Under the Employment Rights Act 2025, from January 2027 (under the revised timeline);
Dismissal to force certain contract changes will be automatically unfair
If you dismiss someone for refusing to agree a “restricted variation”, it will be automatically unfair unless you can prove:
- Serious financial difficulties threatening business viability (i.e. imminent risk of insolvency)
- The changes are necessary to address those difficulties
- There is no realistic alternative
“Restricted variations” are likely to include the following (although specifically which is currently subject to government consultation):
- Reductions in Pay
- Pensions
- Working hours
- Shift patterns (in specified cases)
- Time off
- Or inserting clauses allowing such changes without consent
This sets a high bar. In most cases, dismissal and re-engagement to worsen core terms will no longer be lawful.
The rights are day one rights. There is no need for a period of qualifying service.
Other contractual changes
Changes outside the restricted list (e.g. mobility clauses, job duties, notice periods, restrictive covenants) aren’t automatically unfair — but tribunals must now assess:
- The business reason
- The quality of consultation
- What was offered in return
- Any other prescribed factors
Process and evidence will be critical.
Replacing employees with non-employees
Dismissing staff to replace them with agency workers or contractors doing substantially the same work will also be automatically unfair (unless the same serious financial difficulties defence applies).
Increased Penalties
The Maximum penalty for failing to consult on collective redundancies (which is often the appropriate process in fire and rehire) will be increased from 90 to 180 days pay.
What this means for you;
Now is the time to:
- Audit upcoming contract change needs
- Strengthen consultation frameworks
- Educate senior leaders
- Document business rationale rigorously
- Build negotiation capability
Contract variation strategy now needs to be collaborative, evidence-led, and carefully managed.
