A Jamie HR manager's guide

The manager's guide to fire and rehire

A practical guide for managers and small businesses on dismissal and re-engagement: the current ACAS Code of Practice, the legal position today, and the new restrictions on dismissing to change contract terms that start on 1 January 2027.
Automatic unfair dismissal
Narrow exceptions
From January 2027

A new automatic unfair dismissal risk arrives on 1 January 2027.

Fire and rehire already sits within a statutory ACAS Code of Practice, with real tribunal risk if it is not followed. From 1 January 2027, dismissing someone for refusing a restricted variation, such as a pay, pension, hours or time off change, becomes automatically unfair in most cases under the Employment Rights Act 2025. This guide covers the position today, what changes, and the steps to take now.

What's inside
What is fire and rehire?3
The current ACAS Code of Practice4
The current legal position on changing terms5
What changes from January 20276
What counts as a restricted variation7
The narrow financial difficulties exception8
Does this cover fire and replace?9
Timeline and what is still to be confirmed10
Practical steps to take now11
Getting fire and rehire right12
How Jamie HR helps13

What is fire and rehire?

Fire and rehire, also called dismissal and re-engagement, is a way of changing an employee's contract terms.
  • Fire and rehire means dismissing an employee and offering to re-engage them on new contract terms, typically after they have not agreed to a proposed change.
  • It is one option available when agreement on a contract change cannot be reached through negotiation.
  • ACAS guidance describes this as something an employer should only do as a final option, after a full and thorough consultation about changing the contract.
  • The statutory ACAS Code of Practice on Dismissal and Re-engagement, in force since 18 July 2024, applies whenever an employer is contemplating this approach.
  • From 1 January 2027, the Employment Rights Act 2025 changes the legal position significantly for certain terms, covered later in this guide.

The current ACAS Code of Practice

A statutory Code of Practice on dismissal and re-engagement has applied since 18 July 2024, and continues to apply now.
  • The Code requires you to consult for as long as reasonably possible, in good faith, with a view to reaching agreement.
  • You must share information early, including the business reasons for the change, the timing, and any alternatives you have considered.
  • You must re-examine your proposal if employees resist it, and consider whether there are reasonable alternative ways of achieving your objectives.
  • The Code treats dismissal and re-engagement as a last resort, to be used only once a thorough and open information-sharing and consultation process has not reached agreement.
  • The Code does not apply to dismissals for redundancy.
Manager tip
Keep a record of the information you shared, the alternatives you considered and the consultation you carried out. It is the evidence a fair process relies on.

The current legal position on changing terms

Under the law that applies now, dismissing an employee to impose new contract terms can be fair, subject to conditions.
  • ACAS guidance on types of dismissal lists an employee refusing to agree to new terms and conditions of employment as an example of 'some other substantial reason', one of the potentially fair reasons for dismissal.
  • A dismissal on this basis can be fair if you have a genuine business reason and you follow a fair process.
  • An employee generally needs the qualifying period of continuous employment for ordinary unfair dismissal protection, currently two years for anyone who started work on or after 6 April 2012, to bring this kind of claim.
  • If you unreasonably fail to follow the ACAS Code of Practice on dismissal and re-engagement, an employment tribunal can increase any compensation awarded by up to 25%, under section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992.
  • This uplift applies on top of any unfair dismissal compensation.
Watch out
The Employment Appeal Tribunal has upheld the maximum 25% uplift where a dismissal and re-engagement process amounted to a complete failure to apply the Code's protections. Take advice before dismissing to change terms.

What changes from January 2027

The Employment Rights Act 2025 introduces a new automatically unfair dismissal reason for certain contract changes.
  • From 1 January 2027, it becomes automatically unfair to dismiss an employee because they refused to agree to a 'restricted variation' of their contract.
  • Automatic unfair dismissal claims have no minimum qualifying period, so this applies from an employee's first day of employment.
  • The change is made by section 28 of the Employment Rights Act 2025, which inserts new sections 104I to 104K into the Employment Rights Act 1996.
  • The commencement date was pushed back from the originally planned October 2026 to 1 January 2027.
  • An updated ACAS Code of Practice to accompany these changes is expected in 2027.
Manager tip
Review any contract variations you are already planning, so you are not partway through a process when the new law commences.

