Fire and rehire under the Employment Rights Act 2025: how far can employers change contractual terms?

Introduction

An employee is told that their employer intends to reduce contractual pay by twelve per cent. The employee refuses, relying on the terms agreed when the job was accepted. The employer responds by giving notice to terminate the existing contract and offers continued employment in substantially the same role, but at the lower rate. Formally, the employer has invoked a contractual power to terminate employment and offered a new bargain. Substantively, the employee faces a choice between surrendering an existing entitlement and losing a livelihood. That distinction between contractual form and economic reality is at the centre of the controversy surrounding dismissal and re-engagement, commonly called fire and rehire.

Under the law existing in November 2026, the practice is not unlawful merely because an employer dismisses an employee in order to impose new terms. Common-law contractual rights, statutory protection against unfair dismissal, collective consultation requirements, anti-discrimination legislation and the statutory Code of Practice may nevertheless constrain the employer. The Employment Rights Act 2025 (‘the 2025 Act’) introduces a significant additional constraint: once the relevant provisions commence, dismissals directed at certain specified contractual changes will ordinarily be automatically unfair. It also addresses the related practice of replacing dismissed employees with people engaged on non-employment contracts.^[1][2]

On 2 November 2026 the Government confirmed that the statutory protections and regulations defining some of their boundaries were intended to take effect in March 2027, subject to parliamentary proceedings. The Government’s response on benefits, expenses and shift patterns, and its consultation on a revised Code of Practice, had been published on 22 October. The consultation is open until 17 December 2026. The existing Code is intended to be revoked when the new rules commence in March; the replacement Code is not expected to take effect until summer 2027. Consequently, neither the legislation’s proposed full operation nor the final text of the new Code should be presented as settled law in force at the date of this analysis.^[3][4]

The crucial interpretative question is whether the reform finally eliminates an abusive practice or merely changes its permissible legal forms. This essay argues that the Act materially rebalances employment relations by denying employers the ordinary unfair-dismissal defence of business reorganisation when the objective is to compel a defined set of core-term reductions. Nevertheless, it is not a prohibition on dismissal, organisational change or every form of dismissal and re-engagement. The protected categories are deliberately selective; the exemption for imminent and serious financial difficulty remains; non-restricted changes are governed by an enhanced but discretionary reasonableness test; and statutory remedies will usually be retrospective. The effectiveness of the new model will depend on how tribunals identify the real reason for dismissal, police attempts to substitute unprotected terms for protected ones, assess the financial exception and make remedies accessible. The fairest interpretation of the Act is therefore as a substantial restriction on the use of dismissal as a bargaining threat, not as an absolute guarantee that contractual terms can never be altered without consent.

1. The structural problem: contractual freedom under unequal conditions

The law of contract normally permits parties to negotiate variations. It also generally permits a party to terminate an agreement where a valid termination provision or lawful right to end it exists. Employment relationships complicate those propositions because an employee’s consent is obtained against the economic and practical consequences of unemployment. Employment contracts are relational and continuing rather than isolated exchanges: they structure income, hours of care responsibilities, pension planning, career progression and the ability to challenge managerial decisions. An employee threatened with dismissal over a disputed variation may have little realistic time or financial capacity to search for alternative work. In such circumstances, a formal right to refuse may confer limited bargaining power.

Fire and rehire exploits the distinction between the employer’s inability simply to rewrite a contract and its ability to end that contract on notice. In principle, the employer does not force a variation upon the same contract: the old agreement ends and the employee may accept a new one. In practice, the offer may be presented as the only means of retaining employment, irrespective of the employee’s prior entitlement. A collectively agreed benefit may be especially vulnerable if the employer can bypass the negotiating structure by making individual employment conditional upon surrendering it.

There are, however, legitimate reasons why employers seek contractual change. Firms may need to modernise production, alter opening hours, reorganise teams, reduce an unsustainable cost base, adapt to new technology or prevent closure. A prohibition on all variations made under the shadow of dismissal would make some adjustments impossible even after extensive consultation. It might also create a perverse incentive to dismiss employees through genuine redundancy or discontinue an activity altogether instead of offering continued employment on modified terms. A defensible reform must distinguish business adaptation from use of the threat of job loss to secure concessions which could have been negotiated without it.

In a 2021 fact-finding exercise commissioned by the Government, Acas identified several settings in which the practice was used, including cost reduction, harmonisation, changes in operating arrangements and contractual flexibility. It also reported concern about the threat of dismissal being deployed early in negotiations. These were qualitative findings rather than an exact population-wide measure of incidence. The difference matters: establishing that a practice can cause serious harm does not establish how frequently it occurs, nor that every employer invoking it does so abusively. The principled case for legislation concerns the coercive leverage created by the possibility of dismissal and the inadequacy of a purely procedural response to that leverage.^[21]

2. The existing common-law framework: variation requires a legal basis

2.1 Agreement, incorporated terms and flexibility clauses

Before identifying what the 2025 Act changes, it is necessary to recognise what an employer already cannot do. A contractual term generally cannot be altered merely by announcing that it has changed. An enforceable variation may arise from express agreement, conduct objectively demonstrating acceptance, a term permitting the particular adjustment, or an appropriately authorised collective mechanism. A wage cut without contractual authority is ordinarily a breach, potentially giving rise to claims for arrears of pay, unlawful deduction from wages or damages. The fact that management has a rational commercial objective does not itself confer a power of unilateral variation.^[6][32]

Whether a policy or benefit is contractual may be contested. The employee’s statement of terms, remuneration letters, individual assurances, incorporated collective agreements and handbooks may all be relevant. Employers may argue that a provision described as discretionary is not binding, while employees may rely on the parties’ actual agreement or established practice. Labels do not wholly resolve the question; what matters is the legal interpretation of the relevant documents and conduct. Conversely, not every benefit offered at work becomes a contractual promise merely because it has been provided repeatedly.

Express variation clauses complicate the analysis further. A narrowly drafted provision permitting reasonable changes to operational duties does not necessarily authorise reducing base salary or extinguishing an expressly promised pension benefit. Courts construe contractual powers in their context; employers must observe any contractual conditions and cannot treat general managerial discretion as unlimited. Yet a valid, suitably specific clause may enable changes without the particular employee’s fresh consent. The 2025 Act does not erase that distinction: its primary automatic-unfair-dismissal mechanism presupposes a dismissal for a restricted variation. It does, however, prohibit employers from using dismissal to obtain a new contractual clause authorising future restricted variations without agreement. That anti-avoidance protection will be important where employers respond by trying to make contracts prospectively more flexible.^[2]

2.2 Working under protest is not necessarily acceptance

In Rigby v Ferodo Ltd [1988] ICR 29, the employer unilaterally imposed a five per cent wage reduction in response to financial problems. The employee continued working but had not accepted the change. The House of Lords held that the employer remained liable for the contractual shortfall. The decision illustrates an essential distinction: an employee who continues performing an existing contract in the face of an unauthorised change does not invariably elect to accept the breach. An employer may be in breach of contract even when it has not formally dismissed the employee.^[7]

The Court of Appeal returned to the issue in Abrahall v Nottingham City Council [2018] EWCA Civ 796. A two-year pay freeze was imposed without agreement. The employees continued working, but the circumstances did not establish agreement to the variation. The Court of Appeal emphasised the need for conduct which, objectively understood, demonstrated consent. Continued performance of work is equivocal where employees may have little practical alternative and where pay reductions are imposed by the employer. This does not mean employees can indefinitely disregard every contractual change after an unqualified period of acquiescence; rather, acceptance must be proved from the particular evidence, including protest, communications and the nature of the change.^[8]

These authorities demonstrate why an essay limited to dismissal law would be incomplete. Some employers may seek to impose a change without dismissal, hoping employees continue work and eventually accept it. Such conduct is not automatically rendered lawful by the fact that sections 104I–104K address dismissals. Existing contractual and wages remedies remain relevant. They may be less effective than unfair-dismissal protection where the employee cannot afford litigation or where damages are small, but the statutory reform is not the sole legal barrier against unilateral alteration.

2.3 The significance—and limits—of the Tesco litigation

The Supreme Court’s decision in Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28 is central to the pre-reform position. Following reorganisation of distribution centres, Tesco had made a substantial retained-pay commitment, incorporated from a collective agreement into individual contracts, to induce employees to relocate or remain in particular roles. The benefit was described as permanent, subject to identified exceptions. Tesco subsequently proposed to terminate the affected employees’ contracts and offer re-engagement without retained pay.^[11]

The Supreme Court held that the contracts contained an implied restriction on using the employer’s notice power for the purpose of depriving employees of their retained-pay entitlement. An injunction restraining the proposed termination was justified. The reasoning derived from the specific contractual promise and its commercial purpose. An unqualified termination right would have made the ostensibly permanent retained-pay commitment capable of unilateral destruction immediately after it had induced employees to make significant decisions. Giving effect to the agreement therefore required a narrowly directed implication.

