The UK government has recently announced key amendments to the controversial ‘fire and rehire’ provisions in the draft Employment Rights Bill (ERB), softening the original restrictions and signalling a more flexible approach for employers facing financial hardship.
Under Clause 26 of the ERB, the government had initially proposed a ban on dismissing employees who refused to agree to changes in their employment contracts.
This would have made most fire and rehire dismissals automatically unfair, unless the employer could show that:
- the changes were essential to prevent serious financial collapse of the business; and
- a strict six-point consultation checklist had been followed.
However, a number of proposed amendments have now been introduced to reduce the scope and rigidity of these provisions.
Key changes at a glance
There are five key changes that employers need to be aware of (for now):
- Focus on ‘Restricted Variations’ only
The ban will now apply only to so-called ‘restricted variations’.
These include contractual changes to:
- Pay
- Pension arrangements
- Working hours
- Holiday entitlement
- Any other terms specified by the Secretary of State through forthcoming Regulations.
Importantly, adding a variation clause to an employment contract is also considered a restricted variation. This means employers looking to future-proof their employment contracts may want to act sooner rather than later to include such clauses.
- Relaxation of consultation requirements
One proposed amendment would remove the requirement to follow the original six-point statutory checklist. Where an employer can establish genuine serious financial distress, the case will instead be determined using the normal Section 98(4) Employment Rights Act 1996 reasonableness test. In practice, this means Employment Tribunals will assess whether an employer acted reasonably in all the circumstances, without reference to a fixed consultation process.
That said, the bar remains high – any dismissal for refusing a restricted variation will still be automatically unfair if the employer cannot demonstrate the business was facing an imminent financial crisis.
- Non-restricted changes: Back to business as usual
For all other (non-restricted) variations – such as minor contract tweaks not affecting pay, hours, or workplace location – dismissals will no longer be automatically unfair. However, Employment Tribunals will still expect employers to follow robust consultation practices, closely aligned with the earlier six-point statutory checklist. This approach strikes a balance: employers retain flexibility but must demonstrate meaningful process and communication.
- Restrictions on outsourcing as a redundancy substitute
A further amendment seeks to prohibit the use of outsourcing (or perceived outsourcing) as a way to sidestep redundancy protections – unless, again, the employer can establish serious financial distress. Otherwise, any resulting redundancy dismissal will be automatically unfair. This could have significant implications for employers relying on IR35 arrangements, agency workers, or TUPE avoidance strategies.
- Location-based redundancies unaffected
Encouragingly for employers, the amendments confirm that standard location-based redundancies (e.g. office closures or relocations) will still be governed by the existing redundancy rules, offering some certainty in this commonly used area.
What’s next?
The government has committed to a formal consultation on the Regulations, with the new rules expected to take effect from October 2026. These upcoming Regulations will define in more detail what counts as a ‘restricted variation’, meaning much still depends on how those are drafted.
Final thoughts
While the original proposals sparked concern among employers, these latest developments mark a significant softening of the rules around fire and rehire provisions. The emphasis has shifted from blanket bans to proportionality, financial justification, and meaningful consultation.
In the meantime, employers should:
- Monitor the consultation process closely
- Consider reviewing current employment contracts and variation clauses
- Take early advice when contemplating contractual changes, especially those involving pay, hours, or other core terms.
We’ll continue to provide updates as the legislation develops.
For more information and guidance on the ERB changes, please contact our Employment & HR team.
