Fire and Rehire in the UK: Practical 2026 Employer Guide

Fire and rehire UK practices are under more scrutiny than at any point in modern employment law history. The Employment Rights Act 2025 (ERA) introduces measures that will reclassify most dismissal-and-re-engagement exercises as automatically unfair dismissals, with key provisions now signalling a 1 January 2027 commencement date after the originally trailed October 2026 window was pushed back. Meanwhile, the Dismissal and Re-engagement Code of Practice is already in force, giving employment tribunals the power to increase compensation awards by up to 25 per cent where the Code has not been reasonably followed.

This guide provides HR directors, in-house counsel and SME owners with a step-by-step compliance roadmap, covering the current legal framework, the ERA timetable, consultation procedures, tribunal-proof evidence checklists and practical templates, so that any unavoidable change to employment contracts is handled with maximum legal protection.

Executive summary & TL;DR

Short answer (as at 8 June 2026): firing and rehiring employees on new terms remains lawful in the United Kingdom, but the legal, financial and reputational risks are escalating rapidly. Employers must treat it as a last resort, not a negotiation tactic.

• Current position. Dismissal and re-engagement is lawful provided the employer can show a genuine business reason, follows a fair procedure, and complies with the statutory Dismissal and Re-engagement Code of Practice (GOV.UK factsheet, February 2026).
• Code already bites. The Code is in force now. Tribunals may increase awards by up to 25% where the Code has not been reasonably followed.
• ERA 2025 changes ahead. From 1 January 2027, dismissing to impose “restricted variations” (core pay, pension, shift patterns, leave) will be an automatically unfair dismissal in most cases (Acas ERA 2025 guidance).
• Narrow exemptions only. The automatic unfair dismissal rule will be disapplied only where the employer can demonstrate genuine existential financial distress or going-concern risk, supported by documentary evidence.
• Collective consultation triggers. Proposals affecting 20 or more employees at one establishment require collective consultation under existing rules, failing to consult carries a protective award of up to 90 days’ gross pay per employee.
• Immediate actions. Audit existing contracts, explore consensual variation first, build a tribunal-grade evidence pack, and start meaningful consultation before issuing any notice of dismissal.

Fire and rehire UK: the legal framework in 2026

Under current law, an employer that cannot reach agreement with employees on changes to contractual terms has the option of terminating existing contracts on notice and offering re-engagement on revised terms. This is the practice commonly known as “fire and rehire,” or more formally, dismissal and re-engagement. It is not in itself unlawful, but it must satisfy the ordinary tests of fair dismissal under the Employment Rights Act 1996 and, since the Code came into force, the procedural requirements of the Dismissal and Re-engagement Code of Practice.

The GOV.UK factsheet published in February 2026 makes clear that the Code applies whenever an employer envisages dismissal as a route to changing employment contracts in the UK. Employers are expected to consult in good faith, genuinely explore alternatives, and treat dismissal-and-re-engagement as a measure of last resort. The Code does not create free-standing legal obligations enforceable in their own right, but employment tribunals must take it into account and may adjust awards accordingly.

What tribunals consider

When assessing whether a fire-and-rehire dismissal was fair, tribunals examine three core questions:

• Genuine business reason. Was there a sound, evidence-based commercial or operational rationale for the proposed change, and has it been documented?
• Procedural fairness. Did the employer follow the Code, allow adequate consultation, and provide employees with clear information about the proposed changes and the consequences of rejecting them?
• Exploration of alternatives. Did the employer genuinely consider and, where feasible, offer alternatives to outright dismissal, such as phased implementation, temporary variations, or voluntary acceptance incentives?

Penalties & compensation

An employer that fails to follow the Code faces a potential 25% uplift on tribunal compensation. In practice, this applies on top of the basic and compensatory awards for unfair dismissal. Where collective consultation obligations have also been breached, a protective award of up to 90 days’ gross pay per affected employee may be ordered separately. Industry observers expect tribunals to scrutinise employer conduct against the Code with increasing rigour as the ERA 2025 provisions approach commencement.

