Fire and Rehire: What It Means for UK Employers and When It’s Legal

If you employ staff, you’ve probably heard the phrase “fire and rehire” used in the news - usually in a pretty negative way.

But in practice, what many business owners are really asking is simpler: what does fire and rehire actually mean, and can you ever use it lawfully when you need to change contracts to keep the business afloat?

Fire and rehire (also called “dismissal and re-engagement”) is one of the highest-risk employment law moves you can make. That doesn’t mean it’s always unlawful - but it does mean you need to approach it carefully, document your reasoning, and follow a fair process.

In this guide, we’ll explain what fire and rehire means in the UK, when it may be legal, the key legal risks, and the practical steps small businesses can take to reduce the chance of tribunal claims and reputational damage.

What Is Fire And Rehire (And What Does It Look Like In Real Life)?

Fire and rehire is when you:

• dismiss an employee (or terminate their contract), and then
• offer to rehire them on new terms and conditions.

This usually happens because the employee has not agreed to a proposed contractual change, and you’ve decided you can’t continue employing them on the old terms.

Common examples include changing:

• pay (including removing allowances or changing bonus structures)
• working hours or shift patterns
• place of work (e.g. relocation clauses or requiring more office attendance)
• job duties and reporting lines
• benefits and policies that are contractual (e.g. sick pay enhancements)

From a legal perspective, the key point is this: you can’t usually change an employee’s contract unilaterally. If you do, you risk claims such as unlawful deduction from wages, breach of contract, constructive dismissal, and (for eligible employees) unfair dismissal.

If you’re trying to introduce new terms, it’s worth checking whether the change is actually contractual, and whether your Employment Contract includes flexibility clauses (for example, clauses allowing reasonable changes to duties or location). Even then, “flexibility” clauses don’t give you a free pass - they still need to be used reasonably and in good faith.

Why Do Employers Consider Fire And Rehire?

For most small businesses, “fire and rehire” isn’t about being heavy-handed - it’s usually driven by commercial pressure.

Some common scenarios we see are:

1) Your Costs Have Increased And The Numbers No Longer Work

Rent goes up. Supplier pricing jumps. Demand drops. And suddenly your staffing model isn’t sustainable unless you adjust hours, remove costly perks, or restructure roles.

In these situations, employers often try to negotiate changes first - and only consider dismissal and re-engagement as a last resort.

2) You Need To Reorganise The Business

Sometimes you need to realign roles, introduce new responsibilities, or create a more efficient structure. If existing contracts don’t match the new operational reality, you may need employee agreement to implement changes.

3) You’ve Inherited Staff Through TUPE Or A Business Acquisition

When you take over employees after a transfer (for example, buying a business or taking on a service contract), their existing terms may not fit your model - but changing terms after a TUPE transfer is particularly sensitive and often restricted.

Before you make changes in an acquisition context, it’s worth getting advice early (and documenting your business rationale). This is one of those “get it right from day one” areas.

4) You Want Consistency Across The Team

Sometimes the issue is “contract drift” - different employees have different legacy entitlements and you want everyone on a consistent set of terms.

That goal can be legitimate, but the process matters. A tribunal will focus heavily on whether you acted fairly and whether the change was truly necessary.

Is Fire And Rehire Legal In The UK?

The question “is fire and rehire legal in the UK?” doesn’t have a simple yes/no answer.

In principle, dismissal and re-engagement can be lawful in the UK - but only if you handle it in a way that is legally fair and commercially justified.

If you get it wrong, you may face significant legal exposure, including:

• unfair dismissal claims (for employees with the required qualifying service)
• wrongful dismissal (if you don’t give proper notice or pay in lieu as required)
• unlawful deduction from wages (if pay is reduced without agreement)
• collective consultation breaches (if you dismiss 20+ employees at one establishment within 90 days)
• discrimination claims (which don’t require qualifying service)

The Legal “Hook”: Fair Dismissal Under The Employment Rights Act 1996

Most fire and rehire situations involve dismissals. For employees who can bring an unfair dismissal claim, you’ll need to show:

• a potentially fair reason for dismissal (commonly “some other substantial reason” (SOSR), or potentially redundancy depending on the facts), and
• that you followed a fair process in all the circumstances.

