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The end of fire-and-rehire: how the ERA 2025 is reshaping workplace dismissals and redundancies
February 24, 2026
The Employment Rights Act 2025 (ERA) introduces several sweeping reforms that will affect how employers can manage dismissals in the workplace.
Most notably, the Act takes steps to end the practice of ‘fire-and-rehire’, and penalties for mishandling redundancies are set to double. The measures are designed to strengthen employee protections, but also raise the stakes for employers which fail to follow the correct process.
Our employment law expert, Nicole, explains what is changing, when the changes take effect, and what employers should be doing now to prepare and protect their organisations.
Generally, an employer is only entitled to change the terms of an employment contract with the employee’s consent. This typically requires the employer to go through a fair consultation process and seek to reach agreement with the employee(s).
However, if an employer cannot vary the terms of an employee’s contract by agreement, one option currently open to employers is to dismiss the employee and offer to immediately rehire them on new terms, or replace them with a different employee willing to work under the revised contract.
The practice typically results in the employee (or the person replacing them) being offered less favourable contractual terms, for example lower wages, reduced hours, or fewer benefits. This leaves the employee with the decision whether to accept the new contract on amended terms, or refuse them, face dismissal and attempt to bring an unfair dismissal claim.
The practice has been widely criticised for favouring employers and pressurising employees to accept worse terms and conditions. This was the approach taken by P&O Ferries in 2022 when the ferry company dismissed around 800 employees in order to replace many of them with lower-paid agency workers.
In response, the UK Government has introduced reforms intending to eliminate the practice of fire-and-rehire.
From 1 January 2027, it will be “automatically unfair” in law to dismiss an employee for failing to agree to a restricted variation.
Restricted variations will include contractual provisions relating to pay, pensions, working hours or shift patters, annual leave entitlement, and clauses allowing the employer to vary any of these terms.
The ERA provides one exception where the employer can justify fire-and-rehire practices.
The employee’s dismissal will not be automatically unfair if the employer can show that it needs to change its employees’ terms because it is facing, or is about to face, financial difficulties that will threaten the future of the business (i.e. it’s facing insolvency) if it doesn’t do so.
This is expected to be a high threshold, and won’t be a solution for employers just seeking to cut costs.
As well as clamping down on fire-and-rehire, the ERA makes further changes to the requirements for consulting on collective redundancies (those involving 20 or more employees) and increases the penalties for non-compliance.
The obligation to consult will be extended so that where an employer is considering making a total of 20 or more potential redundancies across different work locations, this will now trigger the collective consultation duty.
This means that strict rules will require the employer to notify the UK Government of its intentions and consult with employee representatives for a minimum period of time (currently at least 30 days) before it can make redundancies.
From 6 April 2026, the maximum compensation for failing to comply with collective consultation rules will also double from 90 days to up to 180 days’ gross pay per affected employee. This means that getting this wrong will become even more costly for employers.
The ERA introduces further restrictions on how employers can manage their workforces. Therefore, it is important to be pragmatic in your approach and maintain constructive, flexible communication with your employees. We recommend that you:
Darwin Gray’s employment law experts will be discussing these reforms in the fourth webinar in our free bite-size webinar series on 4 March 2026.
The series is designed for employers, HR professionals, senior managers, and anyone responsible for managing people or involved in important employment decisions. Each 20-minute session will focus on a key area of the ERA 2025.
Secure your free place, here.
You can also reach out to our employment law experts on 02920 829 100, hello@darwingray.com or via our Contact Us form.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
