January 2027 changes

Fire and Rehire Ban 2027: What to Do Instead (January 2027)

Last verified: 7 October 2026

The fire and rehire ban, in force from 1 January 2027 under the Employment Rights Act 2025, ends the old playbook. Dismissing staff to push through worse pay, hours or pensions will be automatically unfair — from day one of employment. Here is what lawful contract variation looks like now, and the consultation-first process a small employer should follow instead.

If you run a business with a dozen staff and you need to change shift patterns, cut hours, or rework pay, you have probably heard the term "fire and rehire" — dismissing employees and offering them their jobs back on worse terms. It was always controversial. From 1 January 2027 it becomes, for the changes that matter most, legally indefensible.

This is not a tweak. Under the Employment Rights Act 2025 (you may see people call it the "Employment Rights Act 2026" — same law, different shorthand), dismissing someone because they refused certain contract changes becomes automatically unfair dismissal, with no minimum service required and the compensation cap removed. For a small employer, that means a tribunal claim from a member of staff hired in November, and an award that is no longer capped. The days of treating dismissal-and-re-engagement as a routine restructuring tool are over.

What the fire and rehire ban covers — and what it doesn't

The Act doesn't ban every contract change. It creates a category called restricted variations: changes to core terms where dismissal-and-re-engagement is now treated as automatically unfair. Based on the government's stated approach, these cover:

• Pay — cutting wages, changing pay structures, reducing bonuses that form part of pay.
• Working hours — changing the number of hours, or moving between day/night or weekday/weekend patterns (the government's preferred position is that these shift changes are covered; smaller changes may not be).
• Pension — reducing employer contributions or pension-related benefits.
• Time off — reducing holiday entitlement or time-off rights.
• Flexibility clauses — inserting new clauses that let you vary any of the above unilaterally in future.

The government has indicated that changes to expenses, contractual benefits and payments in kind are not expected to be protected. The precise edges — what counts as a "restricted" shift change, for instance — will be confirmed in regulations, so treat the boundaries as still settling.

What does that leave? Changes to job duties, job titles, reporting lines and (generally) place of work fall into the unrestricted category. Dismissing someone to impose those is not automatically unfair — but it now has to pass a new statutory fairness test that is stricter than the old one. Tribunals will look at the reason for the variation, whether you genuinely consulted, and what you offered in return. The old "we had a sound business reason and ran a decent process" defence has been raised a notch.

The loopholes that are closed too

Two workarounds that employers have used in the past are also being shut down:

• Fire and replace: dismissing an employee and bringing in a contractor, agency worker or other non-employee to do substantially the same role on worse restricted terms. The Act treats this the same way.
• Fire and rehire-lite via threats: threatening dismissal to pressure someone into signing new terms is covered by the same automatic-unfairness rule. The threat is not a safe middle ground.

There is one genuine exception: an employer in financial difficulties affecting its ability to carry on as a going concern can still use dismissal and re-engagement as a last resort — but only after exhausting consultation and alternatives. This is a near-impossible threshold by design, not a planning assumption. If your business is merely struggling with margins, the exception does not cover you.

The cost of getting it wrong has changed

Under the old regime, an employee with under two years' service couldn't bring an ordinary unfair dismissal claim at all, and even a successful claim was subject to a compensation cap. Both of those protections for employers disappear at the same time the fire-and-rehire rules bite, on 1 January 2027:

• The qualifying period for ordinary unfair dismissal drops from two years to six months.
• Restricted-variation dismissals are automatically unfair from day one — no qualifying period at all.
• The cap on compensation is removed, so awards can scale with the employee's actual loss.
• The tribunal claim window is already six months (since 1 October 2026), giving people longer to bring a claim.

Put those together and the maths is unforgiving: a dismissal in February 2027 to push through a pay cut, challenged by a member of staff who started in November 2026, is an automatic unfair dismissal claim with uncapped compensation. For more on how the longer claim window raises your exposure generally, see our guide to the employment tribunal 6-month limit.

What to do instead: the consultation-first playbook

Here's the uncomfortable truth that law firms are all telling their clients: after January 2027, changing restricted terms requires the employee's agreement. There is no shortcut. So the question isn't "how do I force this through" — it's "how do I get genuine agreement". That is a negotiation skill, not a legal loophole. For a small employer with fifteen staff, the playbook looks like this:

1. Start early — months early

If you think you might need to change pay, hours or shifts in 2027, begin the conversation now. Employees who learn about changes at the last minute respond with panic; employees who are brought in early respond with ideas. In a small team, the grapevine will find out anyway — better that it hears it from you.

2. Explain the business reason honestly

"We need to do this because..." — and the because has to be real. Rising costs, lost contracts, a lease renewal, margin pressure. Show the numbers if you can. Staff can tell the difference between a genuine business need and opportunism, and under the new statutory test, so can tribunals.

3. Consult properly — individually and as a group

Consultation isn't a single meeting where you announce the decision. It means putting proposals on the table, listening to counter-proposals, and being able to show you took them seriously. Document everything: who you spoke to, when, what they said, what you changed as a result. For a team of under twenty, this can be a series of one-to-ones plus a group session — but it must be genuine.

4. Offer something in return

The new fairness test explicitly asks what the employee was offered in return for the change. A pay cut paired with extra holiday, a buy-out payment, enhanced notice, or a time-limited guarantee ("no further changes for 24 months") all make agreement — and fairness — more likely. This is the step most small employers skip, and it's the step the new law cares about most.

5. Get agreement in writing

When someone agrees, get it signed. A simple variation letter: what changes, from when, what's offered in return, and a statement that it's agreed. Without this, you're relying on "they didn't object", which is a much weaker position.

6. Know when to stop

If after genuine consultation someone won't agree, you now have to accept that — or make a redundancy, or wait. What you can't do is dismiss-and-re-engage to force the restricted change. That sentence will feel wrong to some employers. It's the law anyway.

What about contract clauses that protect you?

One legitimate forward-looking move: review your contracts now. The Act bans dismissal to impose new flexibility clauses covering restricted terms after January 2027 — but flexibility clauses agreed before then, properly drafted, remain part of the contract. Similarly, mobility clauses, garden-leave provisions and notice periods should be reviewed while you still can. This is a job for a solicitor, not a template download — but it's a job worth doing this year.

Practical next steps for a small employer

1. Audit your contracts — identify any pay, hours, shift or pension changes you may need in the next 18 months.
2. Start consultation now on anything you want changed before 1 January 2027.
3. Build your consultation file — meeting notes, proposals, counter-proposals, written agreements. This is your evidence under the new test.
4. Review flexibility clauses with a solicitor before the deadline.
5. Update your handbook and policies to reflect that dismissal-and-re-engagement is no longer an option — managers need to know this too.

And if someone in your business is already talking about dismissing staff "before the rules change" to avoid them: be very careful. Deliberately timing a dismissal to beat a reform is exactly the kind of thing a tribunal views badly. Our small-business checklist for the Employment Rights Act 2025 covers this trap, and the full timeline shows what's coming and when.