Recent attention has focused on the “fire and rehire” provisions in the Employment Rights Act 2025 (the 2025 Act) that will make it harder for employers to change employees’ terms and conditions of employment. However, the parts of the 2025 Act that deal with the associated ‘fire and replace’ scenarios seem to have gone under the radar and these provisions (both separately to and in combination with the “fire and rehire” provisions) could have significant implications for employers making changes to their businesses, including in redundancy situations and outsourcing arrangements.
What is changing?
The relevant provisions of the 2025 Act are due to come into force on 1 January 2027 – although at the time of writing no commencement regulations have been made. The below assumes that the relevant provisions will come into force with no further amendment.
As things stand, all of these changes will create “day one” rights for employees, so no qualifying period of service will be necessary in order for them to bring an automatic unfair dismissal claim under any of the relevant provisions.
Fire and rehire
When in force, the “fire and rehire” provisions will make it automatically unfair for an employer to dismiss an employee for failing to accept a “restricted variation” to their contract of employment.
Broadly, restricted variations include changes to pay, pensions, the number of hours an employee is required to work, any reduction in time off and the insertion into a contract of any term enabling an employer to make any of the said variations without the employee’s consent.
A consultation has taken place to determine to what extent, if at all, changes to shift patterns should be a restricted variation and whether changes to benefits in kind should be excluded from the list. The government will also have the power to add to the list of restricted variations by making further regulations.
Fire and replace
The “fire and replace” provisions will make dismissing an employee automatically unfair in two scenarios:
Fire and replace: with an employee
The first scenario is where the employee is dismissed for the sole or principal reason of enabling the employer to replace them with another employee on a “varied contract of employment” to carry out the same duties or substantially the same duties that the dismissed employee had carried out before being dismissed. A varied contract of employment is one that contains at least one restricted variation when compared to the contract of the dismissed employee.
The dismissed employee does not need to have been made an offer of new terms and refused them for this section to kick in – the trigger is simply that they are dismissed in order to be replaced with another employee on the varied contract. The replacement (or proposed replacement) can be the dismissed employee themselves.
Fire and replace: with someone who is not an employee
The second scenario is where the employee is dismissed for the sole or principal reason of enabling the employer to replace them with someone who is not an employee of the dismissed employee’s employer. This could, for example, be an agency worker, a consultant or an employee of another group company or third party.
As before, for these provisions to apply, the activities carried out by the replacement should be the same or substantially the same as the activities the dismissed employee was carrying out prior to their dismissal. There is no need, though, for the replacement to be a direct replacement of one person by another. The relevant activities can be carried out by one person or by a group of people both prior to and after the dismissal.
Importantly, in this second scenario there is no need for there to be any difference in terms between the contracts of the dismissed employee and their replacement. The dismissal will, however, not be automatically unfair if the employer can show that the employee’s dismissal was due to the employer having a reduced need for the activities that the employee was carrying out prior to their dismissal to continue to be carried out. In other words, that the employer was in a genuine redundancy situation in relation to those roles.
However, this carve out does not include changes to the place where the activities are being carried out, so the employer would not be able to rely on this limb of the redundancy definition in the Employment Rights Act 1996 (the 1996 Act) as a potentially fair reason for dismissal.
It is also important to note that there is no equivalent carve out in the first scenario where the dismissed employee is being replaced with another employee.
Again, the dismissed employee and the proposed replacement can be the same person - this is to cover cases such as that of P&O Ferries, where a significant number of employees were dismissed and offered re-engagement as agency workers.
Exceptions
There is an exception that will apply in all of the above scenarios when the employer is in significant financial difficulties, but the bar for this exception to apply is so high that employers are unlikely to be able to rely on it in most cases.
Implications of the changes
Although we will need to see how these provisions play out in practice, they have the potential to cause significant difficulties for employers making changes to their businesses, such as restructuring, certain redundancies and outsourcing. A few examples to illustrate this:
Restructuring – An employer decides to move its operations from London to Leeds as a cost-cutting measure as salaries in Leeds are cheaper. Under the current provisions of the 1996 Act, the consequential dismissals of any of the London employees would fall within the definition of redundancy (as the employer has a reduced need for employees to carry out work in a particular place, London). Redundancy is a potentially fair reason for dismissal.
