Fire and Rehire: Your Rights

"Fire and rehire" (also called "dismissal and re-engagement") is when an employer dismisses you and immediately offers to re-employ you on new, less favourable terms. It is typically used when an employer wants to change your contract — cutting pay, reducing hours, changing shift patterns, or removing pension benefits — and you refuse to agree.

This practice gained widespread public attention during the pandemic when several high-profile employers used it to impose pay cuts and changes to terms. The government has acted to restrict it significantly under the Employment Rights Act 2025, with the new rules coming into force in October 2026.

From October 2026, fire and rehire is subject to strict new rules:

Automatic unfair dismissal for restricted variations: If your employer dismisses you in order to re-engage you (or someone else) on worse terms relating to any of the following, the dismissal is automatically unfair:

• Pay and wages
• Pensions and pension contributions
• Hours of work
• Shift patterns
• Holiday entitlement

The only exception is if the employer can prove genuine financial necessity — that the business would face serious financial difficulty (not merely reduced profits or a desire to restructure) without the change, and that the change is proportionate to the difficulty.

New fairness test for other variations: For contract changes that fall outside the restricted categories above, a dismissal to re-engage on different terms will be subject to a new, stricter test of fairness. The tribunal will consider whether the employer genuinely needed the change, whether they consulted properly, whether they considered alternatives, and whether the new terms are reasonable.

The financial necessity defence is deliberately narrow. The employer must prove:

• The business faces genuine financial difficulty — not just a desire to cut costs, improve margins, or increase competitiveness
• The contract variation is necessary to address that difficulty — it is not enough that the change would be helpful or beneficial
• The change is proportionate — the employer cannot impose a 20% pay cut to address a 2% revenue shortfall
• The employer has consulted properly and considered alternatives — including whether the difficulty could be addressed without changing contracts

The burden of proof is on the employer. If they cannot satisfy this test, the dismissal is automatically unfair, meaning the tribunal must find in your favour on liability — the only remaining question is compensation.

If your employer proposes to change your contract and threatens dismissal if you do not agree:

• Do not resign: Resigning could be treated as you ending the employment relationship, which complicates your position. Stay in post and object to the changes in writing.
• Do not sign new terms under pressure: If you agree to the new terms, it may be harder to challenge them later. Ask for time to consider and take advice.
• Put your objection in writing: Write to your employer stating that you do not agree to the proposed changes and setting out your reasons. Keep a copy.
• Request the business case: Ask your employer to explain the financial justification for the change. Under the new rules, they will need to prove financial necessity — ask them to share the evidence now.
• Keep records: Document all meetings, letters, emails, and conversations about the proposed changes. Note dates, who was present, and what was said.
• Seek legal advice: Contact ACAS, your trade union, or a solicitor specialising in employment law. The new fire and rehire rules significantly strengthen your position.
• Do not work under protest indefinitely: If the employer imposes the changes without your agreement, you may have a claim for constructive dismissal — but take legal advice before resigning.

If a tribunal finds that your dismissal under fire and rehire was automatically unfair, you are entitled to:

• Basic award: Calculated using the redundancy pay formula (age, length of service, capped weekly pay).
• Compensatory award: Currently capped at the lower of 52 weeks' gross pay or £118,223. From 1 January 2027, the cap will be abolished entirely.
• Reinstatement or re-engagement: The tribunal can order your employer to give you your job back on the original terms, though this is rare in practice.

Because fire and rehire dismissals are automatically unfair, the tribunal does not need to consider whether the employer acted reasonably — the dismissal is unfair by definition unless the financial necessity defence applies. This is a significant change from the previous position, where fire and rehire was assessed under the general unfairness test.

This guide provides general legal information about UK law and is not legal advice. Laws and regulations change, and individual circumstances vary significantly. For advice specific to your situation, you should consult a qualified solicitor.

Case Buddy provides AI-powered legal information to help you understand your rights — it is not a substitute for professional legal advice.