Employment Rights Act 2025, the 2026/2027 timetable and its implications

The Employment Rights Act 2025 represents the most significant shift in fire and rehire UK law in a generation. Its core measure will make it an automatically unfair dismissal to terminate an employee’s contract in order to impose a “restricted variation”, a defined category covering changes to pay, pension, hours, shift patterns and leave entitlements. The employment rights act 2025 implications extend beyond procedure: once in force, no amount of consultation or business justification will save a dismissal unless the employer can bring itself within a narrow statutory exemption.

The original implementation timetable signalled October 2026 for these provisions. However, the Acas ERA 2025 guidance page, updated on 28 May 2026, now indicates that commencement for the automatic unfair dismissal provisions is expected from 1 January 2027. Employers therefore have a closing window to prepare.

The likely practical effect will be a near-total prohibition on fire-and-rehire exercises involving core contractual terms from January 2027, except where the business can demonstrate it would otherwise cease to be a going concern. Early indications suggest that tribunals will expect rigorous, contemporaneous financial evidence, not retrospective justifications assembled after the event.

Decision matrix, when to consider changing terms vs alternatives

Before reaching for dismissal and re-engagement, every employer should work through a structured decision flow. The fire and rehire guidance published by Acas and the CIPD both emphasise that the process must be a genuine last resort.

Step 1: Is a contractual change necessary? Distinguish between changes that require contractual variation (e.g., reducing base pay) and those that fall within existing management discretion (e.g., adjusting duties within a broad job description). If the latter, no dismissal is needed.

Step 2: Can terms be varied by agreement? Propose the change, explain the business rationale, and negotiate. If employees agree, document the variation in writing. This is always the safest route.

Step 3: Is a genuine redundancy or restructure more appropriate? If the role itself is changing fundamentally, consider whether the situation is properly characterised as redundancy rather than a variation of terms.

Step 4: Is dismissal and re-engagement legally defensible? Only if steps 1–3 are exhausted, the change involves a restricted variation, and the narrow exemption applies (or the change falls outside “restricted” categories) should this route be pursued.

Alternatives to fire & rehire

• Consensual variation. Offer incentives such as signing bonuses, transitional pay protection or enhanced benefits in exchange for agreement to new terms.
• Temporary measures. Agree time-limited changes (e.g., a 12-month reduction) with a review clause, reducing the risk of permanent dispute.
• TUPE or secondment. Where restructuring involves a transfer of undertaking, existing TUPE protections may apply and shape the available options.
• Voluntary redundancy. Where the change is so fundamental that roles are effectively disappearing, a voluntary redundancy exercise may be fairer and lower-risk.

Consultation when changing terms, individual & collective process

Meaningful consultation is the single most important factor in avoiding an unfair dismissal tribunal claim when changing employment contracts in the UK. The Dismissal and Re-engagement Code of Practice requires employers to consult “as early as practicable” and to give employees “as much information as is reasonably possible” about the proposed changes, the business reasons behind them, and the consequences of rejection.

Individual consultation: step-by-step

• Week 1–2: Written proposal. Send a clear letter setting out the proposed changes, the business rationale, and the timetable. State explicitly that dismissal-and-re-engagement is not the employer’s preferred outcome but may be considered if agreement cannot be reached.
• Week 2–4: First consultation meeting. Hold a face-to-face or video meeting. Allow the employee to be accompanied. Present the financial or operational evidence. Listen to and record counter-proposals.
• Week 4–6: Follow-up meetings. Address questions raised. Explore alternatives (phased implementation, transitional pay protection). Document every exchange in writing.
• Week 6–8: Final position. If agreement remains impossible, issue a further written communication confirming that all reasonable alternatives have been explored and that the employer is now considering issuing notice of dismissal with an offer of re-engagement on new terms. Provide a cooling-off period of at least five working days.
• Week 8+: Notice. If re-engagement is to proceed, issue contractual notice of termination together with a formal written offer of re-engagement on the revised terms.

