Fire and Rehire — What Employers Can and Can't Do from 1 January 2027

Fire and rehire (also called "dismissal and re-engagement") is when an employer wants to change an employee's terms and conditions of employment — typically to cut pay, reduce benefits, or change working hours — but the employee does not agree. Rather than accepting that the change cannot be made, the employer dismisses the employee and immediately offers to re-engage them on the new, worse terms.

The tactic became widely reported during the pandemic, when several large employers used it to cut labour costs. It was technically lawful provided proper process was followed — dismissed employees could claim unfair dismissal, but if the employer had a good business reason and had consulted properly, tribunals sometimes found the dismissal fair despite the pressure involved.

The Employment Rights Act 2025 changes that landscape significantly.

From 1 January 2027, dismissal for the purpose of changing terms and conditions (fire and rehire) becomes an automatically unfair dismissal in most circumstances. This means:

• There is no qualifying period — employees can claim from day one
• The tribunal cannot find the dismissal fair on the basis that the employer had a good business reason
• Enhanced compensation applies — tribunals have power to increase awards above the usual unfair dismissal cap in egregious cases
• The change also renders it automatically unfair to threaten fire and rehire as a negotiating tactic without following through, if that threat was the reason for the employee's resignation (constructive dismissal)

The Act does not make all dismissal and re-engagement unlawful. A narrow exception exists where:

• The employer faces genuine financial difficulty that makes it impossible to carry on with the existing terms, and
• The employer has genuinely and thoroughly consulted with the affected employees (and any recognised trade union) about the proposed changes, and
• The changed terms are reasonably necessary to address the financial situation — not simply a cost-saving exercise that improves profitability

This is a high bar. "We want to improve our margins" is not genuine financial difficulty. "We will become insolvent within six months without this change" may be, with supporting evidence. Even where the exception applies, the employer must demonstrate genuine and meaningful consultation — not a tokenistic notice period followed by a fait accompli.

If you are genuinely in financial difficulty and considering changes to terms and conditions, take legal advice before serving any notice. The line between the exception and automatic unfair dismissal will be tested in the Employment Tribunal, and the costs of getting it wrong are significant.

Where a tribunal finds a dismissal is automatically unfair under the fire and rehire provisions, compensation can include:

• A basic award (calculated in the normal way based on age, service, and weekly pay)
• A compensatory award (normally capped at the lower of one year's pay or £115,115 for 2026/27)
• An uplift of up to 25% of the compensatory award where the employer unreasonably failed to follow the ACAS Code of Practice
• In cases the tribunal considers particularly serious, the cap on the compensatory award can be lifted under existing provisions

Where 20 or more employees are affected and the employer failed to collectively consult (under the Trade Union and Labour Relations (Consolidation) Act 1992), a protective award of up to 90 days' pay per employee can also apply. This is entirely separate from the unfair dismissal award.

If you need to change terms and conditions, there are lawful approaches that do not carry the fire and rehire risk:

1. Negotiate and agree. This sounds obvious, but genuine negotiation — explaining the business reasons, sharing data where appropriate, and listening to employee concerns — often reaches agreement. Employees who understand why change is necessary are more likely to accept it.
2. Use flexibility clauses. Well-drafted employment contracts often include clauses that allow the employer to make reasonable changes to duties, hours, or location. If the change you need falls within an existing flexibility clause, you may be able to implement it without consent — though you must still act reasonably and with proper notice.
3. Build change into new contracts. For new hires, draft contracts that reflect the terms you actually want. You cannot impose new terms on existing staff, but you can have different terms for employees who join after a certain date — subject to equal pay obligations for like-for-like roles.
4. Voluntary redundancy. If the workforce is larger than you need at current terms, a genuine voluntary redundancy exercise may reduce headcount while keeping remaining employees on current terms.
5. TUPE considerations. If the business is being restructured or transferred, TUPE protections apply to existing terms — but harmonisation after TUPE is subject to separate rules that are worth exploring with a lawyer.

Sources: Employment Rights Act 2025 (dismissal and re-engagement provisions). ACAS: Fire and rehire — guidance for employers. GOV.UK: Changing an employee's terms of employment. Trade Union and Labour Relations (Consolidation) Act 1992 (collective redundancy consultation).
Last updated: April 2026. Also see: Employment Rights Act 2025 — full summary.