Fire and Rehire Gets Delayed: The Gap Employers Need to Plan For

The government has pushed back the fire and rehire reforms again, and launched a consultation on a revised Code of Practice on Dismissal and Re-engagement. For employers considering contract changes, the new timeline creates both an opportunity and a trap.

What Has Been Delayed

The consultation document confirms the restrictions in the Employment Rights Act 2025 are now expected to take effect in March 2027, having previously been expected in January 2027. The existing 2024 Code will be withdrawn at the same time. The new Code, however, is not expected to come into force until summer 2027 because it must be approved by both Houses of Parliament first. The consultation closes on 17 December 2026.

That leaves a gap of several months in which the new law applies but no statutory Code is in place.

What the New Law Will Do

From commencement, dismissing an employee to change a "restricted variation" will be automatically unfair, unless the employer can satisfy a narrow financial difficulties exemption. Restricted variations include:

• Reductions in pay

• Changes to total hours

• Reductions in leave entitlement

• Changes to pensions

• Specified changes to shift patterns, with regulations on these due in autumn 2026

It will also be automatically unfair to dismiss an employee and replace them with a non-employee, such as an agency worker, to do substantially the same role.

Other contract changes, known as unrestricted variations, remain possible, but dismissal for making them will only be fair if the employer acts reasonably and follows a fair process, with additional procedural hurdles.

The Draft Code: What Employers Should Note

The draft Code, which is not yet government policy, reflects the new structure of the Act and adds guidance on the financial difficulties exemption. It makes some key points clear:

• The exemption requires severe financial difficulty and no reasonable alternative to making the change to save jobs

• It is not a general justification for improving competitiveness or pressuring staff with threats of dismissal

• Employers, employees and representatives should share information and genuinely consult, and all parties should make reasonable efforts to reach agreement

• Acas can help parties explore alternatives before dismissal and re-engagement is considered

• Tribunals can increase compensation by up to 25% where an employer unreasonably fails to follow the Code, and reduce an award by up to 25% where an employee unreasonably fails to follow it

• The draft Code also deals with how financial difficulty looks in the private sector, the public sector and local authorities

The Window: Opportunity or Trap?

Until March 2027, the existing law and the 2024 Code continue to apply. Some employers will be tempted to rush through contract changes before the restrictions bite. That would be a mistake for three reasons.

First, the 2024 Code still applies and an unreasonable failure to follow it can still increase compensation by up to 25%. Second, a rushed process invites claims, and an employer that has rushed will find it difficult to show it consulted properly. Third, the direction of travel is clear. Changes agreed through genuine consultation will be far more durable than changes imposed under time pressure.

The better use of the window is to plan: agree what the business actually needs to change, test whether it is a restricted variation, and open consultation early.

What Employers Should Do Now

Identify the change you need. Is it a restricted variation? If so, plan for agreement rather than dismissal.

Start consultation early. Share the business case, listen to alternatives and record what you considered.

Gather financial evidence. If you think you might rely on the exemption, assess now whether your position would meet a severe financial difficulty test.

Review agency and contractor arrangements. Replacing employees with non-employees doing substantially the same role will become automatically unfair.

Respond to the consultation. It closes on 17 December 2026.

Impact

Impact Employment Law helps employers change contracts lawfully and with minimal conflict. We can advise on whether a proposed change is a restricted variation, design consultation strategies and communications, assess whether the financial difficulties exemption could apply, and support negotiations with employees and trade unions. We also advise employers who are already part way through a process, and defend claims where changes have been challenged. Get in touch before you start a process rather than after it goes wrong.

Contact Oliver Tasker: 📞 Call: 01522 776270 ✉️ Email: oliver@impactemploymentlaw.co.uk

Advice. Protection. Impact.