Tesco is not authority for a general proposition that employers lack the right to dismiss and re-engage, or that an employee enjoys employment for life. The Supreme Court itself acknowledged the ordinary contractual right of an employer to terminate on proper notice and the exceptional character of an injunction requiring continuation of employment. Its importance is twofold. First, the legal significance of a promised term may restrict the otherwise available termination power. Secondly, contract law can sometimes afford stronger protection than an unfair-dismissal remedy, especially where employees seek to prevent the termination rather than claim compensation after it. But the remedy is not routinely available and depends on unusually strong grounds for equitable intervention. The 2025 Act seeks to protect a broader category of core terms without requiring each claimant to establish a promise comparable to Tesco’s retained pay.^[11]

3. Unfair dismissal before commencement: business reasons and the reasonable employer

The Employment Rights Act 1996 (‘the 1996 Act’) gives qualifying employees the right not to be unfairly dismissed under section 94. A termination on notice is a dismissal within section 95 even if the employer simultaneously offers a new contract and the employee accepts it. Section 98 requires the employer to establish a potentially fair reason for dismissal. Where there is no genuine redundancy, dismissal because an employee refuses changed terms has frequently been analysed as some other substantial reason (‘SOSR’) under section 98(1)(b). The tribunal then considers fairness under section 98(4), taking account of the circumstances, employer size and administrative resources, and the substantive and procedural reasonableness of the decision.^[9][10]

In Hollister v National Farmers’ Union [1979] ICR 542, the Court of Appeal accepted that a genuine business reorganisation, coupled with an employee’s refusal of revised arrangements, could constitute SOSR. The employer was not necessarily required to establish insolvency or impossibility of carrying on business without the change. This is important because the statutory category of a potentially fair reason is broader than financial survival. Yet proving SOSR is not the same as proving that the dismissal was fair. The tribunal must still examine the appropriateness of the employer’s response and whether meaningful efforts to negotiate preceded dismissal.^[9]

The distinction was developed in Garside and Laycock Ltd v Booth UKEAT/0003/11/CEA (27 May 2011). The employer sought a five per cent pay cut in the context of trading difficulties and a workforce-wide exercise to reduce costs. One employee refused. The Employment Appeal Tribunal held that the tribunal below had approached reasonableness incorrectly by placing inappropriate emphasis on whether the employee should reasonably have accepted the reduced terms, rather than on whether the employer acted reasonably in dismissing. It also rejected the suggestion that a dismissal for reorganisation could be fair only where the business’s survival depended upon the changes. The decision therefore illustrates both the pre-existing scope for commercially motivated dismissal and the need to ask the legally correct question about employer conduct.^[10]

A fair dismissal might therefore have been possible even when employees understandably resisted a disadvantageous new contract. Conversely, commercial rationality did not confer immunity. Tribunals could examine the importance of the proposed change, its impact on employees, consultations and alternatives, the timing of threats, a union’s response, the proportion accepting revised terms and whether the process respected individual circumstances. This case-sensitive framework was capable of condemning unreasonable behaviour, but it left considerable room for dismissal as the ultimate instrument of contractual negotiation. Crucially, many employees lacked the qualifying service for ordinary unfair dismissal: as at November 2026, the ordinary threshold remained two years, although it is scheduled to fall to six months on 1 January 2027.^[4][27]

The difference between the old and new standards is therefore not merely a stricter requirement to consult. Where section 104I applies, a dismissal for the defined reason will usually be automatically unfair even if the employer can describe a substantial commercial benefit, an efficient reorganisation and a procedurally careful consultation. Only the statutory exemption can prevent that automatic result. General managerial convenience, harmonisation of terms or ordinary profitability improvements are not interchangeable with the financial-difficulty conditions laid down by Parliament.

4. A statutory reform, but not yet an operative prohibition

Section 28 of the 2025 Act amends Part X of the 1996 Act by providing for three new sections: 104I, 104J and 104K. The division is deliberate. Section 104I addresses dismissals connected with a defined restricted variation to the contract; section 104J addresses dismissals to secure non-restricted variations; and section 104K addresses dismissal with a view to carrying on substantially the same work through non-employees. Sections 104I and 104K create automatic unfairness subject to exemptions. Section 104J does not do so: it strengthens the considerations governing the ordinary unfair-dismissal assessment.^[1][2]

This architecture is neither a general civil prohibition on offering new employment terms nor a statutory power to undo every contractual dismissal. It concerns the legal classification of dismissal under unfair-dismissal law, leaving the courts and tribunals to determine facts and award appropriate remedies. It also does not itself prescribe the new rate of pay, the ideal shift system or the operational model an employer must adopt. Employers remain able to invite employees to agree changes voluntarily; employees remain able to refuse; and an employer may make alterations already permitted by an existing valid contractual term. The principal new legal consequence arises when dismissal is used for the prohibited statutory purpose.

The timing is especially important for accurate public-facing commentary. The Act received Royal Assent in December 2025, but its measures have staggered commencement dates. In the Government’s implementation timetable updated in 2026, the ordinary unfair-dismissal qualifying period and compensatory cap change in January 2027, while the fire-and-rehire rules are scheduled for March 2027. The details of prescribed shift changes and exclusions for certain benefits are to be implemented by regulations. The October 2026 policy decisions indicate what ministers intend to legislate, but the unmade or uncommenced instrument must not be mistaken for a regulation already binding on employers.^[4][16]

5. Section 104I: the new automatic unfair-dismissal protection

Under new section 104I, an employee employed for the purposes of a business carried on by the employer is protected where the statutory reason for dismissal is either the employee’s refusal to agree to a restricted contractual variation, or the employer’s wish to employ someone else—or re-engage the same employee—to carry out the same or substantially the same duties on a varied contract containing such a variation. The provision addresses both the ultimatum ‘accept this reduction or be dismissed’ and the strategy of dismissing one employee before hiring another on inferior core terms. The Act’s explanatory notes confirm that employees employed by a private individual for purposes unconnected with a business fall outside this provision; the distinction should not be elided with the status of domestic or care work generally.^[2]

It is unnecessary for the rejected package to consist exclusively of protected changes. Where an employer proposes several variations, one or more of which is restricted, a dismissal because the employee refuses that package may engage section 104I. Otherwise the employer could evade protection by combining a pay cut with a change of job title or location. A more difficult factual question arises where the employer asserts that the dismissal was attributable to refusal of an unprotected component rather than the protected reduction. The tribunal will have to identify the reason or operative statutory purpose on the evidence, rather than accept the label attached to the employer’s restructuring plan. Contemporaneous financial models, meeting minutes, communications, the sequence of proposals and the terms offered to replacements may therefore prove decisive.

Section 104I does not apply to a dismissal taking place before the employee has started work. The legislation also distinguishes employees from people engaged otherwise than under a contract of employment; its automatic unfair dismissal rights are not a universal remedy for every dependent worker, contractor or agency worker. Employment status will therefore remain relevant, although employers cannot necessarily avoid the legal consequences of a genuine employment relationship through contractual labels alone. Most importantly, Parliament has added sections 104I and 104K to the exceptions in section 108(3) of the 1996 Act, so the ordinary qualifying period does not apply to claims brought under those provisions.^[2]

6. What are the protected ‘restricted variations’?

The exact scope of a restricted variation is the reform’s substantive core. The categories are more precise than the political promise to end fire and rehire. Their breadth is significant, but so are the limitations. Section 104I(5), read with the contemplated regulations, focuses on the following types of contractual change:

There is also regulation-making power to add further categories. The legal significance of this list cannot be overstated. An employer might be seeking a £3,000 reduction in guaranteed salary, the loss of a contractual commission formula, a substantial pension downgrade, an extension of weekly hours or fewer annual-leave days. Each can undermine the value of the employee’s bargain in a different way. Protecting only nominal base pay would invite substitution: the same economic concession could be extracted through commission thresholds, pensions or uncompensated extra hours. The legislation recognises that these apparently separate terms are economically interdependent.^[1][2]

6.1 Pay, bonuses and measures of output

The inclusion of contractual sums payable and measures of work determining pay is especially important for employees whose remuneration is partly performance-related. An employer might preserve a commission rate of ten per cent while doubling the volume of sales required before commission accrues. A rule protecting the rate but not the threshold would be readily circumvented. Section 104I accordingly addresses changes to contractual measures which determine elements of remuneration. Whether a particular bonus or allowance is contractual will remain a question of construction and proof. A genuinely discretionary award, which the employee has no contractual right to receive, differs from a bonus governed by an enforceable formula. An employer cannot assume that describing a payment ‘discretionary’ retrospectively removes an existing contractual obligation.