Even if your reason is commercially sensible, a poor process can still make a dismissal unfair.

Collective Consultation: The Big Tripwire For Growing Businesses

If you’re proposing to dismiss and re-engage 20 or more employees at one establishment within a 90-day period, you may trigger collective consultation obligations.

This can involve consulting appropriate representatives for minimum time periods (and notifying the Secretary of State using the HR1 form). As a rule of thumb, the minimum consultation period is at least 30 days before the first dismissal takes effect where 20-99 dismissals are proposed, and at least 45 days where 100+ dismissals are proposed (measured at one establishment, within 90 days). The penalties for getting this wrong can be serious, including a protective award.

If you’re anywhere near that threshold, it’s a good time to get tailored advice (and quickly).

A Code Of Practice And Increasing Scrutiny

Fire and rehire is an area under strong regulatory and public scrutiny. In the UK, there is a statutory Code of Practice on Dismissal and Re-engagement which sets clear expectations on employers to consult properly and treat dismissal and re-engagement as a genuine last resort.

While a failure to follow the Code doesn’t automatically make an employer liable, employment tribunals can take it into account. If a tribunal finds you unreasonably failed to comply with the Code, it may increase compensation by up to 25% (and can also reduce compensation by up to 25% where an employee unreasonably fails to comply).

That doesn’t remove your ability to restructure, but it does mean tribunals will often look closely at whether you:

• properly consulted
• shared information transparently
• considered alternatives
• gave employees a real opportunity to respond

How To Use Fire And Rehire More Safely (A Practical Process For Small Businesses)

If you’re at the point where contract changes feel essential, the goal is to reduce legal risk by demonstrating a fair, evidence-based approach.

Here’s a practical, employer-friendly roadmap.

1) Be Clear On What You’re Changing (And Why)

Start with a written business case. Keep it factual and measurable, for example:

• cashflow forecasts showing a cost gap
• lost client revenue or reduced demand
• comparisons of current staffing costs vs projected revenue
• why other cost-saving measures aren’t enough

This matters because, if challenged later, you’ll need to show the change was not arbitrary or punitive.

2) Check The Current Contract Terms Carefully

Before you propose changes, check whether the existing contract already covers what you want to do (for example, mobility clauses, variation clauses, or lay-off/short-time working clauses).

If your documents are inconsistent or outdated, it’s often safer to fix that proactively rather than relying on a clause that may not work the way you expect.

3) Consult Early - And Treat It As A Real Conversation

Consultation isn’t just telling employees what will happen. You should genuinely listen and consider counterproposals.

In practice, that usually means:

• explaining the proposed change and the business reasons behind it
• allowing time for employees to take advice and respond
• considering alternative suggestions (even if you ultimately don’t accept them)
• meeting with employees individually (and potentially collectively)

If you have workplace rules about consultation, communications, or employee conduct during sensitive processes, make sure these are consistent and clear in your Workplace Policy.

4) Consider Incentives Or “Give” Where You Can

If you’re asking employees to take on a negative change (like reduced pay), consider what you can offer in return, such as:

• a one-off payment
• a time-limited change with review dates
• additional flexibility (e.g. remote days, compressed hours)
• enhanced notice, or a transitional period

Even small concessions can help demonstrate reasonableness and improve buy-in.

5) If Agreement Is Reached, Document The Change Properly

If employees agree, make sure you record it in writing - ideally via a contract variation letter or amendment.

Relying on informal email chains can become messy later (for example, if you end up in a dispute about what was agreed and when). For contract changes, properly documenting the variation is part of protecting your business from day one.

