Fire and Rehire UK Law 2027: What Changes in January and What to Do Before Then
Fire and rehire is being significantly restricted under the Employment Rights Act 2025 from January 2027. Here is what the current position is, what changes, and what employers considering changes to employment terms need to do now.
Leon Mclean
Co-founder, Birchlow · Last reviewed June 2026
Fire and rehire is not banned in January 2027, but the test for lawful use becomes much harder to meet
The Employment Rights Act 2025 does not make fire and rehire unlawful outright. What it does is change the test that a tribunal applies. From January 2027, a dismissal for the purpose of imposing new terms is automatically unfair unless the employer meets a specific and demanding condition: the variation was genuinely necessary to avoid serious financial difficulty. Employers who are considering using fire and rehire as a tool to reduce costs or renegotiate contracts should understand that the window for doing so on the current, more permissive legal basis closes at the end of 2026.
Fire and rehire is used in the UK every year by employers who cannot get employees to agree to changes in their contracts voluntarily. It is a last resort for some employers and a routine business tool for others. From January 2027, it becomes significantly harder to use lawfully. Employers who are planning to change employment terms, whether on pay, hours, location or other conditions, need to understand both what the law currently allows and what it will require after January 2027.
What the current legal position is
Under current law, an employer can lawfully dismiss an employee and offer to re-engage them on new terms, provided:
There is a fair reason for dismissal. The usual reason relied on in fire and rehire cases is "some other substantial reason" (SOSR) under the Employment Rights Act 1996. The employer must be able to show a genuine and substantial business reason for the proposed change. Cost-saving alone, without more, is unlikely to satisfy a tribunal. A restructuring driven by financial necessity or a significant change in business circumstances is more likely to do so.
A fair procedure is followed. Before dismissing, the employer must consult the employee about the proposed changes, explain the business reason, genuinely consider any counter-proposals, and make clear that dismissal is the consequence of refusing the new terms. A tribunal will look at whether the employer negotiated in good faith or simply used dismissal as an immediate threat.
The decision is reasonable in the circumstances. Even with a fair reason and a fair procedure, the dismissal must fall within the band of reasonable responses open to an employer in the circumstances. An employer who has made no effort to agree changes voluntarily, or who has dismissed immediately without warning, is unlikely to be within that band.
The current position does not make fire and rehire safe. Many tribunal claims involving fire and rehire succeed because the employer failed to consult properly or relied on SOSR without adequate business justification. Legal fees, compensation and reputational damage are significant even in cases the employer ultimately wins.
The collective consultation dimension
Where an employer proposes to dismiss 20 or more employees within 90 days to impose new terms, collective redundancy consultation obligations apply. This requires the employer to notify the Secretary of State and consult elected employee representatives for at least 30 days (or 45 days where 100 or more are affected) before any dismissal takes effect.
Employers who attempt fire and rehire at scale without triggering collective consultation obligations face a protective award of up to 90 days' gross pay per affected employee. This is in addition to any unfair dismissal award.
What changes in January 2027
The Employment Rights Act 2025 introduces a new category of automatically unfair dismissal that applies to fire and rehire situations from January 2027.
Automatic unfair dismissal. A dismissal will be automatically unfair where the principal reason was that the employee refused to agree to a variation of their contract, unless the employer can satisfy the tribunal that both of the following conditions are met:
- →The variation was genuinely necessary to prevent serious financial difficulty in the employer's business.
- →The employer followed a proper and meaningful consultation process with the affected employees before dismissing.
What "serious financial difficulty" means. This is a significantly higher threshold than the current "some other substantial reason" test. Wanting to reduce costs, improve margins or bring terms in line with market rates is unlikely to meet this test. An employer facing insolvency or genuine financial distress that threatens the survival of the business is more likely to be able to demonstrate it.
The consultation requirement. The consultation required under the January 2027 test is expected to be more demanding than the current procedural requirement. Employers who consult on paper only, or who make a token offer to discuss changes before dismissing, will not meet the standard. The detail of what consultation must involve was to be set out in guidance and, where relevant, in secondary legislation.
Compensation consequences. Because the dismissal is automatically unfair, the standard cap on the compensatory award applies. An uplift of up to 25% is also available where the employer failed to follow the ACAS Code. For multiple affected employees, the combined exposure can be very large.
What to do before January 2027
Review any planned term changes now. If your business is considering changing employment contracts on pay, hours, location, benefits or other conditions, assess whether those changes need to be in place before January 2027. The current legal framework, while not risk-free, is more permissive than the post-January 2027 position.
Consult properly in any case. Whether you proceed before or after January 2027, a genuine consultation process is the foundation of any lawful change to employment terms. Write to affected employees explaining the proposed change and the business reason. Hold meetings. Genuinely consider counter-proposals. Document everything.
Get agreement in writing where possible. The cleanest outcome is a signed variation agreement. An employee who agrees to new terms in writing has no basis for an unfair dismissal claim. Wherever agreement can be reached voluntarily, pursue it.
Avoid using dismissal as an opening threat. Employers who open with "agree to this or you are dismissed" before any meaningful consultation are likely to lose at tribunal under both the current and the new framework. A credible consultation process, with a genuine attempt to reach agreement before dismissal is raised as a consequence, is the minimum required.
Collective consultation thresholds apply regardless. If changes affect 20 or more employees and dismissal is a potential outcome, collective redundancy consultation obligations may be triggered. Take legal advice before proceeding.
Do not leave it until December 2026. Any planned change to employment terms that might require fire and rehire as a backstop needs to be initiated well before January 2027. A consultation process that begins in November 2026 and leads to dismissal in February 2027 falls within the new and more restrictive regime. Start now.
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