Nor is protection limited to a positive cut in money already due. Where the employer dismisses an employee because they refuse a proposed reduction in the contractual basis on which future sums are calculated, the question is whether the change falls within the statutory language. That reading is essential if protection is to address the mechanism of compulsion rather than merely arrears which accrued before the dismissal. Conversely, an ordinary negotiation over prospective remuneration, with no dismissal and no breach of an existing contract, is not itself prohibited.

6.2 Working hours and leave

A change to the number of hours an employee is contractually required to work will fall within the restricted categories. The practical harm is not reducible to wages. Requiring a person contracted for thirty hours to work forty without an acceptable agreement disrupts care responsibilities and daily life even if the hourly rate is unaffected; requiring fewer paid hours may reduce household income. Similarly, reductions in contractual time off may remove a term negotiated as part of the overall remuneration package. A change need not breach the statutory minimum for holiday to disadvantage an employee: an employer can act within the Working Time Regulations 1998 yet still deprive an employee of an additional contractual entitlement. The new protection operates on the agreed bargain, not merely the minimum floor imposed by general labour standards.

Nevertheless, the section does not freeze operational scheduling. A company may need to adjust the starting time of a shift without changing weekly hours. Whether such a change engages automatic unfairness will depend on the prescribed shift categories or another protected term. This difference is deliberate, but it creates difficult borderline cases in which timing rather than aggregate hours determines whether employment remains compatible with disability, caring obligations or travel arrangements. Those employees may continue to rely on contractual terms, statutory flexible-working rights and discrimination protections even where the automatic-unfairness provision does not apply.

6.3 Expenses and benefits in kind: an important policy retreat

The 2025 Act permits regulations to exclude specified expenses and benefits in kind from the statutory category of sums payable. In its response published on 22 October 2026, the Government decided on a broad exclusion, subject to specific exceptions. The intended exceptions include travel and accommodation expenses incurred in performing the role, and long-term accommodation provided as a benefit in kind. Other expenses and benefits in kind generally would not trigger the new automatic-unfairness protection merely because they are reduced or removed. This is a policy choice, rather than a neutral clarification of the underlying statute, and the exact operative definitions will depend on the regulations as enacted.^[16][3]

It would therefore be inaccurate to assert that all contractual benefits are covered. The withdrawal of a company car, private medical cover or a workplace benefit may be economically valuable to the employee while falling outside the protected definition, subject to the precise wording and circumstances. If dismissal is used to obtain consent to such a change, section 104J and ordinary unfair-dismissal law may still apply. Further, exclusion from automatic unfair dismissal does not authorise the employer simply to violate a subsisting contractual promise. The employee may retain common-law or wages rights where available. The distinction is between the existence of a contractual entitlement and the specific remedy Parliament chooses to attach to dismissal aimed at removing it.

There is a serious normative tension here. Some benefits are functionally indistinguishable from wages: employer-provided accommodation may be essential for a worker’s location and family stability; travel payments may make a remote role financially viable; an employee’s childcare arrangement may depend on a contracted benefit. Parliament has chosen to protect some cases of direct cost exposure while leaving others primarily to ordinary fairness review. That balance may make sense if broad automatic protection would prevent changes to peripheral perks during restructuring, but it requires monitoring for deliberate reclassification of remuneration as an unprotected benefit.

6.4 Shift patterns: protection against extremes, not every inconvenience

The Government’s October 2026 response confines the intended restricted shift changes to extreme transitions: day working to night working or vice versa, and weekday working to weekend working or vice versa, as defined by regulations. The decision reflects a compromise between continuity of employees’ working lives and employers’ ability to adjust rosters. It rejects the proposition that any change to shift timing is automatically of the same gravity as a cut in guaranteed salary. The proposed rules could protect an employee who has organised family life around weekdays from the imposition of exclusively weekend work. They may not protect a substantial daily change which is economically or personally damaging but falls short of the prescribed transition.^[16][20]

This bright-line approach is administratively attractive but imperfect as a measure of harm. A shift from 8am–4pm to 2pm–10pm may not be described as day-to-night working under the eventual definition, yet it can prevent a parent from collecting a child or make safe transport unavailable. Conversely, an employee may prefer night working with appropriate compensation. The legislature is not assessing individual harm by asking whether each change is objectively acceptable; it is defining a category for which the coercive use of dismissal is so concerning that automatic unfairness is justified. Cases outside the category are not necessarily fair. They remain subject to contractual obligations, the enhanced ordinary fairness test and equality law.

7. The financial-difficulty exemption: a high threshold with difficult edges

Automatic unfairness under section 104I is qualified by an exemption designed to preserve a route for employers in serious financial difficulties. For a private-sector employer, the statutory conditions require, in substance, that the reason for the restricted variation be to eliminate or prevent, or significantly reduce or mitigate the effects of, financial difficulties which at the time of dismissal are affecting or likely in the immediate future to affect the employer’s ability to carry on the business as a going concern. The employer must also show that, in all the circumstances, it could not reasonably have avoided the need to make the restricted variation. Similar but distinct provisions address specified public-sector employers and local authorities.^[1][2]

This exception is not equivalent to the former SOSR test. An employer that would improve its profit margin by five per cent through a pay reduction, or wishes to standardise historical terms following a merger, may be advancing a perfectly rational business objective. That alone does not demonstrate that financial difficulties threaten its capacity to continue as a going concern in the relevant timeframe. Nor is the phrase could not reasonably have avoided satisfied simply because dismissal is the cheapest way to implement a change. The exception introduces a more demanding relationship between the financial problem, the proposed variation and the absence of viable alternatives.

There is nevertheless a distinction between a high threshold and an insolvency-only exemption. The statutory wording includes the prevention of serious financial difficulties and significant mitigation of their effects. It would be mistaken to say that the employer must first become insolvent or demonstrate that closure is inevitable within days. The objective is preventive as well as remedial. An employer facing documented cash-flow forecasts, withdrawal of essential finance or an imminent collapse in revenue may need to act before formal insolvency. The tribunal’s task will be to evaluate whether the evidence meets the statutory requirements, not whether the business has already failed.

The employer will ordinarily possess the best information about its finances. That asymmetry creates both evidential responsibility and a risk of strategic framing. A company may produce projections showing how reductions to wages would improve short-term survival, while omitting less obvious alternatives: temporary management pay reductions, financing options, reduced dividends, restructuring of borrowing, postponing capital expenditure, sale of non-essential assets, changes in procurement, voluntary arrangements or agreed temporary sacrifices. These are not legally mandatory choices in every case. Their relevance is that the statute asks whether the need for the restricted variation could reasonably have been avoided. The answer depends on actual options, viability, timing and commercial realities, not a formal recital of financial distress.

The revised draft Code, currently under consultation, proposes that employers should be capable of showing reasonably detailed evidence of imminent financial difficulties, explain the necessity of the proposed variation and demonstrate serious consideration of alternatives. It discusses consultation, the severity and organisational reach of the problems and the extent to which the difficulties threaten continuing operation. That guidance is useful as an indication of the Government’s preferred practical approach, but it should not be quoted as if it were a final legal instrument already in force. It is expressly marked as subject to consultation and does not displace the statutory language which tribunals must interpret.^[17][18]

7.1 The relevant employer and group-company problems

A particular difficulty arises in corporate groups. A trading subsidiary may be losing money while its parent has substantial resources; another subsidiary may be profitable but dependent on a financially distressed group treasury function. The statutory condition focuses on the employer and its capacity to carry on the business as a going concern. That does not mean courts will automatically treat the consolidated resources of every connected company as available to employees of a subsidiary, or disregard entirely an accessible intra-group financing arrangement. Corporate separateness matters, but so does the evidence about available support and whether the employer could reasonably have avoided the variation. A simple appeal to the financial position of a parent company, without examining legal and commercial realities, would be inadequate in either direction.

