Fire and rehire is changing in January 2027 – now is the time to get your contracts in order 

If you’ve ever needed to change someone’s hours, adjust a shift pattern, tidy up a pay arrangement, or move a team onto a consistent set of terms, you’ll know it isn’t always straightforward. Most of the time, employers reach agreement by talking it through. But when agreement can’t be reached, some businesses have resorted to dismissing an employee and offering a new contract, a practice known as “fire and rehire”. 

From January 2027, that fallback will largely disappear. The Employment Rights Act 2025 will make it automatically unfair to dismiss an employee for refusing certain changes to their contract, and the compensation a tribunal can award will be uncapped. For a small or medium-sized business, this is a significant shift in risk, making the state of your contracts and policies far more important than it was a year ago. 

What’s changing 

The Act doesn’t ban changing terms and conditions. What it does is remove the ability to force changes through by dismissal, except in very narrow circumstances. From January 2027: 

• It will be automatically unfair to dismiss an employee for refusing a “restricted variation” to their contract, and equally unfair to dismiss them so you can re-engage them or engage someone else on terms that include such a variation. 

• Restricted variations cover the core of the deal: reductions in pay, changes to pay-related targets or measures, changes to pensions, changes to total working hours, reductions in leave entitlement, and changes to shift patterns. The government’s consultation has also considered how expenses and benefits should be treated. 

• Adding a variation clause to a contract is itself a restricted variation, so you can’t solve the problem in 2027 by building in flexibility at that time. 

• There is no qualifying service period. A new starter can bring this claim from day one. 

• Compensation is uncapped. Across a group of employees, exposure increases quickly. 

• The only real defence is genuine, serious financial difficulty that affects your ability to continue as a going concern and where you could not reasonably have avoided the change. Cost-saving, tidying up or improving margins won’t satisfy that test. 

Changes that fall outside the restricted list, such as place of work or duties, won’t be automatically unfair, but a tribunal will still scrutinise your reason for the change, the consultation you carried out, and what you offered in return. The Acas Code of Practice on dismissal and re-engagement still applies, and awards may be increased by up to 25% where an employer has unreasonably failed to follow it. 

Why this matters more to SMEs than they think 

Very few small businesses set out to fire and rehire anyone. The risk isn’t usually deliberate; it’s drift. 

Working arrangements in a growing business evolve constantly. Someone’s hours change when their childcare changes. A job expands well beyond the role description for which they were hired. A bonus scheme is agreed in a meeting and never recorded. Shift patterns shift. A benefit is offered informally to one person and quietly becomes custom and practice. Meanwhile, the signed contract in the filing cabinet says something else entirely – or was never issued at all. 

That gap between the paperwork and reality has always been messy. From January 2027, it will become costly. If you need to correct an arrangement and the employee won’t agree, the option of imposing it by dismissal is effectively gone – and you may find that what you assumed was a discretionary arrangement has hardened into a contractual right you can no longer alter. 

The window is open now 

Here’s the key point: agreement remains, and always will, entirely lawful. What’s being restricted is imposition. The businesses that come out of this well will be those that use the time between now and January 2027 to get their house in order, properly and by consent, rather than discovering a problem in the middle of a difficult year. 

There’s a balance to strike. This isn’t a reason to rush poorly considered changes through before the deadline, as an unfair process is unfair today, too, and doing it badly now simply creates a different claim. It is a very good reason to start the conversations you’ve been putting off. 

Five things to do before January 2027 

1. Audit your contracts against reality. Pull every contract and compare it with what the person does, when they work, what they’re paid, and what they receive. Start with anyone whose role or hours have changed, long-serving employees, and anyone who has never received written terms. 

2. Check that pay, hours, job descriptions and benefits are accurate. Job descriptions, in particular, are often badly out of date. They matter for performance management, recruitment and pay decisions – and for showing what was agreed. 

3. Address outdated contractual terms now. Inherited clauses, legacy bonus arrangements, historic overtime rates, obsolete shift references and old TUPE terms should be reviewed while you still have room to negotiate. If a term no longer reflects how the business operates, that conversation is far easier this year than it will be in 2028. 

4. Look closely at your variation and flexibility clauses. Operating a genuine, clearly drafted and properly agreed flexibility clause means working within the contract, not changing it – which is a very different position. After January 2027, you won’t be able to introduce one by imposition, so review what you have while you can. 

5. Work with your employees on the changes you need to make. Explain the business rationale, consult meaningfully, listen to objections, consider alternatives, and think about what you can offer in return. Record what’s agreed and issue updated written terms. Consultation is no longer just good practice – it’s the evidence a tribunal will want to see. 

Also check that your policies keep pace: handbooks, absence and flexible working policies, and anything referred to in the contract. It’s worth being clear about which documents are contractual and which are not – that distinction does a lot of work when terms need to change. 

Where HR Foundations comes in 

This is exactly the sort of work that gets postponed in a busy SME. It isn’t urgent until it suddenly becomes so, and it requires a level of employment law expertise that most owner-managed businesses don’t have in-house. 

HR Foundations from Humber HR People is designed for precisely this: getting the basics right and ensuring your contracts, policies and documentation genuinely reflect how your business operates. We’ll review your existing contracts and handbook, identify where the paperwork and the practice have diverged, flag terms that need attention before the new rules bite, and help you handle conversations with your people properly – so changes are agreed rather than imposed. 

It puts you on solid ground for January 2027 and makes everything that follows – recruitment, performance, restructures, and growth – considerably easier to manage. 

If your contracts haven’t been reviewed in a few years, now is the time. Get in touch with Humber HR People to discuss HR Foundations, and we’ll help you work out what needs doing first.