do so.
- Monitor ongoing consultations
Key definitions including what qualifies as a restricted variation or severe financial distress are still evolving.
Final Thoughts
These reforms have not received the publicity they deserve, but their impact will be far‑reaching. They will reshape how employers manage contractual change, not just dismissal and re-engagement.
If you’d like to discuss how we can help your organisation prepare for the ERA changes, please get in touch.
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