Fire and rehire: why ERA 2025 makes it almost impossible

Fire and rehire — dismissing employees and offering to re-engage them on less favourable terms — has always been legally permitted in the UK, but it has been controversial. The Employment Rights Act 2025 does not ban it outright. What it does is make it far harder to justify and far more expensive to get wrong.

Under the new provisions, an employer can only use dismissal as a route to imposing contractual changes in two specific circumstances: where the changes are necessary to prevent business failure, or where the employer has taken all reasonable steps to reach agreement with the workforce and exhausted collective consultation where applicable. Convenience, cost reduction, or competitive positioning — the reasons most often cited in historic fire-and-rehire exercises — are no longer sufficient.

This matters because employment tribunals now have explicit power to scrutinise the reason behind a dismissal followed by re-engagement. If the tribunal finds that the dismissal was used to impose a variation that did not meet the new statutory criteria, the dismissal is likely to be found unfair — and where re-engagement was offered, the claimant can seek reinstatement or re-engagement on the original terms, plus compensation.

The practical bar is genuinely high. To satisfy the "necessary to prevent business failure" test, an employer needs evidence: board minutes, financial projections, advice from accountants or restructuring specialists, evidence that the alternative — maintaining the existing terms — would lead to insolvency or closure. The test is not "would this help our margins" — it is "without this change, the business will not survive".

The reasonable steps to agree route is also demanding. Collective consultation obligations (the 30-day or 45-day requirement depending on the number of employees at risk) must be followed where applicable. Individual consultation must be genuine, not cosmetic. The offer of new terms must be made in writing. The opportunity to respond must be real.

For most businesses, the practical implication is straightforward: do not attempt fire and rehire unless you are genuinely facing financial distress and have exhausted all other routes. If you are contemplating significant changes to terms and conditions — pay, hours, location, or benefits — the correct route is a negotiated variation agreed with the employee, supported by proper consultation. See our guide on the ERA 2025 compliance checklist for HR teams for the consultation process.

Where collective bargaining agreements are in place, or where trade unions have recognition rights, the consultation obligations under ERA 2025 overlap with those obligations. The union has the right to be informed and consulted before any variation is imposed. See trade union access rights under ERA 2025 for how union rights interact with workforce changes.

For HR teams, the message is clear. If a manager or director suggests "just dismiss and offer them a new contract", that conversation needs to stop immediately. The legal position has changed, and the cost of getting it wrong — in compensation, management time, and reputational damage — is significant. Document that advice was given and that the fire-and-rehire route was not followed.

Mellow's employee relations module tracks contract variations, logs consultation meetings, and maintains the correspondence trail that any tribunal would look for. [See Mellow pricing →](https://mellowhr.com/pricing)