How to run a meaningful collective consultation

Where 20 or more employees at one establishment are proposed to be dismissed and re-engaged, collective consultation obligations are triggered. The employer must notify the Secretary of State using an HR1 form and begin consulting with appropriate employee representatives, trade union representatives where a union is recognised, or elected employee representatives otherwise.

The statutory minimum consultation periods are 30 days where 20–99 dismissals are proposed and 45 days where 100 or more are proposed. These periods run before any notices of dismissal are issued. During collective consultation, the employer must disclose the reasons for the proposals, the numbers and descriptions of employees affected, the proposed method of selecting employees, the proposed method of carrying out the dismissals, and the proposed method of calculating any redundancy or other payments.

A collective consultation checklist should cover notification to the Secretary of State, election of employee representatives (if no union is recognised), disclosure of required information, scheduling and documenting meetings, recording counter-proposals and employer responses, and confirming final outcomes in writing to all affected employees.

Tribunal-proof checklist & evidence pack to avoid unfair dismissal

The difference between a defensible fire-and-rehire exercise and a costly tribunal defeat almost always comes down to documentation. To avoid unfair dismissal tribunal claims, employers should assemble a comprehensive evidence pack from the outset, not retrospectively once proceedings are threatened.

The following checklist sets out the core items every employer should compile and maintain:

• Board or senior leadership minutes. A formal record of the decision to explore contract changes, including the business case, financial data considered, and alternatives discussed before dismissal-and-re-engagement was approved.
• Financial forecasts and supporting evidence. Management accounts, cash-flow projections, market analyses or customer loss data that demonstrate the business necessity for the proposed changes.
• Written consultation communications. Copies of every letter, email and attachment sent to employees or their representatives, time-stamped and filed chronologically.
• Meeting notes and attendance records. Contemporaneous minutes of every consultation meeting, recording who attended, what was discussed, what counter-proposals were made, and the employer’s response.
• Employee responses and counter-proposals. Copies of all written replies from employees or union representatives, together with the employer’s documented consideration of each.
• Re-engagement offer letters. Clear, signed copies of the offer of re-engagement on revised terms, with evidence of any cooling-off period provided.
• Selection criteria and scoring (where applicable). If only some employees are to be dismissed, the criteria used for selection and the individual scores must be documented and defensible.
• Impact assessments. Any equality impact assessment or individual hardship review conducted as part of the process.

Evidence log table

Maintaining this evidence log in real time, rather than compiling it after a claim is filed, is critical. Tribunals draw adverse inferences from documentation that appears to have been created or amended after the event.

Practical templates & scripts for fire and rehire processes

Employers undertaking a dismissal-and-re-engagement exercise should use standardised templates to ensure consistency, compliance with the Code, and completeness of the evidence trail. The following templates are recommended as a starting set:

• Individual consultation letter. Sets out the proposed changes, the business rationale, the consultation timetable, the employee’s right to be accompanied, and a clear statement that dismissal is not the employer’s preferred outcome.
• Collective consultation notice. Notifies employee representatives of the proposals and discloses the required statutory information. Must be issued before the minimum consultation period begins.
• Re-engagement offer letter. A formal written offer of employment on the revised terms, including a clear start date, the terms that have changed, and a cooling-off period before acceptance is required.
• Meeting minutes template. A structured form for recording attendees, agenda items discussed, questions raised, counter-proposals, and agreed next steps.
• Selection scoring matrix. A transparent scoring framework for use where only some employees are affected, covering objective criteria such as skills, qualifications, performance records and attendance.

