Fire and Rehire update: Key changes delayed

The Government has published two documents giving key updates to the anticipated changes around ‘fire and rehire’ and restricted contractual variations, coming about as a result of the Employment Rights Act 2025 (“ERA 2025”).  We now understand that these changes will now be delayed to March, rather than January 2027.

The two documents are 1) the Government’s response to the consultation on extending the new restrictions to contractual changes involving expenses, benefits and shift patterns, and 2) launching a consultation on a revised Code of Practice on Dismissal and Re-engagement.

Consultation on contractual changes related to pay

Under the ERA 2025, it will generally be automatically unfair for an employer to dismiss an employee in order to impose certain contractual changes, referred to as “restricted variations” unless a limited statutory exception applies. The Government sought views on whether the protections should be extended beyond contractual pay to cover expenses, benefits and shift arrangements. The response provides greater clarity on the scope of the reforms contained in the ERA 2025, with a narrower approach than was originally anticipated.

The Government has decided not to bring share schemes within the scope of the restricted variation provisions as it would require complex legislation and these schemes are generally government by agreements separate from the employment relationship.

It has however confirmed that certain travel expenses (including mileage payments), accommodation expenses and accommodation provided as a benefit in kind will be treated in the same way as contractual pay for the purposes of the restricted variation provisions.

As a result, an employer will generally be unable to dismiss and re-engage employees in order to impose changes to these contractual entitlements unless the statutory exception applies.  The Government concluded that these benefits can be of significant importance to employees, particularly lower-paid workers, and therefore warrant additional protection.

Revised Code of Practice on Dismissal and Re-engagement

Alongside its response on expenses and benefits, the Government has published a consultation on a revised Code of Practice on Dismissal and Re-engagement. The Code of Practice on Dismissal and Re-engagement will set out minimum standards on consultation with employees where changes to these restricted contractual terms, or dismissal and re-engagement are considered.

The draft Code largely retains the existing emphasis on meaningful consultation, information sharing and genuine attempts to reach agreement before dismissal and re-engagement is contemplated. Employment Tribunals will continue to have the power to increase or decrease compensation by up to 25% where a party unreasonably fails to comply with the Code. The new Code is expected to replace the current 2024 Code when the 2025 reforms are brought into force.

What should employers do now?

Although the Government has declined to extend the restricted variation provisions to all benefits and expenses, the latest announcements reinforce its intention to make dismissal and re-engagement a measure of last resort. Employers considering contractual changes should continue to focus on early consultation, meaningful engagement with employees and exploring alternatives before contemplating dismissal and re-engagement.

The latest developments provide greater certainty on the scope of the reforms, but employers should continue preparing for a significantly more restrictive framework governing contractual change.

How can we help

The proposed reforms will significantly affect how employers manage contractual changes and workforce restructuring. If you would like advice on how these changes may impact your business, please contact our employment team.

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