The practices of ‘fire and rehire’ and ‘fire and replace’ have been the subject of significant attention in recent years. The reforms proposed in the Employment Rights Bill seek to limit the circumstances in which employers can use these practices, making good on Labour’s promise to bring an end to so-called “unscrupulous” employment practices, even where it recognises they have been adopted for a “sound business reason”.

In this article, we summarise the current position, explain the government’s plans and look at their potential impact for employers.

Current law 

The term ‘fire and rehire’ refers to the practice of changing employment terms and conditions by way of dismissal and re-engagement, typically in situations where it hasn’t been possible to obtain employee or trade union consent. ‘Fire and replace’ refers to the practice of dismissing existing employees and engaging new employees on different terms to replace them. 

Although subject to increased scrutiny, largely as a result of the high-profile P&O Ferries scandal, which saw the firing of 800 workers in 2022, these practices remain lawful, albeit risky from a reputational and industrial relations perspective.

In response, a new Code of Practice on fire and rehire was introduced by the last government, which sought to encourage employers to act fairly and responsibly in negotiations over changes to terms and conditions and emphasised that fire and rehire should only be used as a “last resort”. The Code of Practice came into effect in July 2024. 

The Code didn’t introduce any new binding legal obligations on employers but is admissible in evidence in legal proceedings. That means any relevant provision of the Code must be considered by courts and Employment Tribunals, and failure to comply could result in a 25% increase in awards for certain Tribunal claims.

Planned changes under the Employment Rights Bill 

Whilst the Bill doesn’t seek to ban ‘fire and rehire’ and ‘fire and replace’ practices in their entirety, it would severely restrict employers’ ability to use these practices by “closing the loopholes which allow firms to engage in these unscrupulous practices”. 

The Bill would make it automatically unfair to dismiss an employee for refusing to agree to a variation of their terms and conditions of employment, or because an employer intended to employ another person on varied terms to carry out substantially the same role. 

There is a limited exception provided for by the Bill in which a dismissal will not be deemed automatically unfair if the employer can show that they were acting in response to financial difficulties affecting their ability to carry on business as a going concern. However, even in those circumstances, the employer must also not have been able reasonably to avoid the need to make the variation to terms and have acted fairly in all the circumstances, including in accordance with any further regulations to be published.

A separate consultation was launched shortly after the initial publication of the Bill, seeking views on “strengthening remedies against abuse of rules”.  This included a proposal to make interim relief available to employees who allege that they have been dismissed in a ‘fire and rehire’ or ‘fire and replace’ context (meaning employees could continue to be paid until a final hearing of their claim if it is ‘likely’ to succeed). However, the response to the consultation published on 5 March 2025 confirms that this plan has now been dropped, at least for the moment. The government say that they do not currently believe interim relief would be an effective remedy due to the short deadline for applying, the complexity of evidence that is needed, and increased pressures on tribunals. The response notes that there should be additional discussions with employers and employees to review the impact and implementation of these changes before additional remedies, such as interim or injunctive relief, can be considered.

The consultation response does make one significant change that will affect fire and rehire practices, by doubling the maximum protective award for failure to consult from 90 to 180 days’ pay per affected employee, and this has been added to the Bill. If 20 or more dismissals are being proposed, the employer is required to consult employee representatives about the proposals, in the same way as for collective redundancies. The protective award is the penalty for failing to consult properly. As noted in the consultation response, the 25% uplift for failing to follow the Code of Practice on fire and rehire will apply to the protective award as well as to any unfair dismissal compensation. A doubled protective award plus the uplift is a major increase to the costs of getting this wrong.  

Practical impact for employers 

The strict approach proposed by the government will make it significantly harder for employers to make changes to terms and conditions without workforce support. It represents a major victory for the trade union movement, as workers and their representatives will gain more leverage to obtain concessions from businesses wishing to change contractual terms. 

The measures in the Bill are not limited to reductions in pay or hours, and apply to any contractual change whatsoever. For example, an employer would not be able to make changes to a contractual disciplinary procedure which is no longer suitable, or adjust employee working hours (while maintaining the same number of hours) to keep pace with modern store opening/shopping times. Employers may also increasingly seek to use pay increases or promotions as a strategic ‘bargaining chip’ to obtain agreement to contractual changes. This risks creating a two-tier workforce with employees who agree to changes on revised terms and higher pay, and could also make employers more reluctant to award pay increases for other reasons. 

Another issue that remains unclear is the test of the employer’s ability to carry on “the business” as a going concern. Does this mean the entire business or part of a larger business, and does it mean that profitable parts of the business must essentially fund an unprofitable part? Unfortunately this issue has not been clarified in the latest amendments to the Bill.

There is a real risk that measures which appear to have been driven by a small number of extreme but high-profile examples (such as P&O Ferries) will have far-reaching, unintended consequences. The government itself acknowledges that employers may have sound business reasons for seeking to change terms and conditions of employment. However, unless employers can show that they are facing existential financial difficulties, they will no longer be able to rely on fire and rehire as a last resort to force through changes. As a result, it is plausible that the new protections will actually result in more redundancies, where it would currently be possible to avoid job losses through changes to terms and conditions.      

Next steps and what employers can do 

It remains unclear when these reforms will come into effect, though it seems most likely that they will be implemented at some point in 2026. 

In the meantime, any use of fire and rehire by employers is likely to carry greater reputational risks than ever. Businesses which are currently considering potential changes to contractual terms that are unlikely to attract employee consent may nonetheless wish to consider whether to do so sooner rather than later, during the limited window in which dismissal and re-engagement still remains a potential option. 

We may also see businesses trying to mitigate the potential impact of these reforms by expanding the use of flexibility clauses in their employment contracts. As flexibility clauses give employers the contractual right to unilaterally make changes (such as to an employee’s benefit package or the times at which they work), they could avoid the need to obtain employee consent. Employers may therefore seek to get ahead of the forthcoming restrictions by reviewing their template contracts to ensure that any flexibility clauses are drafted as widely and as effectively as possible. However, anyone adopting this strategy will need to be mindful of the large body of established case law limiting the scope and enforceability of flexibility clauses when used to make changes to employees’ detriment. It also remains to be seen whether the government may include anti-avoidance measures targeting this potential use of flexibility clauses in future legislation.