How to adapt templates for small employers vs large employers

SMEs with fewer than 50 employees can typically use simplified versions of these templates, shorter letters, combined consultation and outcome meetings, and a streamlined scoring matrix. Larger employers, particularly those with recognised trade unions or multiple sites, will need to layer in collective consultation notices, HR1 notifications, and site-specific addenda. Regardless of employer size, every template must be tailored to the specific facts and should be reviewed by a qualified employment lawyer before use. Generic precedents carry risk if they do not reflect the actual business case or the particular terms being varied.

Realistic exemption scenarios & risk grading

Once the ERA 2025 provisions take effect, the only route to a lawful fire-and-rehire exercise involving restricted variations will be the narrow going-concern exemption. Industry observers expect tribunals to apply this exemption strictly, requiring employers to demonstrate that the business would otherwise cease trading, not merely that profitability would decline.

• Low risk. The proposed change does not involve a restricted variation (e.g., adjusting a non-contractual bonus scheme within existing discretion). The automatic unfair dismissal rules will not apply, though the Code must still be followed.
• Medium risk. The proposed change involves a restricted variation, but the employer has credible, contemporaneous evidence of severe financial distress and has exhausted all alternatives. The exemption may apply, but tribunal challenge is likely.
• High risk. The proposed change involves a restricted variation, the employer’s financial position is difficult but not existential, and alternatives have not been fully explored. This scenario is likely to result in an automatic unfair dismissal finding.

Where the risk is graded as medium or high, employers should obtain specialist legal advice before proceeding and should budget for the possibility of tribunal proceedings.

Case studies & likely tribunal outcomes

Historical tribunal decisions and widely reported cases offer instructive lessons for employers considering fire and rehire in the UK.

Scenario A: Insufficient consultation. A mid-sized logistics company sought to reduce weekend premium pay for warehouse staff. The employer issued a single letter, held one group meeting, and gave employees two weeks to accept or face dismissal. The tribunal found the dismissals unfair, citing a failure to consult meaningfully, a failure to explore alternatives, and a failure to follow the Code. Awards were uplifted by 25%.

Scenario B: Weak business case. A professional services firm proposed to remove a contractual home-working entitlement. The employer cited “cultural alignment” as the reason but could not produce financial or operational evidence of business necessity. The tribunal held that the reason was not sufficient to justify dismissal, and the dismissals were unfair.

Scenario C: Robust process, defensible outcome. A manufacturing business facing documented supply-chain losses and declining order books proposed to reduce shift allowances. The employer consulted individually and collectively over eight weeks, offered transitional pay protection, and documented every step. The tribunal found the dismissals fair, noting the thorough consultation, the genuine business need, and the employer’s efforts to mitigate the impact on employees.

Lessons for employers, top 5 takeaways

• Start consultation early and treat it as a genuine dialogue, not a formality.
• Build the business case with financial evidence before approaching employees.
• Document everything contemporaneously, notes created after a claim is filed carry little weight.
• Offer transitional measures or phased implementation wherever possible.
• Follow the Code of Practice to the letter; the 25% uplift is a significant financial penalty.

Next steps

Fire and rehire in the UK demands meticulous preparation, not reactive decision-making. Within the next seven days, audit all contracts where variations are being considered and assess whether proposed changes involve restricted variations. Within 30 days, build the business case with contemporaneous financial evidence, begin informal consultation, and prepare template documentation. Employers facing complex or multi-site exercises, or those approaching the January 2027 commencement date with active restructuring plans, should seek specialist employment law advice to ensure their approach is Code-compliant and tribunal-proof.

Sources

1. Acas, Dismissal and rehire
2. Acas, Employment Rights Act 2025
3. GOV.UK, Dismissal and re-engagement: Code of Practice
4. GOV.UK, Fire and rehire factsheet (February 2026)
5. Pinsent Masons, How the law is changing on fire and rehire
6. BBC, Fire-and-rehire reporting
7. House of Commons Library, Fire-and-rehire research briefing
8. Farrer & Co, Employment Rights Act 2025: changes to fire and rehire
9. CIPD, Fire and rehire: guide for employers