ERA 2025: New details on restricted variations

One of the significant changes in the Employment Rights Act 2025 is in relation to so-called  “fire and rehire”.   The ERA will make it automatically unfair to dismiss an employee for failure to agree to a “restricted variation” of their employment contract.   Restricted variations include the following: 

• a reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment;

• changes to metrics for piece-work, commission and bonus schemes which depend on the amount of work done or the results of that work;

• changes relating to pensions or pension schemes;

• a change to the number of hours which an employee is required to work;

•  changes to the timing or duration of a shift if the change meets conditions to be specified in regulations; 

• reductions in the right to take time off; 

• inclusion of variation and flexibility terms covering the above. 

A dismissal for failure to agree to any of those changes will be automatically unfair unless the employer can show that the change is necessary due to serious financial difficulties threatening its solvency.  This defence will only be available in dire financial situations, and so these requirements will significantly curtail the ability of employers to change contractual terms through termination and re-engagement. 

The Government has now proposed that certain changes will be excluded from the definition of “restricted variation”, specifically any changes to reimbursement of expenses or provision of benefits in kind.  

At the same time, it has also clarified that the only changes to shift timings that will be restricted variations will be changes from day work to night work, or weekday work to weekend work (or vice versa). 

The intention of these proposals, which would be effected via regulations, seems to be to soften the impact of the new fire and rehire provisions.  However, the logic is not entirely clear. Some benefits in kind may be hugely valuable to employees at times of need - income protection, critical illness or private medical cover are good examples where the value to the employee may be significant and the annual cost to the employer comparatively modest.   Although it's true that most employment contracts build in some flexibility for the employer in relation to these benefits anyway, the consultation proposals make it clear that even where the employer is contractually obliged to provide such benefits, changing them via fire and rehire won't be an automatically unfair dismissal.   However, any reduction in working hours will be a restricted variation, even though the long-term financial impact on the employee may be much less significant than removing benefits in kind. 

Regardless of the policy rationale, this additional flexibility is a positive development for employers.   However, employers should remember that, even where a contractual change is not a restricted variation, dismissal for failure to agree may still be unfair (just not automatically so) and may give rise to other claims.   Fire and rehire is likely to remain an option of last resort for most employers, and employers should take advice on their position before implementing contractual changes in this way.