As part of the raft of employment law changes introduced by the Employment Rights Act 2025, there will be further restrictions imposed on an employer’s right to fire and rehire.

These restrictions were due to come into force in January 2027, but the Government has announced that this will now not happen until March 2027.

So what do employers need to know?

The current position

At present, an employer may be able to dismiss and offer re-engagement to an employee on new terms if it has a sound business reason and acts reasonably.

There is already a statutory Code of Practice (click here) which provides guidance for employers, employees and representatives in dismissal and re-engagement scenarios. This imposes a duty on employers to meaningfully share information and consult with employees and representatives as appropriate, and it confirms that dismissal and re-engagement should be treated as a last resort.

Changes from March 2027

From March 2027, a dismissal will generally be automatically unfair if its purpose is to impose changes to certain core terms and conditions of employment (referred to as a “restricted variation”), unless the employer can satisfy a statutory financial-difficulties exception. These restricted variations include reductions to pay, changes to total hours, reductions to leave entitlement, changes to pensions, and specified shift pattern changes.

There will be additional procedural hurdles to jump through for a dismissal for making an ‘unrestricted variation’ to be held to be fair. It will also be automatically unfair dismissal to replace an employee with a non-employee doing substantially the same role.

The Government has commenced a consultation about the proposed changes and a new Code of Practice relating to fire and rehire will be published in due course to replace the existing one (see above). In the meantime, the Government has confirmed the following:

• The new fire and rehire changes will take effect in March 2027, having previously been expected to come into force in January 2027.
• The 2024 Code of Practice (see above) will be withdrawn in March 2027, but the new Code will not come into force until summer 2027. That leaves a gap of several months with no Code in place.
• Restricted variations will include changes to shift patterns which are to be ‘specified in regulations’. The draft Code confirms that regulations covering this will be published in autumn 2026.
• The new Code will provide guidance on the financial difficulties exemption, expressly dealing with the different forms that financial difficulties take in the private sector, public sector, and within local authorities.

The consultation on the new Code runs until 17 December 2026.

What changes will remain possible?

Changes outside the restricted categories, for example some changes to workplace location or job role, will not automatically make a dismissal unfair. However, enhanced ordinary unfair dismissal protections will apply. A tribunal will consider matters including the employer’s reasons, the quality of consultation, and anything offered to the employee in return for accepting the change.

Contractual flexibility clauses may remain relevant, but they will not be a complete answer. Their wording, scope, prior use and the way in which a proposed change is implemented will all matter. Employers should not assume that a broadly drafted clause removes the need for consultation or makes a substantial change low risk.

Practical steps for employers

In the meantime and pending the new statutory Code of Practice, employers should:

1. Map contractual terms: Identify which pay, hours, leave, pension, shift and benefit provisions are contractual, and distinguish them from non-contractual policies.
2. Review flexibility clauses: Check that clauses are clear, proportionate and appropriate for the business. Do not rely on them as a substitute for a fair process.
3. Strengthen change-management processes: Build in early information-sharing, genuine consultation, consideration of alternatives and a clear written audit trail.
4. Assess financial evidence: If relying on financial difficulty, retain contemporaneous evidence of viability concerns, options considered and why less intrusive alternatives were not reasonably available.
5. Plan workforce changes early: Allow time for individual and, where applicable, collective consultation. Consider redundancy and other statutory obligations separately.
6. Take advice before threatening dismissal: A threat to dismiss can itself materially affect employee relations and litigation risk. Obtain advice before communications are issued or deadlines set.

The reforms do not remove an employer’s ability to make necessary organisational changes. They do, however, substantially increase the risk of using dismissal as the mechanism for imposing changes to core terms. Early planning, evidence and genuine consultation will therefore be critical.

If you’re considering changes to employment terms and need advice on what the reforms could mean for your business, we’re here to help. Get in touch with Annie Gray.

This publication is for general information only; it does not constitute legal advice and should not be relied upon. We make no guarantees that the content is complete, accurate, or current. Seek legal advice before acting on any information contained here. Schofield Sweeney LLP is authorised and regulated by the Solicitors Regulation Authority (OC303400).