Beyond the Employment Rights Act – Government considers the scope of the new fire and rehire regime

The UK government has today launched a consultation seeking views on the new fire and rehire regime due to come into force in January 2027. The framework for this new regime is set out in the Employment Rights Act 2025 (the ERA) and forms part of the government’s broader ‘Make Work Pay’ agenda. 

 Under the ERA it will be automatically unfair for an employer to dismiss someone: 

• if the reason for the dismissal is that the employee did not agree to a ‘restricted variation’; or
• if the employer wishes to re-engage them (or replace them with another employee doing the same role) but on terms that reflect a restricted variation. 

Restricted variations relate to pay or pensions, hours, leave entitlement and shift patterns. The government has the power to make regulations specifying certain restricted variations, which is the focus of today’s consultation. This blog post highlights the government’s proposals and their impact on employers. 

What is being proposed?

The consultation focuses on two key areas: employment expenses and benefits in kind, and shift patterns. 

1. Employment expenses and benefits in kind 

The ERA defines a restricted variation as a ‘reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment’. The government has the power to exclude certain expenses and benefits in kind from this definition.

The consultation highlights that while core contractual pay should generally not be reduced via fire and rehire, employers need flexibility to adjust expenses and benefits. This might be due to changes from providers, rising costs, or the need to standardise provisions across a workforce to improve morale.

Two options are proposed in the consultation:

• option 1 (the government’s preferred approach) – excluding certain (or all) expenses incurred by an employee; or
• option 2 – excluding all expenses and benefits or payments in kind except for certain types of share schemes, travel expenses and accommodation.

The government is ‘minded to’ proceed with option 1, which means that changes to these items would not give rise to an automatic unfair dismissal claim. Instead, such dismissals would fall under the enhanced ordinary unfair dismissal protections under the ERA (which require the tribunal to consider the reason for the variation, any consultation carried out by the employer, and anything offered to the employee in return for agreeing to the variation). The government argues that, if a change to expenses or benefits leaves an employee significantly out of pocket, making it difficult for them to continue in their role, an employer would likely struggle to argue fairness before a tribunal.

This approach offers employers greater flexibility in managing elements of (or all) remuneration packages that may not be considered ‘core contractual pay’. However, the necessity of thorough consultation and robust justification remains paramount to mitigate the risk of ordinary unfair dismissal claims. Employers should review their contracts to understand how expenses and benefits are currently defined and the scope for variation.

2. Shift patterns 

The ERA also allows the government to specify which variations to ‘the timing or duration of a shift’ will be considered a restricted variation. The consultation acknowledges the significant variability in shift patterns and the need for businesses to adapt to changing circumstances. However, profound shift changes can severely impact employees, particularly those with caring responsibilities.

Two primary options are considered: 

• option 1 (the government’s preferred approach) – only including shift changes from day to night working (or vice versa) and weekday to weekend working (or vice versa) as restricted variations; or
• option 2 – not including any shift pattern changes in scope of the restricted variation definition.

The government is ‘minded to’ proceed with option 1. This means that only changes to those specific, most impactful shift patterns would lead to automatic unfair dismissal if an employee is dismissed for refusing them. 

For employers, this option provides flexibility for most other shift pattern adjustments. For example, changing an employee's specific night shift hours (within the night period) or altering weekday shifts would not be a restricted variation, provided the overall contracted hours remain the same. This allows operational agility for businesses that require it. However, similar to expenses and benefits, other shift changes would still be subject to the enhanced ordinary unfair dismissal protections. 

What does this mean for employers? 

The outcome of this consultation will significantly influence how employers manage contractual changes in the future. Below we have set out some key takeaways. 

• Proactive contract review – employers should start reviewing their existing employment contracts to understand how pay, pensions, hours, leave, expenses, benefits and shift patterns are currently defined and the scope for variation. The introduction of unilateral variation clauses after January 2027 may themselves become a ‘restricted variation’, so employers may wish to consider updating contracts now.
• Differentiate risks of variation types – it will be crucial for employers to distinguish between restricted and non-restricted variations. Dismissals related to restricted variations carry a risk of automatic unfair dismissal, with a narrow ‘severe financial difficulty’ defence and a new tribunal consideration framework. In contrast, dismissals for non-restricted variations will be subject to ordinary unfair dismissal rules and the new tribunal consideration framework.
• Enhanced scrutiny for all variations – even for non-restricted variations, tribunals must consider the Act’s new framework. While largely codifying existing good practice, this should encourage employers to be more thorough and methodical in their approach to contractual changes. For example, they may wish to consider exploring options to satisfy the ‘anything offered in return’ limb in more detail.
• Interaction with broader ERA reforms – employers should remember that the ERA also significantly reforms the unfair dismissal regime. From 1 January 2027, the qualifying period for unfair dismissal claims will be reduced from two years to six months and the compensation cap will be removed entirely. In addition, the protective award for failure to collective inform and consult will increase in April 2026, meaning that employers will face a substantially higher risk profile.

The consultation closes on 1 April 2026. Secondary legislation will then be brought forward later in 2026 or 2027. Separately, the government will update the existing Code of Practice on fire and rehire and a consultation on the revised version of the Code is expected later in 2026. Employers should remain informed and proactively prepare to navigate this evolving landscape. 

For more information on the ERA and its implications on employers, please see here.