Fire & re-hire

Dismissal and re-engagement (fire and re-hire/fire and replace)

This is a practice where an employer needs to change (vary) some or all of their employee's contractual terms (usually for financial reasons).

Fire and rehire is where an employer intends to dismiss their employees and re-hire them on new contractual terms. It results in the dismissal of the existing employees who are replaced with new employees on different contractual terms.

Any dismissals will usually be regarded as redundancies.

Though the practice has historically been used as a last resort for employers, this is not a legal requirement and there have been several high-profile cases (receiving negative press coverage), where employers have used, or attempted to use, the practice to push through large-scale dismissals.

Currently, employers need to act within the range of reasonable responses to be able to fairly dismiss an employee for a failure to agree to vary their terms and conditions of employment. If they have a 'sound business reason' for imposing the change, it will usually be a reasonable response and any dismissal will be justified (Employment Tribunals only consider the underlying business rationale for the variation, and won't scrutinise the employer's business decision or investigate if it could've taken other steps to avoid dismissals).

The new rules were originally expected in October 2026, but are now expected in January 2027. They will make it much harder to justify a dismissal using 'fire and rehire' or 'fire and replace' practices. The default position will be that using these practices will make a dismissal automatically unfair unless the employer has financial difficulties.

Automatically unfair dismissals

A dismissal will be automatically unfair (i.e. an employee won't need to have worked for the qualifying time of 2 years before being able to start a claim) if the reason, or main reason for it is any of the following:

• The employer has either tried to vary any one of the terms in the employee's employment contract (whether express or implied) to make a 'restricted variation' or tried to vary more than one of those terms which includes a 'restricted variation', and the employee did not agree to it (fire and rehire).
• To enable the employer to employ another employee, or to re-engage the employee, under a 'varied contract of employment' to carry out the same duties, or substantially the same duties, as the dismissed employee. A varied contract of employment is a contract where the terms are not the same as the terms of the dismissed employee's contract, and one or more of the different terms is a 'restricted variation' (fire and replace).
• To enable the employer to replace the employee with someone not directly employed by them (e.g. an agency worker or self-employed contractor) under a 'relevant contract' to do largely the same activities as the dismissed employee, and the dismissal is mainly because the business's need for those activities has stopped or reduced (or is expected to). A relevant contract is any contract that's not a contract of employment, which the employer is a party too.

Restricted variations

These are the terms that cannot be changed by an employer, and include:

Terms about pay and performance

• Reducing or removing an amount payable to the employee that's connected with their employment
• Changing terms referring to a measure (that the employee must achieve for any sum to be payable under their contract or used in relation to achieving performance-related results)
• Terms and conditions relating to a pension or pension scheme.

Terms about working time and time off

• Changing the number of hours the employee must work
• Reducing the amount of time off that they're entitled to take (e.g. annual leave)
• Changing the time and duration of a shift (new regulations will set out more details).

Variation clauses

Terms that allow an employer to make any variation of the above type of terms without the employee's agreement.

Other

Any variation specified in regulations made by the government (yet to be made).

Varying terms that are not restricted

Employers can vary terms that are not restricted where the main reason for an employee's dismissal is because either:

• The employer tried to vary one or more of the (non-restricted) terms in the employee's contract of employment and the employee did not agree to it.
• The employer wants to employ another person, or to re-engage the employee, under a 'varied contract of employment' to carry out largely the same duties that were done by the dismissed employee. A varied contract of employment is a contract where the terms are not the same as the terms of the dismissed employee's contract, and none of the different terms in each contract is a restricted variation.

A dismissal in these circumstances will not be automatically unfair. However, employers must show that the dismissal was fair (i.e. it used a fair procedure and the dismissal was within the range of reasonable responses).

A tribunal will take into account certain factors when making their decision, such as if any consultation took place and if it should have been a collective consultation with a trade union (where 20 or more employees are at risk of redundancy).

Exception for financial difficulties

This exception will apply in very limited circumstances. A dismissal will not be automatically unfair if the employer can prove both:

• The reason for the restricted variation was to eliminate, prevent or significantly reduce (or significantly mitigate the effect of) any financial difficulties which, at the time of the dismissal, were affecting (or were likely in the immediate future to affect) it's ability to carry on the business as a going concern.
• In all the circumstances, it could not reasonably have avoided the need to make the variation.

This is likely to mean that employers will no longer be able justify varying a contractual term to just reduce or mitigate any financial difficulties, and that the financial risk to the business must be in the immediate future and not used to avoid contemplated issues.

Even if an employer successfully proves the dismissal was needed because of its financial difficulties (i.e. it was not automatically unfair), it still must show that the dismissal was fair (i.e. it used a fair procedure and the dismissal was within the range of reasonable responses).

A tribunal will take into account certain factors when making their decision, such as if any consultation took place and if it should have been a collective consultation with a trade union (where 20 or more employees are at risk of redundancy).