Dismissal and re-engagement, commonly known as ‘fire and rehire’, occurs when an employer terminates an employee’s contract and offers a new one, usually on less favourable terms. This is often used to implement significant changes to contractual conditions - such as pay, hours, or benefits - where agreement cannot be reached. If an employee refuses to accept the proposed changes, the employer may choose to terminate the existing contract and offer continued employment under the revised terms.
From January 2027, dismissing an employee to impose a restricted variation without consent - or where the employee objects and is subsequently dismissed - will automatically be unfair dismissal. This marks a significant shift in Employment Law. It will effectively end the practice of ‘fire and rehire.’
On 4 February 2026, the Government launched a new consultation on the provisions insofar as they relate to changes to expenses, benefits and shift patterns and which ones should be covered. The consultation is seeking views on (1) which expenses and benefits in kind should be excluded from the scope of the restricted variation of reductions to pay, and (2) where there are any types of changes to shift patterns which should be protected as a restricted variation. The consultation is open until 1 April 2026.
What is a restricted variation?
Restricted variations include changes to:
- Pay
- Targets and measures of work where pay is linked to those
- Working hours
- Pension arrangements
- Shift patterns and duration
- Entitlement to time off
Importantly, even attempting to include a clause that allows unilateral changes to these areas will itself be treated as a restricted variation.
The new rules also cover situations where employers dismiss staff and replace them with self-employed contractors, agency workers, workers who are not employees or any other individuals who are not employed by the employer, if those individuals will be performing essentially the same role.
Dismissal will not be automatically unfair if:
- The changes are minor, “routine and non-detrimental” or relate to the place of work. This will be subject to the unfair dismissal test. Tribunals will consider the reason for the change, consultation, and any incentives offered.
- The employer can demonstrate that the change was necessary to eliminate, prevent or significantly reduce, or mitigate the effect of any financial difficulty, having complied with the Code of Practice on Dismissal and Re-engagement and explored alternatives.
Practical advice for Employers:
- Review current contracts: Identify any flexibility clauses and evaluate how far they can be applied to implement changes without breaching the restricted variation provisions.
- Plan ahead: Bring forward any proposed changes before January 2027.
- Consultation: Engage meaningfully with employees or representatives before considering contractual variations, whether or not they may lead to dismissal/re-engagement.
- Review processes: Review any processes you have when varying contractual terms and update to identify “restricted variations” and subsequent actions.
- Consider alternatives: If the variation is required but does not meet the financial necessity test, consider what other options or incentives you can offer.
- Understand the shift: Fire and rehire can no longer be used as a negotiating tactic for restricted variations unless justified by financial necessity.
- New contracts: Build in lawful flexibility for future changes.
If you require any advice in relation to the above, please contact Annsia Nabi, Solicitor, or Noele McClelland, Partner, of our Employment Team.
