Fire and rehire restrictions from October 2026

From October 2026, "fire and rehire" — dismissing an employee and re-engaging them (or a replacement) on worse terms — becomes automatically unfair dismissal for changes to a defined set of core contractual terms. The Employment Rights Act 2025 calls these "restricted variations".

This is one of the most consequential changes for any employer planning a restructuring, pay change, or shift-pattern variation.

What counts as a restricted variation

Changes that trigger the automatic unfair dismissal rule include:

• Pay — basic, overtime, commission, bonus, allowances.
• Working hours — number, distribution, shift length.
• Shift times — when the work happens.
• Time off — holiday and other paid leave.
• Place of work — including a fundamental change in work location.
• Pensions — employer contributions and scheme membership.

Other terms (uniform, dress code, minor procedural changes) remain subject to the standard unfair dismissal test, so they are not automatically unfair — but a fair process is still required.

Fire and replace is also covered

Replacing an employee with a contractor or agency worker performing substantially the same work also triggers the rule. This closes the loophole where employers terminated employment and outsourced the role to avoid contractual obligations.

What is still permitted

• Genuine agreement to varied terms remains lawful. If an employee voluntarily agrees to the change (without the threat of dismissal), the variation is enforceable.
• Flexibility clauses in contracts agreed before October 2026 may permit some variations without dismissal — but courts interpret these narrowly.
• Changes for genuine ETO reasons (economic, technical or organisational) where dismissal is genuinely unavoidable may still be defensible — but the bar is significantly higher than before.

What to do before October 2026

1. Review any planned restructuring that involves contract variations.
2. Insert flexibility clauses in new contracts where appropriate (within reason — overly broad clauses are unenforceable).
3. Take legal advice before any variation programme involving 20+ employees.
4. Use voluntary agreement routes wherever possible — meaningful consultation and genuine consent remain lawful.

The reform follows the high-profile P&O Ferries incident and is one of the headline measures of the Employment Rights Act 2025.

Official source: GOV.UK — Employment Rights Act 2025.