Ross Hutchison continues his watch over the government’s planned ERA ‘fire and re-hire’ restrictions with some insightful warnings as to potential knock-on implications for employers
In January 2027, as part of its Employment Rights Act reimagining of employment law in the UK, the government is scheduled to introduce its restriction on employers’ use of dismissal and re-engagement, commonly referred to as ‘fire and re-hire’. Under the new rules, when a dismissal is because an employee has not agreed to the employer’s attempt to vary contractual terms relating to (essentially) pay, pensions, hours and holidays (the ‘restricted variations’), the dismissal will be unfair (save for present financial peril scenarios).
As this change nears, consideration must be given to whether this restriction could impact matters beyond when an employer engages a formal dismissal and re-engagement process.
For employers, beyond losing one of the tools in its armoury to implement contractual change on those restricted issues, there is another, perhaps unintended consequence which, particularly for employers who engage in collective bargaining, is potentially an area for concern.
Implementing changes to the contractual employment relationship
Whenever employers are seeking to amend contractual terms, the current well-known options are:
reach agreement with the employee(s) concerned;
impose the variation; or
dismiss and re-engage.
From 01 January 2027, if the change relates to one of the restricted variations, option 3 will disappear (save for if the financial peril exception, referred to above, applies).
Option 2 is an approach which is often avoided as it would be a breach of terms bringing exposure to breach of contract claims and/or constructive unfair dismissal claims, depending on the circumstances. However, it is still engaged.
The forthcoming implementation of the new rules on dismissal and re-engagement restriction will further increase the risks of using imposition of new terms, where the change could be considered detrimental to the employee.
The wording added by the ERA2025 in s.104I provides that automatic unfair dismissal will occur when an employee is dismissed if the reason or principal reason was that the employee did not agree to the employer’s attempt to make a restricted variation. This does not limit its use to where an employer engaged a specific dismissal and re-engagement process.
Potential constructive unfair dismissal claims
For instance, if there is a contractual hours clause that needs adapting, but agreement cannot be reached for it to be amended, should an employer seek to impose those new hours, as hours changes are a restricted variation, the imposition could result in an affected employee claiming automatic unfair dismissal under a constructive unfair dismissal claim (relating to a repudiatory breach of contract through imposition of a new term).
The employee would need to show that it was a fundamental breach entitling them to treat themselves as dismissed but if they do, given the automatic unfairness of such a reason for dismissal provided for by the new regime, the additional risk exposure for the employer would be real.
The employer could impose the change and the employees could simply resign and claim constructive dismissal – even en masse.
Although there would clearly be arguments about whether the change was a fundamental breach, it is not difficult to see a compelling case for an hours change amounting to that.
Therefore, where any restricted variation can credibly be seen as a fundamental issue in the contract, the employer’s options for effecting the change could go from three to one (agreement).
Collective bargaining
With the notoriously complex/emotive issues surrounding collective bargaining already at the fore of the agenda in some workplaces, the dismissal and re-engagement restriction (and its consequences) would appear to be adding another layer of potential risk for the unwary employer.
This will particularly be so where there is an argument over whether designation of hours is a contractual issue.
As a minimum, we would suggest that any employer who routinely amends the hours of its employees reviews its contractual ability to do so. If there is a recognised trade union involved this will include a check of documentation to confirm:
the issues it has agreed to bargain on i.e. check hours designation / changes is included; and
whether the agreement is requires negotiation or simply consultation.
Pay deal negotiations
Beyond hours changes, employers should also consider their arrangements around pay negotiations and increases. Whilst it will remain to be tested, dealing with imposition of a new pay arrangement following exhausted collective bargaining could also present a risk under the new regime.
The risk of an automatic constructive dismissal claim would seem to be lower here as it is difficult to see how an employee would credibly argue that such an imposed pay increase would be a repudiatory breach undermining the continuance of employment as it is demonstrably to their benefit. That said, employers would be wise to consider the issue carefully further before doing so.
Solutions
Increased risks will come into play when this new regime is introduced next year, shrinking employers’ options for confidently introducing contractual changes to their arrangements with employees, making agreement the ever-more clear ‘safest’ option, whether individually or via collective bargaining. This means that more creative and engaged solutions to achieving agreement on key contractual (restricted variation) issues going forward is likely to be the order of the day[RH1.1]. This will likely involve long-term planning and positioning.
Contact a member of our EPI team for more information.Context
See our previous ERA Series articles on this subject by Ross and other colleagues, including about the government’s latest consultation on ‘fire and re-hire’ concerning what should be included as ‘restricted variations’ in terms of expenses and benefits, and shift patterns*. This consultation closed on 01 April 2026 and the government’ response is awaited.
Employment Rights Act Series: Further consultations (February 2026)
Amendments to the Fire and Re-hire provisions (July 2025)
The reform of dismissal and re-engagement (November 2024)
