Fire and Rehire: What’s Still Allowed Under the New Law? 

Introduction

The controversial practice of “fire and rehire”, where employers dismiss staff and offer to re-engage them on new, often less favourable terms, has come under renewed legal scrutiny. While the tactic has not been banned, the UK government has introduced significant reforms that make it more difficult for employers to use without facing legal consequences. 

Most importantly the Employment Rights (Amendment) Bill 2024–25 will make it automatically unfair to dismiss an employee for refusing to agree to a variation of their terms and conditions or to enable the employer to hire a replacement to do substantially the same job on different terms. 

There is an exception where the employer can prove the variation was unavoidable to prevent closure of the business due to financial difficulties. In response to public backlash and several high-profile disputes, the Employment Rights (Amendment) Bill 2024–25 also introduces a new statutory Code of Practice on Dismissal and Re-engagement. This code, due to take effect in summer 2024, aims to prevent misuse of fire and rehire tactics while still allowing employers to adapt in times of genuine business need. 

Understanding what remains lawful, and what has changed, is critical to employers to avoid unfair dismissal claims and reputational damage and for employees threatened with dismissal unless they agree to change their contractual terms to know their rights. 

The law on the requirement for collective consultation with employee representatives on proposed dismissals due to changes in contractual terms is also being strengthened to widen the circumstances when it applies and to increase the protective award for failing to properly consult.

Has fire and rehire laws been banned?

In short, no. Fire and rehire remains a lawful option in the UK, but under the new rules, it is much more tightly regulated. 

The government has stopped short of banning the practice altogether, recognising that in some cases, contractual changes may be necessary for a business to survive. However, ministers have made it clear that fire and rehire should only be used as a last resort, following genuine and meaningful consultation with employees. 

The new statutory Code of Practice makes it far more difficult for employers to fall back on this tactic without first exploring all reasonable alternatives. Failure to adhere to the Code doesn’t make an employer automatically liable, but it can be taken into account by Employment Tribunals when deciding if a dismissal was unfair, and failing to comply with it may result in a 25% uplift in compensation. 

 What is still allowed under the new fire and rehire law?

Despite the reforms, employers are still permitted to make contractual changes—provided they follow a fair and transparent process. The new framework allows dismissal and re-engagement in specific circumstances, but it is no longer enough to simply issue notice and offer new terms. 

Employers can still: 

• Propose contractual changes for legitimate business reasons (e.g. financial difficulty, restructuring) 

• Consult with employees or their representatives in good faith 

• Dismiss and offer re-engagement, but only after demonstrating that all alternatives to avoid closure of the business have been exhausted and having complied with their duty to consult. 

To remain compliant, employers must clearly set out: 

• The business rationale for proposed changes 

• Why the changes are necessary to avoid redundancies or closure 

• Evidence that alternative solutions were explored 

Case Example: A company facing insolvency due to unsustainable wage costs may still use fire and rehire, but only if it has first held a full consultation and genuinely considered other cost-saving measures such as voluntary reductions or flexible working patterns. 

 What has changed with the fire and rehire laws?

Under the new regime is there is a mandatory requirement for employers to follow the Code of Practice on Dismissal and Re-engagement or risk any compensation for unfair dismissal being increase by 25% and being liable to pay protective awards to the affected employees. This marks a substantial departure from previous practice, where informal consultation or unilateral action could go unchallenged if deemed commercially necessary. 

Key changes under the 2024–25 law include: 

• Formal consultation duty: Employers must engage in meaningful dialogue with employees and their representatives before proposing dismissal 

• Written explanation required: Employers must clearly outline the reasons for proposed changes in writing 

• Tribunal enforcement powers: Employment Tribunals can now increase compensation awards by up to 25% if an employer fails to comply with the Code 

• Documenting alternatives: Employers must provide evidence that they have seriously considered other options before proceeding to dismiss 

 Employers who fail to adhere to these requirements risk claims for unfair dismissal from individual employees, and for a protective award claim by trade unions or other employee representatives, as well as reputational damage and significant financial liability. 

 When does fire and rehire become unfair dismissal?

Under the new legal framework, tribunals will scrutinise not just the employer’s reason for dismissal, but how the process was handled. If an employer fails to follow the new statutory Code or acts prematurely without proper consultation, the dismissal may be ruled unfair. 

Common pitfalls that can lead to unfair dismissal claims include: 

• Inadequate or insincere consultation with affected employees or their representatives 

• Failure to explore alternatives, such as internal redeployment or voluntary contract changes 

• Using dismissal as a first resort, rather than genuinely trying to reach agreement 

• Lack of evidence to justify the proposed contractual changes 

For example, an employer who issues notice immediately after a single consultation meeting—without offering compromise, negotiation, or documentation of alternatives—could face a finding of procedural unfairness. 

Dismissals that are not objectively justified and proportionately implemented risk not only legal challenges but also damage to employee trust and brand reputation. 

If challenged, tribunals will consider: 

• Whether the employer had a sound business reason 

• Whether consultation was conducted in good faith 

• Whether the process followed the statutory Code of Practice 

Employers who fall short may face financial penalties, especially if the Code was disregarded or inadequately applied. 

It should be noted that even if a dismissal is found not to be automatically unfair it may still be unfair applying the usual tests for unfair dismissal.

What should employers do now?

The new rules represent a significant compliance shift for employers contemplating structural changes. Legal advice is now not just advisable—it’s essential. 

Employers should: 

• Review employment contracts and policies to identify clauses vulnerable to change 

• Plan consultation strategies well in advance, including timelines and documentation 

• Train HR teams and managers on the new statutory Code and their obligations 

• Document all alternatives considered prior to proposing dismissal 

• Engage with legal counsel early to minimise risk and ensure fair process 

A proactive and legally sound approach to restructuring will help protect employers from costly litigation, tribunal awards, and reputational fallout and avoid unnecessary disputes with employees and their representatives. 

 Conclusion

Fire and rehire remains legal in the UK, but it is now subject to significant regulatory oversight. The government’s new Code of Practice imposes strict duties around consultation, transparency, and fairness. 

For employers, the message is clear: fire and rehire must be used sparingly, responsibly, and only after genuine attempts to reach agreement have been made. 

Those who ignore the new requirements risk claims for unfair dismissal and for a protective award, increased compensation awards, and reputational damage. 

If your business is considering structural changes or facing difficult staffing decisions, or if you are an employee or trade union, our experienced employment law team is here to help. Contact us on 020 7940 4060 or email us at mail@anthonygold.co.uk.