Fire and rehire: the rules now, and what changes.

Fire and rehire, or dismissal and re-engagement, is when an employer can’t get agreement to new terms, such as lower pay or different hours, so dismisses staff and offers to take them back on the new terms.

• The Code of Practice on dismissal and re-engagement (July 2024) sets the minimum procedure. Dismissal should be a last resort, after all reasonable attempts to reach agreement through full consultation.
• If you unreasonably fail to follow the code, a tribunal can increase the employee’s compensation by up to 25%.
• You still need a fair reason and a fair process, the correct notice, and a right of appeal. Fire and rehire risks unfair and constructive dismissal claims.
• Proposing 20 or more dismissals at one establishment within 90 days also brings in collective consultation.

Section 28 of the Act adds new sections to the Employment Rights Act 1996. Once they are in force, Acas expects in March 2027, a dismissal is automatically unfair if the main reason is that:

• the employee refused a restricted variation, which covers cutting pay, changing how pay is worked out, pensions, the number of hours, shift times (as regulations set), cutting time off, or a term letting you make such changes without agreement;
• you wanted to re-engage them, or employ someone else, on the varied terms to do the same job; or
• you wanted to replace them with someone who isn’t an employee, such as a contractor, doing the same work.

No qualifying period applies to these claims. A dismissal over a change that isn’t restricted is judged for fairness in the usual way, looking at the reason for the change, the consultation, and anything offered in return.

A dismissal over a restricted variation won’t be automatically unfair if you can show the change was needed to eliminate, prevent or significantly reduce financial difficulties affecting your ability to carry on as a going concern, and that you couldn’t reasonably have avoided needing it. It is a narrow exception, not a general business reason.

• Check whether the contract already allows the change.
• Explain the reason and share the information behind it, consult properly, and consider alternatives and what you could offer in return.
• Get agreement in writing, and give the written statement of the change within a month (our written statement guide explains it).
• Take advice before ever raising dismissal.