The Government has confirmed that the Employment Rights Act 2025’s new “fire and rehire” protections are now scheduled to take effect in March 2027. Although employers have been given additional time to prepare, the reforms will make it significantly harder to impose contractual changes through dismissal and re-engagement. At the same time, the Government has published a revised draft Code of Practice, providing further detail on how the new regime is intended to operate in practice.
For businesses considering changes to pay, hours, pensions, benefits or working patterns, the additional lead-in period presents an opportunity to review contracts, workforce planning and consultation processes before the new rules take effect.
What’s changing?
From March 2027, dismissing an employee because they refuse to accept a “restricted variation” to their contract, or dismissing and re-engaging them to impose such a variation, will be automatically unfair unless a narrow financial difficulties exemption applies.
Under the Act and the Government’s planned regulations on expenses, benefits and shift patterns, the protected changes include:
- reductions to pay or changes to the measure of work used to calculate pay;
- changes to total working hours;
- reductions in holiday entitlement;
- changes to pensions;
- reductions to or removal of contractual travel expenses (including mileage), accommodation expenses and long-term accommodation benefits; and
- shift changes requiring day or night working, or weekday or weekend working, where this was not previously required. Night working will be defined as 11pm to 6am.
The Government’s consultation response also confirms that changes to share schemes will not fall within the restricted categories. Dismissing an employee to replace them with a non-employee carrying out substantially the same role will also generally be automatically unfair, subject to the relevant statutory exceptions.
Other contractual changes, such as amendments to job duties or work location, will not normally trigger these automatic unfair dismissal protections. However, enhanced ordinary unfair dismissal protections will apply, with tribunals considering the information provided to employees and the quality of any consultation process undertaken.
Employers should also be aware that the shift provisions may operate in ways that are not always intuitive. For example, a relatively small adjustment that introduces a requirement to work after 11pm or at weekends may fall within the protection, whereas a significant reorganisation of daytime weekday shifts may not fall within these particular restrictions if total contractual hours remain unchanged.
The exemption remains a last resort
The financial difficulties exemption is deliberately narrow.
To rely on it, a private sector employer must demonstrate that the proposed change addresses financial difficulties affecting, or likely in the immediate future to affect, its ability to continue as a going concern. It must also show that it could not reasonably have avoided the need to make the restricted variation.
Even where the exemption applies, the dismissal must still be fair in all the circumstances. The revised draft Code emphasises meaningful consultation, evidence of the severity and organisational impact of the financial difficulties, and consideration of reasonable alternatives.
For employers who may need to rely on the exemption in future, the evidence gathered and decisions documented now are likely to be critical.
The current rules still apply
Until March 2027, the existing 2024 Code of Practice remains in force. The current Code makes clear that dismissal and re-engagement should be a genuine last resort and should only be considered following appropriate consultation and engagement. A threat of dismissal should not be used as a negotiating tactic to put undue pressure on employees where dismissal is not genuinely envisaged.
Tribunals retain the power to increase compensation awards by up to 25% where an employer unreasonably fails to follow the Code when it applies.
Key dates
What should employers do now?
Employers should use the additional time before implementation to:
- audit contracts, benefits packages and working arrangements against the restricted categories;
- carefully plan any proposed changes to pay, hours or shift arrangements;
- review flexibility clauses in contracts for new starters;
- ensure managers and HR teams understand where the new legal boundaries will sit; and
- consider responding to the ongoing consultation where the proposed Code could impact their sector.
How we can help
With the new regime approaching, employers should review contracts, flexibility provisions and any planned workforce changes well in advance. Our employment team advises businesses across Wales and beyond on contractual change programmes, consultation exercises, workforce restructuring, contract reviews, policy updates and Employment Tribunal claims.
If you would like advice on how the reforms could affect your organisation, please get in touch.