What counts as a restricted variation

The new automatic unfair dismissal protection applies only to a defined list of contract terms.
  • A reduction of, or removal of, an employee's entitlement to pay, including performance-related pay measures.
  • Changes to pension provision.
  • Changes to an employee's working hours.
  • A reduction in the amount of paid time off an employee is entitled to take.
  • A clause allowing the employer to vary the contract in future without the employee's consent.
  • The government is consulting, in a consultation open until 1 April 2026, on whether specified shift pattern changes and certain expenses and benefits should also be treated as restricted variations.

The narrow financial difficulties exception

Dismissal for refusing a restricted variation is not automatically unfair in one narrow circumstance.
  • The exception applies where the variation was needed to eliminate, prevent or significantly reduce financial difficulties affecting the employer's ability to carry on the business as a going concern.
  • You must also show that, in all the circumstances, you could not reasonably have avoided the need to make the variation.
  • Even where the exception applies, a tribunal still assesses the overall fairness of the dismissal, including the consultation carried out and any compensation offered.
  • Local authorities and certain public sector employers have a separate version of this exception, linked to intervention directions.
Watch out
The Act does not set a fixed financial threshold beyond the going concern and reasonable avoidance tests. Take advice before relying on this exception.

Does this cover fire and replace?

The protection is not limited to rehiring the same employee on new terms.
  • It is also automatically unfair to dismiss an employee in order to employ another person on the varied terms, to carry out the same or substantially the same duties.
  • This includes replacing the employee with someone who is not an employee, such as an agency worker or contractor, doing substantially the same work.
  • The same financial difficulties exception can apply to this kind of dismissal.
  • A dismissal because the role itself has genuinely reduced or gone is a different situation, assessed separately, for example as a redundancy.

Timeline and what is still to be confirmed

Some of the detail is settled in the Act; some is still to be finalised in regulations.
  • The Employment Rights Act 2025 received Royal Assent on 18 December 2025.
  • The restricted variation provisions are due to commence on 1 January 2027, having been delayed from the previously planned October 2026 start.
  • A government consultation on shift pattern changes, and on expenses and benefits, closes on 1 April 2026, and will shape the final scope of restricted variations.
  • The current ACAS Code of Practice on dismissal and re-engagement continues to apply until the new law commences, and an updated Code is expected in 2027.
Manager tip
Check for updated ACAS guidance and finalised regulations nearer January 2027, since the exact scope of some restricted variations is still being confirmed.

Practical steps to take now

There is no need to wait until January 2027 to prepare.
  • Review any contract variations you are planning, and check whether they would fall within a restricted variation once the new law commences.
  • Where you are proposing a change now, follow the current ACAS Code of Practice in full: consult early, share your reasons, and consider alternatives before treating dismissal and re-engagement as a last resort.
  • Build in enough time for genuine consultation, since a change agreed voluntarily avoids the dismissal question altogether.
  • Keep a written record of the business reasons for any proposed change, the alternatives considered, and the consultation carried out.
  • Take HR or legal advice before dismissing and rehiring, or dismissing and replacing, an employee to change terms, both now and after January 2027.

Getting fire and rehire right

A summary of the essentials covered in this guide:
  • Follow the current ACAS Code of Practice on dismissal and re-engagement: consult in good faith, share information early, and treat dismissal as a last resort.
  • Remember an unreasonable failure to follow the Code can add up to 25% to a tribunal award, even under today's law.
  • From 1 January 2027, dismissing an employee for refusing a restricted variation, such as a pay, pension, hours or time off change, becomes automatically unfair, with no qualifying period.
  • The narrow financial difficulties exception requires evidence that the change was needed to protect the business as a going concern, and that it could not reasonably have been avoided.
  • The protection covers replacing an employee with someone else on the new terms, not only rehiring the same person.
  • Review planned contract variations now, and use proper consultation rather than relying on the narrowed exceptions.

How Jamie HR helps

Changing contract terms fairly depends on clear records of consultation, communication and decisions. Jamie HR keeps them together.
  • Contract and policy storage, so current terms and any proposed changes are held in one place.
  • Consultation records that log meetings, communications and alternatives considered, ready if a decision is ever challenged.
  • Document version history for updated contracts and written statements, tracked from proposal to agreement.
  • Policy library so managers apply the same fair process across the business.
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This guide is general information, accurate to the best of our knowledge as of 2026, and is not legal advice. Employment law changes and every situation is different, so for a specific case take professional HR or legal advice. Sources: ACAS, gov.uk and the Employment Rights Act 2025.