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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.

Guide summary

From 1 January 2027, you must not dismiss an employee and offer them worse terms to pressure them to accept change. This is automatically unfair dismissal. You can only use this approach if the business faces genuine financial difficulties that threaten its survival and you have followed the ACAS Code. If you breach the rules, a tribunal can award compensation with no cap and add a 25% penalty for not following the Code.

  • Do not dismiss employees to force them onto worse terms after 1 Jan 2027
  • This includes replacing an employee with a contractor on worse pay
  • You cannot use fire and rehire unless the business faces genuine existential threat
  • Follow the ACAS Code of Practice on Dismissal and Re-engagement
  • Breach of the Code can add 25% to any tribunal compensation
  • Employees can claim from day one – no qualifying period needed
  • Compensation for unfair dismissal has no upper limit
  • Instead, negotiate changes voluntarily and offer incentives
  • Consider gradual changes or different terms for different employees
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'Fire and rehire' is the practice of dismissing employees and offering to re-engage them on less favourable terms and conditions. Section 28 of the Employment Rights Act 2025 will make specified dismissals automatically unfair once it is commenced; that restriction is not yet in force.

Planned restriction: Section 28 is expected to impose a very narrow exception for genuine financial crises threatening business survival, but the new automatic-unfairness provisions are not yet in force. Employers must still follow existing dismissal law and the ACAS Code.

What counts as fire and rehire

Fire and rehire occurs when an employer:

  1. Dismisses an employee (or threatens dismissal)
  2. Offers to re-engage them on different terms
  3. 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

The planned section 28 restrictions also cover specified 'fire and replace' dismissals once commenced. This occurs when an employer:

  1. Dismisses an employee
  2. Replaces them with a non-employee (contractor, agency worker, outsourced worker)
  3. The replacement arrangement is on worse terms

The financial difficulties exception

Once section 28 is commenced, a limited exception is expected 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 planned exception: The enacted exception is very narrow and will apply only once the new provisions are commenced. It addresses genuine existential threats to the business, not routine cost-cutting or efficiency measures.

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:

  1. Negotiate voluntary agreement: Seek agreement to changes through genuine negotiation
  2. Offer incentives: Consider signing bonuses or other incentives for agreeing changes
  3. Phase changes: Introduce changes gradually over time
  4. Review alternatives: Consider whether there are other ways to achieve your business objectives
  5. 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.

ACAS Code of Practice on Dismissal and Re-engagement (opens in a new tab)