Employment Rights Bill: Fire and re-hire

The Employment Rights Bill is an ambitious and wide-ranging piece of legislation which will implement many significant changes to employment and trade union rights. In this briefing, we will focus the provisions which will make certain fire and re-hire dismissals automatically unfair. The Government plans to implement these changes in October 2026.

This briefing is written on the basis that the relevant provisions in the Bill as it emerged from the report stage in the House of Lords (completed on 27 July) will not be further amended.

Fire and re-hire: Restricted variations

When the new restrictions were first formulated in the Bill, it would have been automatically unfair to dismiss an employee for failing to agree to any variation of their contract.

Under the new formulation, the new regime will apply only to a “restricted variation”. There is now a lengthy definition of a restricted variation in the Bill, covering the following types of variation:

• A reduction in pay or other benefits
• A variation in hours of work or shift patterns
• A reduction in the amount of time off an employee is entitled to take
• The inclusion of a clause in the contract which would permit the employer to make unilateral variations in the future
• Any other kind of variation specified in regulations made by the Secretary of State

It seems that the reason for introducing the concept of a restricted variation is to allow employers the flexibility to make other changes where these are not an attempt to drive down terms and conditions – for example in order allow relocation of the business

It will also be automatically unfair to dismiss an employee in order to re-engage them, or to replace them with another person, on different terms, where the difference between the original and new terms would have amounted to a restricted variation.

There is an exception if the employer can show the reason for the variation was to “eliminate, prevent, significantly reduce or significantly mitigate the effects of financial difficulties which, at the time of the dismissal, were affecting the employer’s ability to carry on the business as a going concern” and could not reasonably have avoided the need to make the variation.

The wording of this exception is modified for public sector employers, so that test is applied to the “financial sustainability of carrying out the employer’s statutory functions” rather than the ability to carry on the business as a going concern. There is separate provision for local authorities.

Other variations

If the employee seeks to impose a variation which is not a restricted variation, any resulting dismissal will be subject to the normal unfair dismissal rules. That is the position currently for all types of variation.

However the Bill introduces a list of matters that the employment tribunal must consider when deciding whether the dismissal is fair or unfair. These include the reason for the variation, any consultation about the variation and anything offered to the employee in return for agreeing to the variation.

Replacement of employees with non-employees

The Bill now makes separate provision for a scenario where the employer’s motivation for dismissal is not connected with varying terms and conditions, but with replacing its workforce with non-employees who will be carrying out the same or substantially the same activities

In this scenario, the dismissal will also be automatically unfair unless the employer can show that the reason for the dismissal was statutory redundancy.

As with dismissals relating to restricted variations, the same exemption will apply where the viability of the employer’s business is at stake.

Conclusion

The policy aim behind these measures (combined with a doubling of the maximum protective award) is to avoid a repeat of the P&O scandal, where the employer appears to have concluded that the aggregate compensation it would have to pay for non-compliance with employment legislation was less than the financial benefits of dismissing a section of  its workforce without prior consultation and replacing them immediately with cheaper agency workers. 

Whatever the policy objective, in practice these changes to the unfair dismissal regime mean that employers will need to work much harder to stay on the right side of the law when negotiating changes to terms and conditions, even when they are doing their best to minimise redundancies.