Fire and Rehire Rules 2027

Fire and Rehire: What Employers Need to Know Ahead of 2027

The rules on “fire and rehire” are changing – and for many employers, the change is bigger than it first appears. From January 2027, the Employment Rights Act 2025 will make certain dismissal-and-re-engagement decisions automatically unfair, closing off flexibility many businesses have relied on when contract changes can’t be agreed with staff.

Here’s what’s changing, what isn’t, and what employers can do now to prepare.

What Is Fire and Rehire?

Fire and rehire – also called dismissal and re-engagement – is when an employer dismisses an employee and offers them a new contract on different terms. It’s typically used as a last resort, when an employer needs to change a term of employment (such as pay or hours) and an employee won’t agree to it voluntarily.

Fire and rehire has not been unlawful in itself. But it has always carried risk: unfair dismissal claims, collective consultation obligations where enough employees are affected, and lasting reputational damage.

Why Has It Attracted So Much Scrutiny?

The practice came under intense public and political scrutiny during and after the Covid-19 pandemic, when several employers used fire and rehire to cut costs or change terms at a difficult economic moment.

Acas guidance sets out clear risks for any employer considering this route, including:

• Damage to trust and working relationships
• A higher risk of legal claims
• Losing valued employees
• Difficulty attracting talent afterwards
• Reputational damage
• Possible industrial action where a union is recognised

For many organisations, these risks extend well beyond the immediate contractual change itself.

What’s Changing From January 2027? 

The Employment Rights Act 2025 will make it automatically unfair to dismiss – or replace – an employee in order to force through a change to certain “restricted” contract terms. There is a narrow exception, but it’s genuinely narrow: the employer must show severe financial difficulty that threatens the business’s survival, that the change was necessary to address it, and that there was no reasonable alternative. It is not a general allowance for routine cost management.

The restricted terms include:

• Reductions to pay
• Changes to performance-related pay measures or targets
• Pension changes
• Changes to total working hours
• Reductions to leave entitlement
• Specified changes to shift patterns
• Any new contract clause that lets an employer make these changes unilaterally

Some detail – including exactly which shift-pattern and benefits changes will be covered – is still being finalised through government consultation, so employers should expect further clarification before the rules commence.