With the Employment Rights Bill set to overhaul the law on dismissal and re-engagement, employers should consider reviewing and updating their contractual terms well before the new provisions take effect.
The Bill aims to significantly restrict the use of ‘fire and rehire’, a well-established practice whereby employers dismiss staff and offer re-engagement on new terms when agreement on contractual changes cannot be reached.
Under the Employment Rights Bill, ‘fire and rehire’ will be grounds for claiming automatic unfair dismissal where the dismissal is because:
- the employee has not agreed to the employer’s proposed contractual variation
- it is the employer’s intention to employ another person or re-engage the employee to carry out the same or substantially the same duties on varied terms.
As a result of an amendment to the Bill introduced by the House of Lords, the new provisions will apply to ‘restricted variations’ to contractual terms. This will broadly apply to terms relating to pay, pensions, hours of work and holiday entitlement, meaning that dismissal and re-engagement to achieve a change to these terms will be automatically unfair. Provided this amendment is approved before the Bill is passed, the new rules will not apply to proposals to change terms relating to the employee’s place of work or duties.
The current statutory Code of Practice on Dismissal and Re-engagement, which came into force on 18 July 2024, will also be revised to reflect the changes under the Bill.
According to the Government’s recently-published ‘roadmap’ for implementing the measures introduced under the Employment Rights Bill, these changes are now set to take effect in October 2026.
Why now?
Dismissing an employee for refusing to accept a contractual variation will be deemed automatically unfair once the new provisions take effect, except in very limited circumstances. Employers will only be able to justify such dismissals where they can demonstrate severe financial hardship threatening the future viability of the business.
As a result, once these measures take effect unless the employee consents to the proposed change it will be extremely difficult for an employer to alter contractual terms without facing a significant risk of a legal claim.
The current position still makes it difficult for employers to change terms. Employers are required to consult with employees in advance and follow the statutory Code of Practice on Dismissal and Re-engagement when proposing changes to contractual terms. Failure to comply with this Code can result in an uplift of up to 25% in compensation awarded by an employment tribunal, where the employer’s failure is deemed unreasonable.
There is currently no standalone claim for ‘fire and rehire’ but employees may still bring a claim for ordinary unfair dismissal, subject to the usual eligibility criteria and procedural requirements. Employers should, therefore, proceed with caution and ensure that dismissal and re-engagement is a tactic for amending contractual terms used only as a last resort, following meaningful consultation and a fair process.
What should employers do?
- Review your existing standard contractual templates and consider updating and amending these for any new employees, to reduce the need for making changes further down the line.
- Consider making contractual changes for your existing workforce before it becomes automatically unfair to dismiss employees for refusing to agree to the changes. Employers should do this by first conducting a comprehensive audit.
- Begin by auditing your current employee benefits package and other contractual terms. The business can then identify what terms it may wish to change. Employers should involve HR and line managers early to gather insights on employee requirements and any operational challenges of current terms.
- Seek to agree any proposed changes with employees, perhaps by offering an incentive for voluntary acceptance (for example, a one-off bonus payment). Consult properly with individual employees and follow the process for collective consultation where applicable.
- Where an employer is “proposing” to dismiss any employees who refuse to agree to the change in terms, and if 20 or more are affected at one establishment, the employer must consult collectively with the affected employees in addition to individual consultation.
- If an employer fails to collectively consult in accordance with the strict statutory requirements they face a risk of a protective award, which compensates each affected employee for the employer’s failure to consult. This is currently a maximum of 90 days’ gross pay per employee, but it will be increased to 180 days per employee under the Employment Rights Bill.
- In addition, if an employer fails to notify the Secretary of State of the proposal to dismiss using the required HR1 form, this also constitutes a criminal offence, which could result in an unlimited fine for the employer and potentially the individual HR professional.
Advance planning
Changing terms and conditions of employment is not always straightforward to achieve and requires careful advance planning by employers, who must follow a robust and thorough process to limit the risk of future challenges. However, we would advise employers to start their preparations now and seek to make any necessary changes well in advance of the new provisions in the Bill taking effect in October 2026.
Rebecca She joined Birketts in July 2021, bringing a wealth of knowledge and expertise in employment law. She loves advising on complex Employment Tribunal claims and has expertise in assisting clients in managing and defending claims in both the Employment Tribunal and the Employment Appeal Tribunal.
She is particularly skilled in handling intricate legal areas such as holiday pay issues, TUPE, and the Working Time Regulations 1998. Additionally, Rebecca assists with collective redundancy exercises, restructures, and employer-led bulk COT3 agreements.
Rebecca provides comprehensive advice to employers on a wide range of contentious and non-contentious issues. She offers strategic, tailored solutions, from drafting employment contracts to managing complex disputes. Whether for a small start-up or a large corporation, Rebecca provides personalised solutions to protect the business interests and minimise legal risks. Her experience with clients who recognise trade unions gives her valuable insight into the complexities of unionised workplaces.