Investment incentives also matter. A profitable enterprise may want to reduce payroll expenditure to finance a new development, whereas another business may need an immediate wage agreement to preserve jobs threatened by a genuine liquidity crisis. Treating both situations as equivalent would deprive the exemption of its purpose. By the same token, a rule requiring employment terms to remain unchanged until a company’s failure becomes certain could force unnecessarily early redundancies. The question is best approached through evidence of severity, proximity, causation and reasonableness of alternatives, subject to robust tribunal scrutiny.

7.2 Public authorities are not ordinary going concerns

Public-sector employers often cannot be assessed by an insolvency model: an NHS body, public institution or statutory agency may continue to exist despite a serious funding gap. Section 104I therefore contains an equivalent route focused on the financial sustainability of carrying out statutory functions. Local authorities receive a more specific exception related to qualifying intervention directions concerning financial difficulties and financial management or governance. Under section 104I(10), when considering whether a qualifying public authority could reasonably have avoided the need for a variation, tribunals must apply principles analogous to those applied on judicial review.^[2]

The result is a legally significant divergence. In private employment, a tribunal examines the reasonableness of the employer’s need for the variation against the going-concern test. For qualifying public bodies, the court’s established discipline of reviewing public decision-making is imported into a specific part of the analysis. That can mean a more restrained inquiry into budgetary judgment than a merits-based reconsideration of how the authority should allocate resources. This differentiation is intelligible because public bodies exercise statutory functions under democratically accountable budgets, yet it raises a question of distributive justice: why should an employee of a public authority potentially face a different degree of scrutiny when the same pay cut would have been automatically unfair at a private employer?

7.3 Exception from automatic unfairness is not a certificate of fairness

The most important safeguard is often missed in summary accounts of the reform. If the financial-difficulty exemption applies, the dismissal is not thereby declared fair. The tribunal must still determine ordinary unfairness, having regard to specified considerations including consultation with affected employees, recognised trade unions or other representatives, and what was offered in return for agreement. The employer may pass the exceptional financial threshold yet act unreasonably in selecting individuals, refusing to discuss alternatives, giving inadequate notice or using a coercive process. Conversely, a firm demonstrating serious difficulty, genuine negotiation and proportionate concessions may be able to establish fairness. The statutory structure makes the financial test a gateway out of automatic liability, not a complete defence to every employment claim.^[2]

In principle, this is a more sophisticated response than either blanket permission or blanket prohibition. It preserves a limited possibility of saving the enterprise while preventing ordinary commercial preference from becoming an unrestricted licence to worsen agreed core terms. Its practical weakness is the time and expense needed to test financial assertions. Financial documents, witness evidence, alternative scenarios and sometimes expert accounting analysis may be necessary. The legislation’s promise will be diluted if employees cannot obtain or challenge the information needed to establish that the exception is misapplied.

8. Section 104J: dismissal over other terms remains possible

Section 104J deals with variations outside the statutory restricted categories. It does not introduce automatic unfairness. Instead, where the employer dismisses an employee because of refusal to agree non-restricted changes, or dismisses to allow the same or substantially the same duties to be performed under such a changed contract, the tribunal must consider specified matters when deciding whether the dismissal is fair under ordinary unfair-dismissal rules. These include the employer’s reasons for the variation, consultation with the employee or appropriate representatives, and anything offered in exchange for the change; regulations may add further considerations.^[2]

This is an important, but comparatively modest, reform. It gives statutory prominence to factors already relevant under the existing section 98(4) case law. An employer seeking to change location, alter reporting lines, adjust duties or remove an excluded benefit may still be able to dismiss and offer re-engagement if it establishes a potentially fair reason and acts reasonably in all the circumstances. The tribunal will remain sensitive to the employee’s circumstances and the employer’s commercial objectives. The legislation also retains the basic distinction between being entitled to make a variation and having a potentially fair reason to dismiss when it is refused.

It is inaccurate to describe section 104J as extending the complete automatic protection to all contract terms. Equally, it is mistaken to conclude that the absence of automatic unfairness makes dismissal over those terms lawful by default. A tribunal may find a non-restricted variation dismissal unfair because the employer exaggerated its business need, presented employees with an ultimatum before meaningful consultation, ignored a reasonable compromise or imposed disproportionate hardship. A small employer with limited resources may be assessed differently from a large employer with sophisticated staffing and finance functions; section 98(4) expressly requires regard to size and administrative resources. The enhanced statutory considerations provide a stronger organising framework, not a mechanical answer.

The qualitative difference may be illustrated by two proposed arrangements. A business seeks to change its office location from one city to another while retaining salary, contractual hours, pension and leave. The change may be substantial for employees with dependants but is not automatically a restricted variation. If the employer seeks dismissal and re-engagement, ordinary unfair-dismissal analysis may decide the case. Alternatively, the employer preserves the office location but demands a twelve per cent salary reduction as a condition of keeping the job. Once section 104I applies, the employer cannot defend that dismissal by pointing merely to an economically sensible strategy. The statutory financial exception becomes central. The business’s ability to alter working arrangements thus depends not only on the degree of hardship but on the legal classification of the term concerned.

8.1 The danger of substitution and contractual packaging

The distinction between restricted and non-restricted variations may cause employers to look for less protected means of achieving substantially similar economic savings. Instead of cutting salary, a business might seek removal of an excluded benefit, relocation to a lower-cost site or more onerous duties without changing contracted hours. Some such alterations will genuinely reflect operational necessity; others could be an attempt to transfer a comparable burden onto employees through a category which attracts only ordinary fairness review. The legislation does not adopt a general principle that every change having an equivalent economic effect to a pay cut is automatically restricted. Where a purported non-restricted change is in reality a covered diminution of contractual pay, an employment tribunal should apply the statutory substance. But courts cannot rewrite a deliberate exclusion simply because the excluded benefit is valuable.

This is a familiar legislative trade-off. Closed categories provide predictability and protect managerial flexibility. They also produce boundary disputes and possibilities for avoidance. Parliament has equipped ministers with powers to specify additional restricted variations. Government has indicated that it will monitor the system and may extend protections if abusive practices persist. That is a meaningful policy commitment, but a future power to legislate is not equivalent to a present substantive right. The reform’s capacity to deter substitution will depend upon credible monitoring, timely consultation and eventual willingness to close demonstrable loopholes.^[3]

9. Section 104K: fire and replace through non-employees

Dismissal and re-engagement is not the only way to remove existing employment terms. An employer may dismiss employees and engage agency labour or self-employed contractors to perform materially the same activities at lower cost. Section 104K seeks to address this adjacent practice, often described as fire and replace. Subject to the statutory conditions and financial exemption, it makes dismissal automatically unfair where the employer dismisses an employee in order that an individual who is not an employee of that employer will carry out the same or substantially the same work under a relevant non-employment contract. The section can capture arrangements in which the dismissed worker themselves returns as a purported contractor, as well as replacement by different individuals.^[2]

Two distinctions are crucial. First, section 104K concerns replacement by non-employees; replacement by a different person hired as an employee on inferior restricted terms is addressed instead by section 104I, where its conditions are satisfied. Secondly, section 104K contains a boundary where the dismissal is attributable to the employer’s reduced or discontinued requirement for the relevant activities. Its purpose is not to create a blanket ban on genuine redundancy or all outsourcing, including situations where demand for work has actually diminished. It seeks to prevent replacement of one category of worker with another in circumstances where substantially the same work is still required and the relevant statutory conditions are met.

The historical example of P&O Ferries illustrates why the issue gained public attention. On 17 March 2022, P&O dismissed 786 seafarers without prior consultation and announced a staffing model involving third-party agency workers. A House of Commons Library briefing examined the applicable redundancy, consultation, minimum-wage and maritime jurisdiction issues. It would be legally inaccurate to characterise the 2022 conduct as a judicial application of section 104K: the section did not exist in operative law at that time, and the complex territorial rules applicable to seafarers require separate analysis. The example instead demonstrates the type of restructuring strategy to which the later legislative response is directed.^[22]

Drawing a line between labour substitution and genuine reduction in the requirement for activities is not always easy. A business may introduce software, reduce the total amount of work, and engage a specialist contractor for what remains. It may close an internal service and purchase an integrated external service whose tasks overlap but are not identical. It may dismiss employees in several departments and replace their combined functions through one outsourcing contract. The statutory reference to substantially the same activities, including activities previously carried out by the dismissed employee together with others, recognises that narrow job-title comparisons would be insufficient. But the legitimate restructuring of a business is not invariably fire and replace simply because some functions continue after outsourcing.

