In 2022, P&O Ferries dismissed around 800 staff without notice and replaced them with cheaper agency labour on the same day. The public and political backlash that followed is a big part of why fire and rehire reform exists at all.
But the government’s own data tells a more precise story than one headline case. An estimated 12,100 employers use fire and rehire each year, affecting around 125,000 workers, a small minority of UK employers, but not a small number of people. And it doesn’t land evenly: a 2021 TUC poll, cited directly in the government’s own analysis, found Black and Minority Ethnic workers faced fire and rehire at nearly twice the rate of white workers, 15% compared with 8%.
From 1 January 2027, deliberately timed to land alongside the six-month unfair dismissal qualifying period, dismissing someone to force through certain contract changes becomes automatically unfair. This piece covers exactly what that means, what’s still being decided, and what genuinely doesn’t change.
Explore: Employment Law Changes 2026: HR Guidance on the Employment Rights Act 2025, for the full picture this piece sits within.
What “Fire and Rehire” Actually Meant Before This Reform
Fire and rehire, dismissing someone and offering to re-engage them on different terms, or replacing them with someone else entirely, isn’t unlawful today. It’s currently permitted where an employer has a genuine business reason for the change and follows a fair process.
It’s worth being honest about scale here too. The government’s own analysis, drawing on ONS data, found 63% of employers making changes to terms and conditions do so through consultation, negotiation, and voluntary agreement, while fewer than 1% resort to fire and rehire. This isn’t a reform aimed at a widespread, everyday practice. It’s aimed at a rarer, more coercive tactic, one still significant enough to affect an estimated 125,000 workers a year, that the current legal framework doesn’t do enough to constrain.
That’s the gap this reform closes. Not by banning contractual change altogether, but by making the most forceful version of it, dismissal used specifically to push through terms an employee wouldn’t otherwise agree to, considerably harder to justify.
The New Standard: Automatically Unfair for “Restricted Variations”
The reform doesn’t treat every contractual change the same way. It draws a sharp line around a specific list of terms, called restricted variations, and dismissing someone to force through a change to one of these, or to replace them with someone else on those terms, is automatically unfair.
The government’s own analysis confirms restricted variations cover:
- Pay, including reductions to pay-linked measures like commission targets
- Pensions
- Total working hours
- Leave entitlement
- Specified shift pattern changes, still being finalised through an ongoing consultation
There’s a real anti-avoidance detail worth knowing too, confirmed by Thompsons Solicitors: inserting a brand-new flexibility clause into a contract, specifically to allow future changes to one of these terms without agreement, is itself treated as a restricted variation. An employer can’t sidestep the protection by adding the right to make the change later instead of making it now.
DLA Piper confirms no minimum length of service is required to bring this specific claim. It applies from day one.
The government’s own data shows where this actually bites: of the fire-and-rehire cases identified in its research, 20% involved changes to pay, 30% involved hours, and 20% involved leave entitlement, confirming this reform targets exactly the terms most commonly affected in practice, not a hypothetical edge case.
The Narrow Exception (And Why It’s Genuinely Narrow)
There is an exception, but it’s built to be difficult to rely on, not a routine escape hatch.
Under the Act’s new Section 104I(7)-(9), a dismissal to impose a restricted variation avoids being automatically unfair only if the employer can show:
- Genuine financial difficulties threatening the business as a going concern
- The change was necessary, not merely desirable
- The change was unavoidable
Here’s something worth knowing precisely: the government’s own analysis admits there’s no official legal definition of “financial difficulties.” What exists instead are indicators, unpaid bills to suppliers, outstanding wages, an inability to meet routine financial obligations, that tribunals would look to as evidence. That’s a genuinely open question still being worked out in practice, not a settled test with a clean checklist.
And even where an employer clears that bar, it isn’t the end of the analysis. Make UK confirms the dismissal still has to satisfy the ordinary unfair dismissal test on top, meeting the financial difficulties exemption removes the automatic finding against the employer, it doesn’t hand them an automatic win.
What Happens With Non-Restricted Variations
Not every contractual change falls under this stricter regime. Lewis Silkin confirms changes to location or job role and duties sit outside the restricted-variation list entirely.
That doesn’t mean these changes are risk-free, though. Burges Salmon confirms the Act introduces a bolstered ordinary unfair dismissal test specifically for this category. A tribunal weighing one of these dismissals now has to consider factors the law didn’t previously require it to weigh so explicitly: whether the employer engaged in genuine, meaningful consultation, whether that consultation involved recognised trade unions or employee representatives where relevant, and what, if anything, the employer offered the employee in exchange for agreeing to the change.
The practical effect is a second, real tier of protection, less severe than automatic unfair dismissal, but no longer the relatively low bar it used to be. An employer changing someone’s role or location without any real conversation first is taking on meaningfully more risk than it would have a year ago, even though the change itself was never on the restricted list.
Who This Actually Affects
The case for this reform isn’t purely procedural. The government’s own analysis draws on a 2021 TUC poll of over 2,200 people in England and Wales, and the pattern it found is worth sitting with.
- Nearly one in five 18 to 24-year-olds (18%) said their employer had tried to rehire them on inferior terms during the pandemic
- Working-class people (12%) were nearly twice as likely as those from higher socio-economic groups (7%) to have been told to reapply for their own jobs on worse terms
- Black and Minority Ethnic workers (15%) faced fire and rehire at nearly twice the rate of white workers (8%)
This isn’t a coincidence of who happens to work in affected sectors. It reflects who tends to hold less bargaining power in the first place, younger workers, those in lower-paid roles, and workers already more exposed to precarious employment. A practice that relies on the threat of dismissal to force through worse terms will, by its nature, land hardest on the people least able to resist it.
That’s the context worth keeping in view alongside the legal mechanics. This reform isn’t closing a loophole nobody was using. It’s addressing a practice that, however rare, has consistently fallen on the same groups of workers.
What Employers Should Do Before January 2027
None of this requires waiting until the deadline to start preparing.
- Review every existing flexibility or variation clause now, specifically checking whether any of them touch pay, pensions, hours, or leave. A clause added after the reform takes effect to cover these terms would itself count as a restricted variation.
- Build a genuine financial-difficulty evidence trail before you need it, not after. Given there’s no official definition to rely on, documentation of unpaid obligations, cash flow pressure, or inability to meet costs needs to exist contemporaneously, not be reconstructed later to justify a decision already made.
- Treat consultation as a real requirement, not a formality, for both restricted and non-restricted variations alike. The bolstered ordinary unfair dismissal test means even changes outside the restricted list now carry more risk if consultation was thin or absent.
- Don’t assume a location or role change is automatically low-risk. It’s not on the restricted list, but it’s not risk-free either under the new test.
- Start conversations about necessary contractual changes now, while the current, less restrictive regime still applies, rather than waiting until January 2027 forces the harder version of the same conversation.
How Avado Can Help
Knowing exactly where the line sits between a restricted and non-restricted variation, and building the documentation habits that hold up under either test, is exactly the kind of judgement this reform now demands. Avado’s HR Compliance for Managers course, presented by employment law specialist Amanda Chadwick, builds that judgement directly, covering the Employment Rights Act 2025 changes as they land, including the ones still being finalised.
Explore HR Compliance for Managers and make sure your organisation can tell the difference before a tribunal has to!
