Is the fire and rehire of employees by the employer to be banned in 2027?

Fire and rehire is where an employer dismisses an employee and re-engages the employee on new contractual terms where the employee, following meaningful consultation meetings, refuses to agree to the proposed contractual variations that are needed by the employer for genuine business reasons. The change could involve less favourable terms for the employee.

The Employment Rights Act 2025 is to introduce major restrictive changes to the fire and rehire process, whereby, if an employee is fired and then rehired after refusing to agree to contractual changes that fall within “restricted variations”, the dismissal will amount to automatic unfair dismissal, irrespective of the employee's length of service.

Also, the rules will apply where an employer dismisses an employee and hires a non-employee on the proposed terms, i.e. in a substantially similar role.

The “restricted variations” are likely to include changes to areas such as pay, working hours, holiday entitlement and pensions. The government is currently consulting on whether certain expenses, such as travel and accommodation expenses, and shift patterns will be included as restricted variations. At present, share schemes are outside the scope of the changes.

Only in very limited exceptional circumstances will a dismissal not be automatically unfair, namely where the employer can show that it would face genuine significant financial difficulties that could threaten the organisation's ability to continue operating, and that the changes could not reasonably be avoided by any alternatives. Also, a fair procedure must have been followed.

It is unlikely that an employer can rely on the genuine exceptional circumstances defence where the matter relates to the reduction of overhead costs, the need to improve the efficiency of the business and/or harmonise terms after an acquisition of a business.

In readiness for these significant changes, there will be a new Acas Code of Practice on the matter, which is currently undergoing a government consultation process. When finalised, the existing Code of Practice on Dismissal and Re-engagement 2024 will be revoked.

It is anticipated that the new statutory Acas Code of Practice on Dismissal and Re-engagement will come into force in summer 2027, but businesses are reminded that the new fire and rehire protections for employees are likely to take effect slightly earlier, from March 2027.

As 2027 approaches, employers must review documents and policies that affect employees to determine whether the terms suggest they are non-contractual, especially historical documents where the distinction between non-contractual discretionary arrangements and contractual terms has become unclear over time.

The article is for informational and educational purposes only and should not be relied upon as legal advice. If you require any further assistance, please do not hesitate to contact our HR/Legal Advice Line team on 01455 852 028.