However, under the new provisions in the 2025 Act, the reduction in salary between the contracts of the dismissed London employees and the new Leeds employees will be a restricted variation. The dismissal of any of the London employees will therefore be automatically unfair if they can establish that:
The sole or principal reason for their dismissal was to replace them with a Leeds-based employee who is carrying out the same, or substantially the same duties as they were carrying out before they were dismissed, and
The Leeds employee has a lower salary, or there is any other restricted variation between the contracts of the dismissed London employee and the new Leeds employee.
Bear in mind that the London employee and the Leeds employee can be the same person, so these provisions could in our view also “bite” where the London employee is offered the role in Leeds as an alternative vacancy but turns it down.
TUPE outsourcing – A business provides catering for its employees and events in-house but decides to outsource those tasks to an external caterer. The type and amount of catering that needs to be done will stay the same but following the outsourcing will be carried out by the staff of the external caterer. If there is a transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and all the employees who carry out the catering in-house transfer to the external caterers, there will be no dismissals and the fire and replace provisions will not come into play.
If, however, TUPE does not apply or certain employees are not in scope to transfer and the employees (or those not in scope) are dismissed, those dismissals will be automatically unfair. Further, while (from 1 January 2027) employees will need to have six months’ service to be able to bring a claim for unfair dismissal under TUPE, no qualifying length of service will be needed to bring a claim for unfair dismissal under the provisions in the 2025 Act.
TUPE: quasi-constructive dismissal – If there is a TUPE transfer, the 2025 Act creates an enhanced ability for employees to make out a claim for quasi-constructive dismissal.
Currently, under TUPE employees can resign and claim unfair dismissal if the transferee (the external caterer in our example above) is proposing/has made changes to the employees’ working conditions and such changes are a substantial change to the employee’s material detriment. Such dismissals can be automatically unfair, subject to limited exceptions. In certain circumstances such claims can sit with the transferor, even though they are not proposing the changes.
Under the changes pursuant to the 2025 Act, if the changes being proposed by the transferee are restricted variations, then such dismissals will be automatically unfair, with no exception. Again, employees will be able to claim this from day one of their employment, without any need for any minimum continuous service requirement.
TUPE: harmonisation of terms – As things stand, where there has been a TUPE transfer, any attempt to harmonise the terms of transferring and/or existing employees will be void unless the employer can show that the reason for the change was an economic, technical or organisational reason entailing changes in the workforce (an ETO reason). If an ETO reason can be established, any dismissals made in order to try to impose the change are potentially fair under TUPE. The “fire and rehire” provisions of the 2025 Act mean, though, that if the change being proposed constitutes a restricted variation, any dismissals arising from an employee failing to agree to the change will be automatically unfair. This cuts across the position under TUPE and significantly increases the risk to employers seeking to make transfer-related changes.
Summary
Where TUPE is a factor, there is already a significant risk that any dismissals (including quasi-constructive dismissals as outlined above) are automatically unfair. However, our view is that these new provisions materially increase the risk to employers, including by potentially allowing employees who would previously not have been able to bring claims under TUPE, or who would not otherwise have sufficient length of service to do so to bring claims under these provisions.
They could also create significant new risks in what would otherwise be clear and straightforward redundancies under the 1996 Act.
Recommendations
As mentioned above, we will need to see how these provisions of the 2025 Act play out in practice, and in particular how the Employment Tribunals deal with the interaction with the existing provisions of the 1996 Act relating to redundancy and the position under TUPE. In particular, it will be interesting to see how they reconcile the invidious position employers relocating their place of work (in the above example) will be placed in, who appear to have their hand completely tied in such a scenario, at least where they are proposing to make restricted variations to employees’ contracts as well as changing their place of work. In the meantime, we recommend that employers take the following steps:
- If possible, update your employment contracts now to include clauses allowing you some flexibility to vary key aspects of employees’ contracts unilaterally after 1 January 2027 – such clauses cannot always be relied on and advice should be taken before seeking to do so, but they can only help to strengthen your position. It may be tricky to make changes to the contracts of existing employees, but such clauses should be included in the contracts of new hires and employees who are being issued new contracts for reasons such as promotion.
- Take these provisions into account when planning changes to the structure of your business and, where relevant (for example in outsourcing agreements), ensure you have indemnity protection against risks that are not under your control.