If you need to formally change written terms, an Amending A Contract approach (done correctly) can prevent misunderstandings and reduce the risk of future claims.

6) If No Agreement Is Possible, Get Advice Before You Dismiss

This is the point where many employers accidentally increase their legal risk.

Before you proceed to dismissal and re-engagement, consider:

• Who will be affected and how many staff (collective consultation risk)
• Whether any employees have protected characteristics that could increase discrimination risk
• Whether the change could be framed differently (or implemented in stages)
• What notice you must give under contract and statute
• Whether there’s a risk of constructive dismissal if employees resign

If you do dismiss, you need to do it cleanly - including correct notice, clear documentation, and a fair process. If you’re unsure about how termination letters should be structured, a Contract Termination Letter style document can help you keep the essentials tight and consistent.

Alternatives To Fire And Rehire (Often Lower Risk)

Fire and rehire is rarely the first or only option. Depending on your circumstances, there may be alternatives that achieve a similar outcome with less legal fallout.

1) Negotiate A Contract Variation With A Clear Business Case

This is always the cleanest route if you can get genuine agreement. A practical approach is to propose options rather than a single “take it or leave it” change.

2) Restructure Through Redundancy (If The Role Is Disappearing Or Changing Fundamentally)

If the real issue is that you need fewer staff, or the role requirements are substantially changing, a redundancy process might be more appropriate than trying to force new terms.

Redundancy has its own rules and risks, but it may be a better fit legally (and operationally) depending on what’s driving the change. If you’re considering this route, Redundancy Advice can help you map out a compliant process.

3) Use Temporary Measures With Review Points

Instead of permanent changes, some businesses implement time-limited adjustments, such as:

• a temporary reduction in hours
• a temporary pay freeze
• short-term changes to shift allocations

Employees are often more receptive if the business commits to reviewing the arrangement after a set period, especially if trading conditions improve.

4) Introduce Changes For New Starters Only (With Care)

For long-term staff, changing core terms can be difficult. Another approach is to offer new terms to new hires only (creating two sets of terms), then work towards harmonisation over time.

This can be useful, but be careful - having two tiers of terms can create cultural issues, and you still need to avoid discrimination risks.

5) Performance Or Capability Processes (If The Issue Isn’t Really “Cost”)

Sometimes “we need to change the contract” is actually masking a different problem - for example, underperformance, poor fit, or operational friction.

In those cases, trying to solve it through contract changes can backfire. A clearer (and often fairer) approach is a documented performance process, such as Performance Improvement Plans, where appropriate.

Key Takeaways

• What is fire and rehire? It’s when you dismiss an employee and offer re-employment on new terms, usually because they won’t agree to contractual changes.
• Is fire and rehire legal in the UK? Potentially, yes - but it’s high-risk, and legality depends on having a fair reason and following a fair process (including consultation).
• You usually can’t change employment contracts unilaterally without risking claims like breach of contract, unlawful deduction from wages, and (for eligible employees) unfair dismissal.
• Consultation is crucial - you should be transparent about the business reasons, allow time for feedback, and genuinely consider alternatives.
• Collective consultation rules can apply if 20+ dismissals are proposed at one establishment in 90 days; minimum consultation is typically 30 days (20-99) or 45 days (100+), and an HR1 notification may be required.
• The statutory Code of Practice on Dismissal and Re-engagement matters - tribunals can adjust compensation by up to 25% for unreasonable failure to comply.
• Document agreed changes properly so you’re not relying on informal emails or verbal discussions later.
• Consider alternatives first such as negotiated variations, redundancy (if appropriate), temporary measures, or clearer performance processes.

This article is general information only and isn’t legal advice. Because fire and rehire risk can turn on the detail (including your contracts, your consultation steps, and the numbers affected), it’s worth getting advice before you make changes.

If you’d like help changing employee terms, planning a restructure, or reducing the risk of unfair dismissal claims, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.