Changing employment terms and conditions is about to get trickier.
Many employers are reviewing employment contracts due to changing business needs. Pay and commission structures, benefits, working patterns, hybrid arrangements, locations, bonuses, expenses, shift patterns and role responsibilities can often become pressure points for businesses requiring contract variation.
There may be good business reasons for change. However, where employees do not agree to changing employment contract terms, the legal route to introduce changes can be more difficult and from January 2027, Fire and rehire, or dismissal and re-engagement, is becoming a much higher-risk option.
What is fire and rehire?
Fire and rehire describes a situation where an employer dismisses an employee from their existing contract and offers to re-engage them on new contractual terms.
This often becomes necessary where the employer has been unable to obtain agreement to proposed contractual changes from the employee.
At present, fire and rehire it is not automatically unlawful in every case. However, it has always carried some risk because it involves dismissal. Employers who fire and rehire may face unfair dismissal claims, collective consultation obligations and reputational damage.
Why is the risk increasing?
From January 2027, the Employment Rights Act 2025 significantly narrows the use of fire and rehire by making dismissals automatically unfair unless the employer can show financial difficulties and that the contractual change was unavoidable.
The details are being are being finalised by the government but the direction is clear.
Employers will need to show more than a preference for the new terms. They will need evidence of the business need, proper consultation and genuine consideration of alternatives.
Where employers get caught out
In addition to the genuine business need requirements above, the process is critical and often, the employer’s vulnerability starts well before dismissal is even considered.
A business decides that a change is commercially necessary. A timetable is set. Communications are prepared. The desired outcome is already clear.
Employees are then asked to agree.
If consultation is treated as a route to securing acceptance rather than a genuine opportunity to understand concerns and explore alternatives, the process becomes vulnerable.
The key question is not simply whether the employer wanted the change. It is whether the employer can show that the process was fair, evidence-based and genuinely open to consideration of alternatives which were then properly evaluated.
Common contract changes that may create risk
Employers should take particular care where changes affect core terms, including:
- pay or commission;
- bonus arrangements;
- pension or benefits;
- working hours;
- shift patterns;
- place of work or mobility requirements;
- hybrid or remote working arrangements;
- duties, responsibilities or reporting lines;
- expenses or allowances.
These are often commercially important, but they are also the changes most likely to be resisted by employees.
What should employers do before changing terms?
Before proposing contractual changes, employers should consider:
- What is the business reason for the change?
- Is there financial evidence supporting the need for change?
- Which contractual terms are affected?
- Is employee agreement required?
- Is there an existing variation, flexibility or mobility clause that may apply?
- Who should be consulted, and when should this begin?
- Are there alternative to avoid the proposed change?
- Could the change have a discriminatory impact?
- Will collective consultation obligations be triggered?
- What is the reputational risk if dismissal and re-engagement is proposed?
In practice, the employers best placed to defend a change are those that have prepared properly before announcing it.
Employers should not assume that a broadly drafted variation clause permits any change.
Why manager training matters
Contract variation exercises are often undermined by inconsistent messages.
One manager may suggest the change is optional. Another may say it is inevitable. A senior leader may imply that refusal will lead to dismissal before consultation has run its course.
Managers involved in communicating contractual changes should understand the process, the limits of what they can say and the importance of avoiding premature conclusions.
How Quastels can help
Quastels advises employers on employment contracts, contract variation, consultation, dismissal and re-engagement, collective consultation, unfair dismissal risk and employment disputes.
We help businesses plan and implement contractual changes in a way that is commercially realistic and legally defensible.
Please contact Dipti Shah in Quastels’ Employment Team if you are considering changes to employment contracts or want to review your approach before the January 2027 changes take effect.