There is also an important enforcement question. If a labour-supply agreement, subcontracting chain or series of corporate arrangements stands between the original employer and the people performing the work, establishing the relevant contractual relationship and comparing work may demand disclosure of documents held by the employer and contractors. Labour substitution can be difficult to prove without knowledge of the commercial arrangements. Section 104K substantially improves legal protection in principle, but its effectiveness will turn on how tribunals approach the factual substance of arrangements designed by legally sophisticated businesses.

10. Consultation remains central to lawful organisational change

The 2025 Act does not treat consultation as a ceremonial meeting held after the decision has been made. In cases covered by the financial exemption or section 104J, the nature and adequacy of consultation will inform ordinary unfairness. In some circumstances, collective consultation is an independent statutory obligation backed by significant financial consequences. For employees, consultation can expose flawed financial assumptions and produce less damaging alternatives. For employers, it can identify operational problems which managers may not have appreciated and reduce legal risk. Meaningful consultation is therefore not necessarily an obstacle to business efficiency: it can improve the substance and acceptability of decisions.

Consultation should begin while proposals remain open. An employer which announces a final outcome and then invites questions is not necessarily engaging in a process capable of influencing the decision. The seriousness of the proposed variation affects the information reasonably required: a marginal alteration to reporting arrangements differs from a sustained reduction in pay or an arrangement requiring weekend work from staff originally recruited for weekdays. Relevant material may include business objectives, costings, alternatives considered, the distribution of proposed sacrifices, proposed duration, transitional assistance and whether the change will be reviewed. Confidentiality and commercial sensitivity may legitimately limit disclosure in particular cases, but they do not transform an unexplained assertion of necessity into meaningful consultation.

The existing Acas guidance advises employers to use dismissal and re-engagement only as a last resort and to make serious attempts to reach agreement. It also identifies risks of litigation, industrial conflict, loss of experienced staff and damage to trust. These are not all grounds of standalone legal liability, but they are material to assessing whether the employer’s chosen response is rational and proportionate. It is important not to confuse an employment tribunal’s legal test with a general managerial best-practice assessment; nevertheless, both disciplines often favour timely dialogue, considered alternatives and accurate documentation.^[15]

11. Collective redundancy consultation: a separate and sometimes surprising duty

An employer proposing to dismiss and re-engage twenty or more employees at one establishment within ninety days may trigger statutory collective consultation under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’). The statutory definition of dismissal ‘as redundant’ for the collective-consultation regime is broader than the familiar individual redundancy-pay concept: under section 195, dismissals for one or more reasons not related to the individual concerned may be included. A programme of contract variation by dismissal can accordingly engage collective consultation even though the employer intends to retain substantially the same work and offers everyone re-employment. It is therefore wrong to infer from the fact that no jobs are intended to disappear that no collective duty can arise.^[13][14]

Consultation is with appropriate employee representatives, including a recognised independent trade union in the relevant circumstances. It must be undertaken in good time with a view to reaching agreement about avoiding proposed dismissals, reducing their number and mitigating their consequences. The legislation prescribes minimum lead times before the first dismissal takes effect: ordinarily thirty days where between twenty and ninety-nine employees are proposed to be dismissed, and forty-five days where one hundred or more are affected. Those periods are not substitutes for beginning consultation early enough to be meaningful. Separate statutory notification to the Secretary of State under section 193 may also be required; failure to comply can give rise to criminal liability. Employers should not confuse the collective consultation timetable with individual contractual notice periods.^[13][24]

Where the collective consultation duty is breached, a tribunal may make a protective award. From 6 April 2026, the maximum protected period was doubled from ninety to 180 days’ pay for each affected employee. This is a distinct remedy from individual unfair-dismissal compensation and can create substantial aggregate exposure when a large workforce is affected. The automatic-unfair-dismissal changes scheduled for March 2027 therefore do not replace existing collective duties; rather, they operate alongside sanctions which Parliament has already strengthened. Another reform—an additional organisation-wide threshold for collective consultation—is timetabled for April 2027 and should not be described as currently operative on 6 November 2026.^[26][4]

The interaction of these regimes can be challenging. Suppose an employer proposes a permanent salary cut to forty employees at one establishment. Before commencement of section 104I, its exposure includes contractual disputes, individual unfair dismissal for those who qualify, the 2024 Code and collective consultation. After commencement, dismissal to achieve that core-term reduction will usually be automatically unfair unless the narrow exemption is established. Yet the employer may still need collective consultation if dismissals are proposed, and a failure in that process has separate financial consequences. Compliance with one regime does not immunise breach of another. Conversely, the mere existence of collective consultation does not make a dismissal for a restricted variation permissible under section 104I.

12. Collective bargaining and the prohibition on direct inducements

The problem of fire and rehire is especially sharp where an employer wishes to escape collectively bargained terms. Under section 145B TULRCA, employers must not make prohibited offers to members of an independent trade union recognised for collective bargaining if the statutory purpose and consequence conditions are met. In Kostal UK Ltd v Dunkley [2021] UKSC 47, an employer made direct pay offers to workers after a union ballot rejected a proposal but while the agreed collective-bargaining procedure had not been exhausted. The Supreme Court held that the offers breached section 145B. The provision protects the process through which the terms are to be collectively determined; it is not limited to offers which permanently remove terms from collective bargaining forever.^[12][23]

At the same time, Kostal should not be reduced to a proposition that an employer can never deal directly with unionised employees. The statutory conditions concern whether acceptance would produce the prohibited result and whether securing that result was the employer’s sole or main purpose. An employer may be able to approach employees after the agreed collective-bargaining process has genuinely been exhausted. The crucial point is that management cannot treat union resistance as a procedural inconvenience and bypass an extant bargaining machinery by directly purchasing or threatening individual consent. This protection operates independently of whether the proposed contractual term is categorised as a restricted variation under the 2025 Act.

The protections are complementary. Section 145B guards the integrity of the bargaining process; section 104I will guard specified contractual entitlements against dismissal as a coercive mechanism; section 188 may impose collective consultation where dismissals are proposed on a sufficient scale. A recognised union can therefore influence the lawfulness of individual offers, the fairness of dismissal and the employer’s procedural obligations. Yet collective organisation will not automatically resolve every problem. Workers in small, fragmented or non-unionised workplaces may lack representatives with sufficient expertise or resources to scrutinise financial claims. The new individual statutory right is particularly valuable in those environments because it is not dependent on union recognition or two years’ employment.

13. The current Code of Practice and the proposed replacement

The statutory Code of Practice on dismissal and re-engagement came into force on 18 July 2024 under section 203 TULRCA. As at 6 November 2026, it remains the applicable Code. It does not itself prohibit fire and rehire, but sets standards intended to prevent its premature or coercive use. Its provisions address information-sharing, meaningful consultation, the appropriate timing of discussion about dismissal, re-examination of proposals and the alternatives available where agreement remains impossible. It applies irrespective of the number of employees affected. Broadly speaking, it does not apply where the only reason the employer envisages dismissal is genuine redundancy under the individual redundancy definition in the 1996 Act.^[5]

The distinction between a Code obligation and an independent statutory duty is important. A failure to follow the Code does not, by itself, create an actionable claim. Relevant provisions are, however, admissible and must be taken into account in appropriate proceedings. Where an eligible tribunal claim concerns a matter to which the Code applies, an unreasonable failure by the employer to comply may justify an increase of up to twenty-five per cent in an award; an unreasonable failure by an employee may justify a decrease of up to the same percentage. The statutory basis lies in TULRCA sections 207 and 207A and the schedule identifying relevant proceedings. A tribunal must still determine whether the statutory conditions for adjusting a particular award are met. A breach is not automatically worth an additional twenty-five per cent, nor does compliance make an otherwise automatically unfair dismissal lawful.^[5][25]

The draft revised Code released for consultation on 22 October 2026 aims to align this guidance with the new differentiated regime. It explains restricted and non-restricted changes, fire and replace, the financial-difficulty exemptions and the continuing importance of early consultation. Its procedural recommendations are significant because the new Act might otherwise be misunderstood as rendering consultation unnecessary whenever a change falls outside automatic protection. Negotiation remains relevant both to whether dismissal can be avoided and, in cases subject to ordinary fairness, to whether the employer behaved reasonably.^[17][18]

13.1 The March-to-summer 2027 Code gap

A particular implementation issue deserves attention. The written ministerial statement of 2 November 2026 says that the existing 2024 Code will be revoked when the March 2027 regulations commence, while the revised Code will come into force in summer 2027. On the announced timetable, there will therefore be a period in which the main new fire-and-rehire protections are operative but neither the old nor the proposed new dismissal-and-re-engagement Code is in force. The Government may explain or change transitional arrangements before commencement, so the eventual legal effect should be checked against the enacted instruments rather than assumed from the present announcement.^[3]

This prospective gap is not a period of general legal freedom. Sections 104I–104K, ordinary unfair dismissal, contractual rights, trade-union protections and collective consultation duties will still apply as applicable. Acas guidance and general legal principles remain relevant. Nevertheless, the absence of a live specific statutory Code could produce uncertainty about the precise conduct expected during negotiations and about the availability of a Code-based award adjustment for conduct occurring in the interval. Those are genuine transitional questions, especially where consultations begin under one framework and dismissals occur under another. A clearly expressed transitional instrument or promptly issued official guidance would reduce avoidable disputes.

