Guide
Fire and rehire: what employers can and cannot do
Detailed guidance on fire and rehire restrictions under ERA 2025. Covers what constitutes fire and rehire, when the financial difficulties exception applies, and how to comply with the ACAS Code of Practice.
'Fire and rehire' is the practice of dismissing employees and offering to re-engage them on less favourable terms and conditions. This is automatically unfair dismissal under the Employment Rights Act 2025.
Effectively banned: Fire and rehire is effectively banned, with only a very narrow exception for genuine financial crises threatening business survival.
What counts as fire and rehire
Fire and rehire occurs when an employer:
- Dismisses an employee (or threatens dismissal)
- Offers to re-engage them on different terms
- The new terms are less favourable than the original terms
This includes:
- Reducing pay or benefits
- Removing contractual entitlements
- Changing working patterns or hours
- Removing flexible working arrangements
- Any other detrimental changes to terms and conditions
Fire and replace
'Fire and replace' is also automatically unfair. This occurs when an employer:
- Dismisses an employee
- Replaces them with a non-employee (contractor, agency worker, outsourced worker)
- The replacement arrangement is on worse terms
The financial difficulties exception
There is a limited exception where fire and rehire may not be automatically unfair:
- Exception applies when
- Genuine financial difficulties threatening business viability
- Requirement 1
- Financial difficulties must be real and evidence-based
- Requirement 2
- Changing terms must be unavoidable to address the difficulties
- Requirement 3
- Changes must be proportionate to the financial situation
- Requirement 4
- Employer must follow the ACAS Code of Practice
Narrow exception: Following July 2025 amendments, this exception is very narrow. It applies only to genuine existential threats to the business, not routine cost-cutting or efficiency measures. Many employers who previously used fire and rehire will not qualify for this exception.
ACAS Code of Practice requirements
Even where the exception might apply, employers must follow the ACAS Code of Practice on Dismissal and Re-engagement (in force since July 2024):
Before consultation
- Explore all alternatives to dismissal
- Prepare clear explanation of why changes are needed
- Gather evidence of financial difficulties (if relying on exception)
During consultation
- Consult in good faith with employees and representatives
- Share relevant information openly
- Allow reasonable time for consultation
- Consider alternatives proposed by employees
- Do not issue ultimatums or artificial deadlines
Before any dismissal
- Exhaust all reasonable alternatives
- Give proper notice
- Allow appeal against dismissal
Consequences of non-compliance
- Automatically unfair dismissal
- No qualifying period - day-one employees can claim
- No compensation cap
- Awards based on actual losses with no upper limit
- ACAS Code breach
- Up to 25% uplift to any tribunal award
- Reputational damage
- High-profile cases attract media attention
What to do instead
If you need to change terms and conditions:
- Negotiate voluntary agreement: Seek agreement to changes through genuine negotiation
- Offer incentives: Consider signing bonuses or other incentives for agreeing changes
- Phase changes: Introduce changes gradually over time
- Review alternatives: Consider whether there are other ways to achieve your business objectives
- Accept refusals: If employees refuse, you may need to accept different terms for different employees
Seek legal advice: If you are considering any form of terms change that might involve dismissal, seek specialist employment law advice before proceeding.