‘Fire and rehire’ refers to a process where an employer dismisses an employee and then re-hires them, usually on less favourable terms. Unsurprisingly, this practice has been heavily scrutinised and is labelled as controversial by many. Let’s take a closer look at the practice and when it might be used by employers.
What is fire and rehire?
There may be circumstances where an employer wishes to change the terms of their employee’s employment contract. Ideally, when seeking to do this, employers should consult with their employee and obtain their consent to change the terms. If the employee does not give their consent, there are two options for the employer:
- Unilaterally change the terms of the contract : If an employee is unwilling to consent to the change, an employer may choose to impose the change unilaterally (i.e. without the employee’s consent). This is a high-risk approach and may give rise to claims such as constructive unfair dismissal and unlawful deduction of wages.
- Dismiss the employee and then offer to re-hire them on new contract terms (i.e. the practice of ‘fire and re-hire’).
Another option for employers where an employee refuses the change is to dismiss the employee and then offer to re-hire them on varied contract terms, which are usually less favourable.
Why might an employer adopt this practice?
Usually, fire and rehire practices are adopted by employers when facing economic challenges. In these circumstances, the employer will typically dismiss the employee and rehire them on less favourable terms of reduced pay, varied working hours or fewer benefits. Fire and rehire can help businesses cut costs, whilst also retaining staff.
Other reasons might include:
- altering contracts to reflect changes in working practices or bringing contracts in line with industry practice;
- standardising terms across different employee groups; or
- imposing post-termination restrictions in contracts to protect business interests.
Risks
Whilst fire and rehire practices are legal under UK legislation, they can be extremely risky.
If an employee does not want to be re-hired on the new contract terms, this can lead to various legal implications for the employer. For example, the employee may have a claim for unfair dismissal provided they have over 2 years’ service. To successfully defend the claim, an employer must be able to show that the reason for the dismissal was fair, a fair process was followed, and they acted reasonably in dismissing the employee.
As well as legal risks, the practice can also cause serious damage to working relationships and is likely to cause a general sense of mistrust and hostility amongst employees towards their employer, whether or not the dismissals affected them directly.
ACAS guidance on fire and rehire makes it clear that employers should make all reasonable attempts to reach an agreement with their employee(s) through meaningful consultation before making a decision to fire and rehire. It should be a last resort.
Ultimately, the safest option for an employer when changing contract terms is to obtain consent from the employee. ‘Fire and rehire’ offers an alternative where an employee refuses consent, but employers should tread carefully when taking this route and must be alive to the risks that come with it.
Reform
Understandably, many have called for fire and rehire practices to be banned due to their exploitative nature.
Whilst firing and rehiring is currently legal, the Employment Rights Bill (“ERB”) proposes to impose significant restrictions on an employer’s ability to utilise the practice. The ERB is currently progressing through its committee stage in Parliament, but changes are expected to come into place in October 2026.
Although the ERB does not set out an outright ban on this practice altogether, it does make a dismissal automatically unfair if the reason for the dismissal is that the employee did not agree to the employer seeking to make a ‘restricted variation’ to their contract. Restricted variations include reductions to pay, variations to pensions, hours of work, and leave entitlement, and including terms permitting the unilateral variation of any of these matters.
Despite the ERB allowing for a limited exception (where the reason for the ‘restricted variation’ was in response to specific financial difficulties), the ERB will make it significantly more difficult for employers to vary the terms and conditions of employment without workforce support.
If you would like to discuss anything related to fire and rehire, or indeed any other changes proposed by the Employment Rights Bill, please contact a member of the Employment team.
To find out what other aspects of employment law are affected by the Employment Rights Bill, read our blog “The Employment Rights Bill – When to expect change”.
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