What the Latest Employment Rights Bill Amendments Mean for Employers

The UK government has recently introduced significant amendments to the Employment Rights Bill, with Clause 26 drawing particular attention for its impact on the controversial practice of fire and rehire. These changes, now backed by the government and expected to take effect by October 2026, aim to strike a balance between protecting employees and preserving employer flexibility in times of financial distress. 

What’s Changing? 

Clause 26 proposes a new section, s104I to the Employment Rights Act 1996, making it automatically unfair to dismiss an employee for refusing to accept certain contractual changes, unless specific conditions are met. 

Key updates include: 

• Restricted Variations: The automatic unfair dismissal rule applies only to “restricted variations” defined as changes to pay, pensions, working hours, holiday entitlement, or the addition of a variation clause. Employers seeking to introduce such changes must proceed with caution. 

• Financial Distress Defence: A dismissal will only be lawful if the employer can demonstrate that refusing the change would result in calamitous financial distress. For public bodies, this means proving that statutory functions would become financially unsustainable. 

• Removal of the Consultation Checklist: The previously proposed six-point consultation checklist has been dropped. If financial distress is proven, tribunals will revert to the standard s98(4) reasonableness test for unfair dismissal. 

• Routine Contractual Changes: Non-restricted variations such as changes to job duties or location will not trigger automatic unfair dismissal. However, tribunals will still expect employers to follow robust consultation procedures, applying the former checklist as a guide to fairness. 

• Outsourcing and Redundancy: A parallel amendment makes it automatically unfair to dismiss employees solely to replace them with agency workers or contractors, unless the financial distress test is satisfied. This could lead to increased scrutiny of outsourcing models, including those involving IR35 and TUPE avoidance. 

Implications for Employers 

These changes signal a more nuanced approach to regulating fire and rehire practices. While the outright ban has been softened, employers must still tread carefully: 

• Plan Ahead: Employers considering contractual changes, especially those involving restricted variations, should begin preparing now. This includes reviewing existing contracts and assessing financial risk scenarios. 

• Consult Thoroughly: Even where automatic unfair dismissal does not apply, tribunals will expect evidence of meaningful consultation. Employers should document all efforts to engage with staff and offer reasonable inducements. 

• Avoid Shortcuts: The removal of the statutory checklist does not mean employers can bypass procedural fairness. Dismissals made without genuine financial justification or proper consultation may still be deemed unfair. 

• Monitor Regulatory Developments: The government has committed to consulting on the Regulations that will define “restricted variations.” Employers should stay informed and be ready to adapt policies once these are finalised. 

Conclusion 

The evolving legal framework around fire and rehire practices marks a pivotal shift in UK employment law. While the outright ban initially proposed under Clause 26 has been softened through a series of amendments, the message to employers is clear: contractual changes must be handled with greater transparency, justification, and care. 

For employers, this means a more complex decision-making process when contemplating changes to employment terms. The introduction of “restricted variations” creates a clear legal boundary, crossing it without meeting the stringent financial distress criteria could lead to automatic unfair dismissal claims. Even for non-restricted changes, the expectation of thorough consultation and fair process remains high. 

This new regime encourages employers to adopt a more strategic and collaborative approach to workforce management. Rather than relying on unilateral changes or the threat of dismissal, organisations will need to invest in early engagement, open dialogue, and creative solutions that align business needs with employee rights. 

These reforms are not just about legal compliance, they represent an opportunity to redefine how change is managed in the workplace, with fairness, transparency, and mutual respect at the core. Ultimately, the most effective and least risky approach remains the simplest: seek employee consent before implementing contractual changes.