Fire and rehire reforms delayed until March 2027: what employers need to know

The government has confirmed that new restrictions on “fire and rehire” under the Employment Rights Act 2025 are expected to take effect in March 2027, rather than 1 January. It has also clarified which contractual changes will be covered and opened a consultation on a revised Code of Practice. 

What will the new law mean?

Fire and rehire involves dismissing an employee and offering re-engagement on revised terms. Under the new rules, dismissal for refusing a “restricted variation”, or to rehire the employee or hire someone else on those terms to do substantially the same duties, will normally be automatically unfair. Changing contracts by agreement is not prohibited. 

Restricted variations include: 

• Pay: reducing or removing sums payable, or changing the measure used to calculate performance-related pay. 

• Pensions and hours: changing pension terms or the number of hours an employee must work. 

• Leave and shifts: reducing leave entitlement, and specified changes between day and night (11pm–6am) or weekday and weekend working. 

• Variation clauses: adding a term allowing these changes without employees’ agreement. 

Following its 22 October consultation response, the government intends to exclude most expenses and benefits in kind from the pay restriction. Exceptions include travel expenses (including mileage), accommodation expenses and long-term accommodation benefits. Share schemes will generally be excluded. Regulations are still required. 

The Act also makes dismissing an employee to replace them with a non-employee doing substantially the same work automatically unfair where the need for that work has not reduced, subject to statutory exceptions. 

There is a narrow financial difficulties exception where the proposed restricted change is needed to address difficulties threatening a business’s viability as a going concern and could not reasonably have been avoided. Even then, dismissal is not automatically fair. 

For other contractual changes, such as location or duties, dismissal will not be automatically unfair. However, tribunals will still consider the employer’s reasons, consultation and any incentives offered when assessing fairness.

What about the revised Code of Practice on Dismissal and Re-engagement?

The government is consulting on a revised Code until 17 December 2026. The existing 2024 Code is due to be revoked when the reforms begin in March, but its replacement is not expected until summer 2027, subject to parliamentary approval. 

This gap does not suspend employers’ statutory obligations. Fair procedures and meaningful consultation remain important. The draft Code indicates the intended approach but may change before it is finalised. 

What should employers do now?

The additional time is useful for reviewing contractual change projects planned for early 2027. Employers should: 

• Identify proposed changes to pay, pensions, hours, leave, expenses and shifts, and distinguish contractual from non-contractual arrangements. 

• Consider alternatives to dismissal and plan meaningful consultation early, explaining the business reasons and keeping clear records. 

• Seek legal advice before considering dismissal and re-engagement, particularly where the financial difficulties exception may be relevant. 

Businesses should not defer assessing proposed changes or beginning necessary consultation. 

The separate reduction in the ordinary unfair dismissal qualifying period to six months remains scheduled for January 2027. Please see our separate guide on this topic: How can employers prepare for the upcoming unfair dismissal reforms? 

Further information

For a broader overview of upcoming reforms, read our Employment Rights Act roadmap for employers. 

Our employment law solicitors can advise on contractual changes, consultation and preparation for the new rules.