There is a related risk of confusing the status of consultation documents with binding law. Employers may sensibly use the draft Code as preparation for the coming regime, but the document expressly states that it is not final government policy and remains subject to consultation. The consultation closes on 17 December 2026. Comments may influence its content, and the Code’s eventual commencement and precise legal effects require formal adoption. Legal writing should accordingly distinguish between current law, enacted but uncommenced rights, proposed regulations, published policy decisions and consultation drafts, rather than presenting them as a single settled set of rules.

14. Enforcing the new rights: access to tribunals, evidence and remedies

Automatic unfair dismissal is a powerful label, but its meaning must be carefully explained. It ordinarily removes the employer’s ability to argue that a dismissal was fair in all the circumstances once the particular automatically unfair reason is established and no statutory exception applies. It does not automatically prevent the dismissal from taking legal effect, continue the contract indefinitely or entitle the employee to immediate reinstatement. An employee usually must initiate an employment tribunal claim, establish the relevant facts and seek the remedies available under the unfair-dismissal framework. There can be a serious interval between a dismissal and the eventual adjudication of its lawfulness.

Two procedural changes will improve access, though neither removes the practical imbalance between a large employer and an individual employee. First, the 2025 Act’s new sections 104I and 104K are expressly excepted from the ordinary qualifying-service rule under section 108(3) of the 1996 Act. An employee with only a short period of service can therefore potentially challenge a dismissal for a restricted variation or prohibited replacement after the provisions commence. Secondly, the Government has scheduled the general qualifying period for ordinary unfair dismissal to fall from two years to six months for dismissals from 1 January 2027. The distinction matters: section 104J remains part of ordinary unfair dismissal, and access to its enhanced factors depends on meeting the relevant ordinary statutory conditions or another exception.^[2][4]

Tribunal time limits are also relevant. From 1 October 2026, the time limit for many employment tribunal claims increased from three to six months, subject to commencement and transitional rules and the relevant cause of action. Acas early conciliation generally affects the calculation of time. The precise deadline should not be assumed merely by counting six calendar months from the first discussion of a proposed change: different claims may arise on different dates, and statutory time-limit rules apply. Wrongful dismissal, unlawful deductions from wages and claims concerning union inducements each require attention to their distinct legal basis and transitional provisions.^[28]

14.1 Compensation is not the same as preserving employment

Available remedies for unfair dismissal include statutory orders for reinstatement or re-engagement in suitable cases and monetary awards, which may include basic and compensatory elements. In practice, the desirability and practicability of returning to work can be contested, especially after a hostile restructuring and protracted proceedings. Compensation ordinarily depends on compensable loss and the claimant’s conduct in mitigating it; it is not a punitive levy automatically equal to the value of every contractual term relinquished. The Government intends to remove the general statutory cap on the compensatory award for ordinary unfair dismissal from 1 January 2027. That change can improve the theoretical remedy for employees suffering substantial loss, but it does not guarantee a high award, override all statutory rules on causation and mitigation, or make emotional distress recoverable merely because dismissal was upsetting.^[4]

For an employee who has accepted the replacement contract, the position is particularly complex. Acas states that a dismissal may still have occurred even though work continues on revised terms, and an unfair-dismissal challenge may remain possible. But the employee’s losses, contractual rights and any continuity of employment must be analysed on the facts. Accepting new terms may preserve immediate income while creating uncertainty about whether the employee has waived any particular claim or what financial loss follows from the original dismissal. The statutory reform seeks to deter the use of dismissal as a negotiating instrument, but remedies may be less straightforward where the worker stays employed rather than becoming unemployed.^[27]

The possibility of preventive relief is therefore important. Tesco shows that an injunction may exceptionally restrain a threatened contractual termination where the court identifies an appropriate contractual restriction and the circumstances justify such relief. It is not a generally available injunction against any proposed fire-and-rehire exercise. In its 2 November 2026 statement, the Government said it would monitor the new scheme and was prepared, if needed, to consider further measures including interim injunctions and interim relief. That statement is an express recognition of a potential enforcement gap; such additional measures should not be presented as already conferred by sections 104I–104K.^[3][11]

14.2 Proof, disclosure and the employee’s access to information

Claims are unlikely to turn solely on the wording of a dismissal letter. Consider an employer which announces that the ‘business has been reorganised’ and offers a new role, yet the responsibilities, supervisor, clients and location remain substantially unchanged while the salary is reduced. The tribunal may need the old and new contracts, board papers, financial proposals, job descriptions, communications about the purpose of the restructuring and evidence of whom the employer intended to engage after dismissal. Where the employer claims severe financial difficulty, management accounts and contemporaneous forecasts may also matter. These materials are normally controlled by the party defending the claim.

Employment tribunals have powers to manage evidence and order disclosure in proceedings, but the financial and personal cost of pursuing litigation can remain substantial. Employees may also be deterred by uncertainty about references, income and future work opportunities. Consequently, the best protection is often an effective ex ante discipline on employers: a legal rule clear enough that management can assess its obligations before raising a dismissal threat, combined with good-faith engagement and a credible possibility of enforcement. If the rules operate chiefly through years of contested litigation, an employer may still gain the immediate benefit of imposed terms while employees shoulder the risk of enforcing rights after the fact.

15. Redundancy, discrimination and other constraints which remain independent

15.1 Genuine redundancy is conceptually distinct

A genuine reduction in the employer’s requirement for employees to perform work of a particular kind may constitute redundancy under section 139 of the 1996 Act. A business may close a site, withdraw a product, automate a function or reduce its staffing requirement. Such circumstances cannot be resolved by declaring that every termination following a proposal to alter contract terms must involve fire and rehire. The statutory enquiry depends on the real reason for dismissal and the requirements of the business. Where the same work is still required and is assigned to another employee on inferior restricted terms or to a contractor under the conditions in section 104K, different considerations arise. The expression ‘restructuring’ should not be accepted as a universal substitute for legal analysis.^[31]

Distinguishing a genuine redundancy from an unlawful substitution will be among the most important practical issues. A business may need fewer total staff but retain certain tasks; it may combine roles, outsource parts of operations and offer different positions to those affected. The tribunal must consider what diminished, what continued, whether the roles remain substantially the same, and why the claimant was dismissed. Employees genuinely redundant may be entitled to statutory redundancy pay and procedural protections which are distinct from the automatic-unfairness scheme. In collective cases, the broader TULRCA consultation definition may also operate even where individual redundancy-pay rights do not arise.

15.2 Equality law and protected characteristics

A proposal to alter hours, shift patterns or workplace location can have unequal effects. Under the Equality Act 2010, the relevant legal issues may include direct or indirect discrimination, the duty to make reasonable adjustments for disabled employees, and protections connected with pregnancy, maternity, sex, age or religion. For example, a requirement to work new night shifts may disproportionately disadvantage employees with particular caring commitments, while an altered location may place a disabled employee at a disadvantage requiring consideration of reasonable adjustments. These are not automatic conclusions of discrimination; the facts, applicable statutory test and any available justification must be assessed. They are, however, separate legal questions from whether a variation is ‘restricted’ under section 104I.^[29]

The Government’s 2 November statement also referred to stronger dismissal protections for pregnant employees, new mothers and other new parents. Those measures form a separate reform programme under provisions enabling further regulations. The Government currently intends their commencement in October 2027, not with the March 2027 fire-and-rehire provisions. Existing maternity and equality protections already apply where their conditions are met; the further planned protections must not be treated as operative in November 2026. Their parallel development nevertheless reflects an important feature of modern employment law: formally neutral dismissal or working-pattern decisions may have serious, predictable impacts on individuals whose ability to move jobs or alter schedules is constrained.^[3][4]

15.3 TUPE and protected transfers

Where restructuring follows a business transfer or service provision change, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) can impose additional restrictions. Regulation 4(4) concerns changes to contractual terms where the sole or principal reason is the transfer itself, subject to the regulations’ exceptions; regulation 7 concerns dismissals whose sole or principal reason is the transfer, including the relevant economic, technical or organisational exception entailing changes in the workforce. These are specialist and fact-sensitive provisions. The new fire-and-rehire regime does not abolish TUPE, and TUPE should not be treated as automatically permitting a reduction simply because the new employer would prefer to harmonise transferred employees’ terms. Conversely, not every post-transfer change is inevitably unlawful.^[30]

In practice, several regimes may operate simultaneously. A reduction in contractual pension arrangements following a transfer might prompt questions under TUPE, section 104I if dismissal is used, collective consultation if sufficient numbers are affected, and equality law depending on the workforce and impact. A legally careful employer must identify each potential constraint independently. The strongest assessment of the 2025 Act therefore treats it as an additional layer in employment law rather than a self-contained code governing every decision about contractual variation.

