The Employment Rights Act 2025 and "fire and rehire": new detail on restricted variations

The Employment Rights Act 2025 will significantly curtail employers' ability to dismiss employees in order to vary their contractual terms.  It does this in two key ways.   First, it introduces the concept of “restricted variations” - changes to certain core contractual terms where any dismissal to effect the change is automatically unfair (except if a narrow financial distress defence applies).   Second, it stipulates the factors an Employment Tribunal must look at when determining whether a dismissal to effect a non-restricted change is fair.  Alongside these protections, the Government is consulting on a new Code of Practice on Dismissal and Re-Engagement, setting out in more detail the process that an employer is expected to follow when seeking to amend contracts.  These reforms will come into force in March 2027. 

The distinction between restricted and non-restricted variations is, therefore, critical for businesses. The Government has now provided further detail about which changes to benefits and shift patterns will be restricted variations and which will not. 

Restricted variations

We already know that the following will be restricted variations: 

• a reduction of, or removal of an entitlement to any amount due to the employee (save for certain benefits and expenses to be excluded by regulations);

• for employees whose pay varies according to the amount of work done or a measure of their success, a variation of that measure;

• changes relating to pensions or pension schemes;

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

• a variation of the timing or duration of a shift as specified in regulations;

• a reduction in the amount of time off which an employee is entitled to take;

• including a variation clause permitting any of the above. 

We now have a clear picture of what the further regulations will say about which variations to benefits, expenses and shift patterns will be restricted. 

Benefits:  Most benefits in kind will be excluded from the definition of restricted variations, meaning that these can be changed via fire and rehire without being automatically unfair.   In many cases, these benefits are already subject to variation and flexibility clauses, so fire and rehire is not often used to make such changes.  

Similarly, the right to participate in any share scheme will also be outside the restricted variation regime. 

However, contractual rights to reimbursement of travel expenses (including mileage), accommodation expenses and accommodation provided as a benefit in kind will be within scope - so dismissing an employee to effect such a change (or to replace them with an employee without such a contractual right) will be automatically unfair. 

Employers that currently reimburse these expenses or provide accommodation, or which are proposing to do so for new staff, should urgently review the terms on which they do so. Where possible, they should ensure that the terms are drafted so as to maximise flexibility for the employer, and in such a way as to avoid abuse of these benefits.  These benefits are often provided to senior and executive-level staff, as well as expatriate staff and can be highly valuable, so employers should take care to ensure that these contracts are tightly drafted from the outset. 

Shift patterns  The Government has confirmed that changes to contractual shift patterns will be restricted variations where they would mean either: 

• The employee is required to work in the night-time where they were not required to before or is required to work in the daytime where they were not before. 

• The employee is required to work on a weekend where they were not required to before or is required to work in on a weekday where they were not before.

Other shift pattern changes will not be included.  However, employers should also remember that any change to the contractual number of hours is also treated as a restricted variation.

What should employers do now? 

Employers should review existing template contracts to ensure that all terms within the scope of the restricted variations regime are tightly drafted, as there will be very limited scope for changing these except with employee agreement, once these provisions come into force next March.