Introduction
As industry professionals are no doubt aware, the Employment Rights Bill (the ‘Bill’) is set to shake-up the legal landscape for recruiters and employers. The good news is that the wait is nearly over, with the Bill now in its final stages following the House of Commons vote on Monday.
While the most amendments proposed by the House of Lords were rejected, one significant change survived: a government-back amendment to the so-called ban on ‘fire and rehire’. This amendment introduced a more structed framework for circumstances when dismissal and reengagement of employees may be lawful.
Given the legal and reputational issues surrounding fire and rehire, this is an important change and one with serious implications for businesses when ensuring compliant recruitment and workforce planning.
Background
While the practice of fire and rehire has been controversial, broadly speaking, the legal position has been the same as for any other dismissal – that provided a fair process was followed, the dismissal would not fall within the automatic unfair dismissal protections.
The reputational impact of fire and rehire is another matter. The pandemic saw a spate of these cases reaching headlines. Matters reached a turning point in 2022 when P&O Ferries dismissed around 800 workers, without notice or a formal process, replacing them with agency staff. The public backlash against P&O was severe, with the P&O’s CEO summoned to appear before a Select Committee where he doubled-down on the decision, only leading to further backlash.
This meant that while it was possible to conduct such practices, it could be a minefield from a reputational and compliance point of view.
The Law Previously
While a “Code of Practice on Dismissal and Re-Engagement” was released by the previous Government in 2024, this did little to change the position. Under the Code, employers were encouraged to take certain steps such as consulting with employees as well as contacting ACAS as soon as they consider the prospect of undertaking a fire and rehire approach. However, it’s not exactly clear what the employer or ACAS was meant to do after being contacted, and since there were no new duties imposed by the Code it largely had little weight.
Original Employment Rights Bill Position
Before the recent amendments, the ERB was set to make dismissal and reengagement of an employee on less favourable terms automatically fall under the Unfair Dismissal protections. This also include where a different person would be employed to carry out substantially the same role, but on less favourable terms than the one dismissed.
While there was an exception permitting this, the test for this was exceptionally narrow and could only potentially be lawful where the “the reason for the variation was the eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business as a going concern” as well as not being reasonable avoidable in the circumstances.
Amended Position
Under the amended bill, the scope of the new protections is more limited. Now, the automatic Unfair Dismissal protections are only triggered if the employer was seeking to make a “restricted variation” which the employee did not agree to. Broadly speaking, these restricted variations fall into two categories:
- Money: Salary, bonus, and pensions.
- Time: Hours, shift-time, and holiday allowance.
There is also an additional restricted variation that covers attempts to introduce clauses which permit the employer to unilaterally change the terms of employment. An unusually pragmatic inclusion in headline primary legislation.
Practical Implications for Recruiters and Employers
The ERB is now in the final stages and is likely to receive Royal Assent in mid-late October – although almost all the provisions will not come into force immediately. Instead, being rolled out over a period of 2-3 years.
According to the Government’s roadmap, the fire and rehire elements of the ERB are set to be brought into force in October 2026. This gives employers a year to prepare for the coming changes beforehand.
Under the new rules, employers will still need to show they have followed a reasonable process and carried out a consultation with employees, but where the dismissal does not involve a restricted variation, it does not become automatically unfair. Given the more limited scope of the restricted list, this means that the following can potentially be varied:
- Job title or duties;
- Location of work (including changes to any contractual work from home arrangements);
- Notice period; and
- Restricted covenants.
The ERB does allow for the Government to extend the list of restricted variations via introducing regulations, so it is important that employers continue to keep abreast of any changes going forward.
Preparation Recruiters and Employers should take
With the timeline now clear and the scope of the new rules defined, what steps should recruiters and employers take to prepare?
It might go without saying, but prudent employers should take steps to prepare ahead of the new legislation coming into force and to judge any exposure they may have over the coming years. This may involve reviewing any established consultation frameworks employers may have with unions or employees as well as auditing existing contracts.
Sectors which have a higher prevalence of flexibility clauses, such as tech, are likely to be a little more insulated as they will be able to benefit from those terms without necessarily triggering the new rules. However, again this is something to watch out for in the guidance and accompanying secondary legislation near October 2026.
Higher turnover sectors are likely to be far more impacted, and recruiters and employers in those areas should ensure that they considered the new rules before they take any steps which may fall under the new provisions. Creating an internal process for compliant variation of contracts would be advisable.
Conclusion
The Employment Rights Bill is set to reshape how employers and recruiters approach contract changes. With a year to prepare before the fire and rehire provisions come into force, now’s the time to review processes, tighten consultation frameworks, and get ahead of any risk. Staying proactive will help ensure compliance without losing the flexibility many sectors rely on.