16. Worked examples: how different proposals would be analysed

The boundaries of the legislation become clearer when applied to concrete facts. The following are hypothetical illustrations of the statutory structure, not predictions of tribunal outcomes. In each case, it is assumed that the relevant March 2027 provisions have commenced in their proposed form; the legal position as at November 2026 remains the existing framework.

Example A: a profitable retailer seeking a pay reduction

A national retailer with healthy profits decides to reduce contractual basic salary by ten per cent in order to finance expansion and offer more competitive prices. It consults staff, who overwhelmingly object, then dismisses those who refuse and offers their jobs back at the reduced rate. The proposed salary change is a restricted variation. Unless an applicable statutory exemption can be established, the dismissals would fall within automatic unfairness. Extensive consultation cannot transform an ordinary commercial objective into the required financial difficulty. Voluntary agreement, genuine changes in how future roles are recruited or another lawful restructuring may still be possible, but dismissal to compel this reduction is not made fair by managerial preference or a majority vote.

Example B: a manufacturer facing a credible threat to survival

A manufacturer loses a substantial customer contract. Contemporaneous forecasts show that, without urgent savings, the business is likely in the immediate future to be unable to continue as a going concern. Management shares available financial information, negotiates with representatives, explores financing and non-payroll savings, and proposes a temporary eight per cent salary reduction with defined review dates. Several employees refuse and are dismissed with offers of re-engagement. The facts may support the financial-difficulty exemption if the employer demonstrates the statutory conditions, including that the need for the restricted variation could not reasonably have been avoided. The dismissal is not consequently immune from challenge. A tribunal must still assess ordinary fairness, consultation, reasonable alternatives and the treatment of affected employees. The temporary nature of the concession may help show proportionality, but it is not a statutory safe harbour.

Example C: a new commission threshold, but no nominal rate cut

A sales company retains a written commission percentage but doubles the minimum targets before a contractual commission becomes payable. The employer terminates existing contracts to obtain agreement from salespeople who refuse. The change could be a restricted variation because it alters contractual measures of work that determine remuneration. The case should not be decided by the employer’s assertion that ‘the commission rate remains unchanged’. What matters is the actual contractual formula and the statutory description of the proposed variation.

Example D: health cover and parking benefits

A company wishes to withdraw contractual private medical cover and subsidised parking, with no other change. Its policy documents and employment contracts must first be examined: some benefits may be discretionary, while others are binding promises. Under the Government’s October 2026 proposed treatment of benefits in kind, such benefits may fall outside the new protected ‘sums payable’ category, subject to the final regulations. Dismissal and re-engagement to remove them would not necessarily be automatically unfair under section 104I, but section 104J, ordinary fairness, contract law and any applicable discrimination rules remain relevant. A company cannot assume that omission from the restricted list makes every proposed benefit reduction lawful.

Example E: a worker moved from weekdays to weekends

A warehouse employee contracted for weekday work is told to move to regular weekend shifts with the same number of hours and pay. The employer proposes dismissal if agreement is withheld. The Government intends the prescribed extreme weekday-to-weekend shift changes to be restricted, but the detailed classification will depend on the regulations. An employer making a minor adjustment in the timing of an existing weekday shift would not necessarily fall within that category; however, it must still consider contractual terms, section 104J where applicable and equality rights. In borderline cases the exact pattern of contracted work and the new requirement are likely to matter more than general statements about ‘flexibility’.

Example F: outsourcing a department

A business dismisses eight employed cleaners and immediately engages the same individuals through a labour-supply company as non-employee contractors to carry out substantially the same cleaning activities. If the dismissal is for the statutory replacement purpose, section 104K may apply even without a proposal to reduce one of the restricted contractual terms. By contrast, if the building closes permanently and the requirement for cleaning activities genuinely ceases, the factual premise of replacement may be absent and redundancy principles may be more appropriate. The substance of what work continues, by whom, and under what contracts is decisive.

Example G: a short-service employee

A new employee with four months’ service refuses a permanent reduction in contracted weekly hours and is dismissed to enable the same duties to be performed under revised terms. Once section 104I commences, the lack of six months’ ordinary qualifying service will not bar a claim under that section, because Parliament has exempted it from the section 108 qualifying period. If the dispute instead concerns a non-restricted change covered only by section 104J, ordinary eligibility and other requirements remain relevant. The reform therefore offers its strongest protection to short-service employees precisely where dismissal is used to obtain one of the specified core-term changes.

17. Is the reform economically proportionate?

A masters-level evaluation must consider both the normative justification for the law and the available evidence about its likely effects. The Department’s enactment impact assessment for the fire-and-rehire provisions estimates an equivalent annual net direct cost to business of approximately £97.6 million and an equivalent annual net direct benefit to households of approximately £99.1 million, expressed in its specified price and present-value basis. It reports a monetised ten-year net present social value of approximately negative £100.2 million. The assessment explains that many measured costs and benefits are transfers between employers and employees, while important possible gains in wellbeing, productivity and fairness are not quantified. The Government’s judgment is that the overall societal effects are likely positive despite its negative monetised result.^[19]

Those figures should neither be ignored nor treated as predictions of observed future losses. Impact assessment estimates depend on the baseline, survey evidence, modelling assumptions and the scope of changes counted. The assessment itself acknowledges uncertainty in the prevalence and potential responses to fire and rehire. A further options assessment covering shift patterns and excluded benefits generated separate estimates for the proposed secondary legislation. The Regulatory Policy Committee noted that prevalence evidence was limited and may overstate current use because important surveys were conducted in or soon after the pandemic. It also considered that there was a meaningful equity case for intervention while asking for stronger justification of some assumptions and distributional consequences, particularly for smaller employers.^[20]

This combination of evidence supports a qualified conclusion. The costs of stronger job-term protection are real: where an enterprise cannot easily alter payroll and hours, it may face reduced operational flexibility or make different staffing decisions. Yet the distribution of gains also matters. A pound not removed from an employee’s contractual wages is not economically equivalent in lived consequences to a pound unavailable for discretionary expansion or distributions to shareholders. Conversely, in a genuine viability crisis, preserving existing terms at any cost may jeopardise future employment for the same workforce. The Government’s narrow exception represents an effort to accommodate that second possibility without treating every productivity improvement as a justification for compulsory concessions.

It would be analytically unsound to claim that restricting fire and rehire necessarily reduces total employment, just as it would be unsound to claim that it inevitably increases productivity. Firms may respond by investing in training, technology and collaborative reorganisation; they may also recruit more cautiously, rely on shorter-term arrangements or reduce headcount. Some effects may occur through the threat of dismissal becoming less credible rather than through changes in the number of dismissals actually carried out. An evaluation based solely on tribunal claims or observed fire-and-rehire notices would therefore miss a substantial part of the mechanism the legislation seeks to change. The absence of precise prevalence figures does not establish that coercion is unimportant; it means that the policy’s success should be monitored through more than a single numerical indicator.

18. What would demonstrate that the law has succeeded?

Ending an employment practice can mean different things: removing its legal permissibility, reducing its frequency, preventing its most abusive uses, or improving the bargaining power of those subject to it. The 2025 Act is strongest in the third and fourth senses. Its design condemns dismissal as a technique for extracting specified core concessions except in serious and unavoidable financial difficulty. It does not make every unilateral change impossible, abolish genuine redundancy, compel employers to maintain uneconomic business models indefinitely or protect every term with the same automatic standard.

Successful implementation should therefore be evaluated using several complementary measures. First, employers’ recorded use of dismissal threats in negotiations over restricted terms should decline. Secondly, employees should experience fewer involuntary reductions in pay, pensions, contracted hours and leave through re-engagement. Thirdly, the financial-difficulty exemption should be invoked in cases supported by credible evidence, rather than becoming a formulaic claim in ordinary commercial reorganisation. Fourthly, there should be no substantial displacement into unprotected benefits, artificially fragmented workforces or outsourcing designed to avoid the spirit of the provisions. Finally, the tribunal system must deliver resolutions quickly enough that successful claims retain a meaningful connection to employment security.

Some safeguards could improve this outcome without destroying legitimate flexibility. Government guidance could provide examples of the documentation relevant to the financial exemption, including forecast time horizons and the kinds of alternatives employers should consider, while emphasising that no fixed checklist can replace the statute. A clear transitional explanation of the Code gap would reduce uncertainty. Monitoring should distinguish the number of threats from the number of completed dismissals, examine outcomes for small employers and non-unionised workers, and assess how many cases concern protected as opposed to non-restricted terms. Where the evidence reveals systematic substitution into excluded benefits, ministers could consider the power to extend restricted categories. Interim relief deserves particular scrutiny because a remedy awarded long after dismissal may inadequately protect the bargaining relationship it is intended to preserve.

Equally, a successful regime should encourage employers and employees to negotiate genuine solutions. Profit-sharing mechanisms, staged changes agreed for a defined period, retraining, redeployment, voluntary reduced hours, enhanced severance, phased retirement and independent mediation can each be relevant in different circumstances. None is mandatory or suitable in every business. Their legal significance is that a process demonstrating serious exploration of practicable alternatives is more consistent with employment security and, where the financial exception is invoked, with the statutory requirement that the need for the change could not reasonably have been avoided. The underlying aim should be to prevent dismissal from becoming the starting point of negotiation while preserving a lawful path through objectively serious financial difficulty.

Conclusion

The question whether the Employment Rights Act 2025 will ‘end’ fire and rehire requires a distinction between political ambition and statutory design. The coming law substantially changes the position for dismissals directed at reductions in contractual pay, pensions, required hours, time off and other listed core terms. The ordinary SOSR defence, previously capable of legitimising a commercially rational dismissal following unsuccessful negotiations, will not suffice where section 104I applies. The legislation also addresses dismissal followed by replacement with non-employees under section 104K. These are substantial reforms, particularly for employees lacking long service or collective bargaining power. They go beyond the procedural standards of the 2024 Code and the fact-sensitive common law.

Nevertheless, the Act retains important boundaries. It does not prohibit voluntary contract variation or every dismissal and re-engagement. It provides a narrowly framed financial-difficulty exception; it treats non-restricted changes through an enhanced ordinary fairness assessment; it contemplates exclusions for most benefits in kind and expenses; and its prescribed protection for shift patterns is intended to reach only defined extremes. Enforcement may be delayed and remedies are generally retrospective. The March 2027 commencement, proposed secondary regulations and planned summer replacement Code also require precise treatment: at 6 November 2026, much of the practical architecture has yet to take effect.

Whether these compromises represent a fair balance depends on the benchmark. Measured against a contractual regime in which the threat of dismissal could convert a formally voluntary wage concession into a practical necessity, the change is significant and justified in principle. Measured against an absolute right to preserve every negotiated employment benefit, it is incomplete. The better legal conclusion is that the 2025 Act seeks to remove an unfair method of obtaining contractual concessions, not to freeze the content of employment contracts. Its lasting achievement will depend on rigorous application of the financial exception, meaningful consultation, protection against avoidance, accessible tribunal remedies and evidence-led adjustment of the categories which prove vulnerable to abuse. It is through those mechanisms, rather than the statutory label alone, that the balance between employment security and business flexibility will ultimately be judged.

References and primary sources

The legislation, court judgments, parliamentary materials and official guidance below are linked to their original or authoritative publication pages. The law and policy position is assessed as at 6 November 2026. Future commencement dates and regulations remain subject to change.

1. Employment Rights Act 2025, c 36, s 28 (provisions inserting ss 104I–104K into the Employment Rights Act 1996), legislation.gov.uk.
2. Employment Rights Act 2025: Explanatory Notes, commentary on s 28, especially paragraphs 660–697, legislation.gov.uk.
3. Kate Dearden MP, Minister of State for the Future of Work, ‘Implementing the Employment Rights Act’, written ministerial statement HCWS435, 2 November 2026, UK Parliament.
4. Department for Business, Innovation, Science and Trade, Plan to Make Work Pay and Employment Rights Act: timeline update (updated 2026), GOV.UK.
5. Secretary of State, Code of Practice on dismissal and re-engagement (in force 18 July 2024), especially paragraphs 1–18 and 12–15 on legal effect, GOV.UK.
6. Employment Rights Act 1996, c 18, Part II (protection of wages) and Part X (unfair dismissal), legislation.gov.uk.
7. Rigby v Ferodo Ltd [1988] ICR 29 (HL) (judgment of 15 October 1987; published judgment text), judgment transcript.
8. Abrahall and others v Nottingham City Council and another [2018] EWCA Civ 796, [2018] ICR 1425, Court of Appeal judgment at BAILII.
9. Hollister v National Farmers’ Union [1979] ICR 542 (CA) (judgment of 9 March 1979), judgment transcript; see also House of Commons Library, Fire and rehire practices (11 May 2026).
10. Garside and Laycock Ltd v Booth UKEAT/0003/11/CEA (Employment Appeal Tribunal, 27 May 2011), HM Courts & Tribunals Service judgment page.
11. Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28 (12 September 2024), official Supreme Court judgment at The National Archives.
12. Kostal UK Ltd v Dunkley and others [2021] UKSC 47 (27 October 2021), official Supreme Court judgment at The National Archives.
13. Trade Union and Labour Relations (Consolidation) Act 1992, c 52, s 188 (collective consultation), legislation.gov.uk.
14. Trade Union and Labour Relations (Consolidation) Act 1992, s 195 (meaning of redundancy for collective consultation), legislation.gov.uk.
15. Acas, Changing an employment contract: if changes cannot be agreed (updated 27 October 2026), Acas.
16. Department for Business, Innovation, Science and Trade, Make Work Pay: fire and rehire—changes to expenses, benefits and shift patterns, consultation and Government response published 22 October 2026, GOV.UK.
17. Department for Business, Innovation, Science and Trade, Revised Code of Practice on dismissal and re-engagement (draft for consultation, 22 October 2026; not yet in force), official draft PDF.
18. Department for Business, Innovation, Science and Trade, Make Work Pay: revised Code of Practice on dismissal and re-engagement (consultation closes 17 December 2026), GOV.UK consultation.
19. Department for Business and Trade, Enactment impact assessment: dismissal for failing to agree to variation of contract (fire and rehire) (issued January 2026), official impact assessment PDF.
20. Regulatory Policy Committee, RPC opinion: fire and rehire protections options assessment (9 April 2026), GOV.UK.
21. Acas, Dismissal and re-engagement (fire-and-rehire): a fact-finding exercise (8 June 2021), Acas primary research.
22. House of Commons Library, P&O Ferries: Employment law issues (19 April 2022), UK Parliament.
23. Trade Union and Labour Relations (Consolidation) Act 1992, ss 145B–145E (inducements relating to collective bargaining), legislation.gov.uk.
24. Trade Union and Labour Relations (Consolidation) Act 1992, ss 193–194 (notification of proposed redundancies and offences), legislation.gov.uk.
25. Trade Union and Labour Relations (Consolidation) Act 1992, ss 203, 207 and 207A, and Schedule A2 (Codes of Practice and relevant award adjustments), legislation.gov.uk.
26. Employment Rights Act 2025, s 30 (increase in maximum collective redundancy protective award); Acas, Failure to consult in collective redundancy (updated 2026).
27. Acas, Fire and rehire: changes to your contract (updated 27 October 2026), Acas.
28. HM Government, Make a claim to an employment tribunal (time limits from 1 October 2026), GOV.UK; Employment Rights Act 2025, s 152 and Schedule 12.
29. Equality Act 2010, c 15, ss 13, 18–20, 39 and 123, legislation.gov.uk.
30. Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246, regs 4 and 7 (as amended), legislation.gov.uk.
31. Employment Rights Act 1996, s 139 (redundancy), legislation.gov.uk.
32. Employment Rights Act 1996, s 13 (right not to suffer unauthorised deductions from wages), legislation.gov.uk.