[apologies for any typos or errors – written in haste!]

When I wrote last week about the Government’s road map for implementing the Employment Rights Bill, I was puzzled by the timetable it set out for the provisions on fire and rehire. The Government planned to consult on the issue in the autumn of 2025 and only introduce the new right in the autumn of 2026. What was the consultation going to be about? Perhaps, I suggested, the Government had something up its sleeve. 

Oh boy.

Last night the Government laid out its proposed amendments for consideration at the Lords Committee Stage. This is the last opportunity the Government has to amend the Bill and it has seized it with both hands. There is a lot to digest but in this post I want to look at the amendments being made to Clause 26 which deals with Fire and Rehire. They are complex but amount to a significant shift in policy. 

Restricted Variations

Since the Bill was introduced the basic proposition has been the same. It will be automatically unfair to dismiss someone either for refusing to agree to a variation in their contract of employment or in order to replace them with someone on varied terms and conditions doing essentially the same work. 

Hitherto it did not matter what the nature or extent of the proposed variation was. If the employee was dismissed for refusing to agree to it, that would be enough. The Government is going to change that. The new right will only apply when the proposed variation in the contract is a ‘restricted variation’. A restricted variation is then defined as a variation relating to one of the following 

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

where the amount of any sum payable to an employee in connection with the employment is determined by reference to a measure of the amount of work done by the employee (including a measure referable to results achieved by the employee), a variation of that measure;

a variation of any term or condition 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 which meets such conditions as may be specified in regulations made by the Secretary of State;

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

a variation of a description specified in regulations made by the Secretary of State

the inclusion in a contract of employment of a term enabling the employer to make any variation within any of the preceding paragraphs without the employee’s agreement.

As you can probably tell I haven’t paraphrased this list at all. The wording is taken straight from the Government’s amendment. It essentially means that a variation will be caught by the new right if it relates to pay, hours and holidays with the Secretary of State having the power to fill any unintended gaps by Regulations.

The employer also can’t sneak past the list by forcing through a variation clause – although any variation clause already in place will continue to be valid. 

What is missing from the list? Two things strike me. There is nothing in the list about the place of work and there is nothing in the list about the employee’s duties.

I wrote a whole post about the problems the Bill caused for an employer seeking to relocate its business. That was prompted by reports about Government plans to relocate civil servants away from London. With this amendment that specific problem goes away. A dismissal for refusing to agree to a new location will not be automatically unfair after all. 

The other thing missing from the list is any change to the employee’s duties. As long as pay, hours and holidays stay the same an employer can seek to vary the employee’s duties and potentially dismiss if the employer refuses to agree. This will not, however, extend to a time-limited red circling of the employee’s pay following a restructuring exercise. A downgrading in pay will still amount to a restricted variation even if it is delayed for two or more years. 

The Secretary of State is also given the power to make Regulations excluding variations relating to expenses or payments or benefits in kind. So, for example, Regulations could say that a change to the provision of a company car is not a restricted variation. I’m a bit puzzled over this provision. I would imagine that the Government has something specific in mind but I can’t quite see what it is likely to be. Suggestions welcome. 

Non-restricted variations

So a dismissal will be automatically unfair if the variation being proposed – or one of the variations being proposed – is a restricted variation. If, however, it is not a restricted variation then that is not quite the end of the story. The Government is inserting a new provision into the Employment Rights Act which says that in considering the fairness of a dismissal for refusing to agree to a variation that is not a restricted variation the Tribunal must consider the following: 

the reason for the variation;

any consultation carried out by the employer with the employee or appropriate representatives about varying the employee’s contract of employment;

anything offered to the employee by the employer in return for agreeing to the variation;

any matters specified for the purposes of this subsection in regulations made by the Secretary of State.

I don’t think this changes much. Leaving aside any new considerations that the Secretary of State may insert later, I think these are all things that a Tribunal would already look at in considering whether a dismissal was fair. I don’t think this replaces the existing test of reasonableness that we are used to in unfair dismissal cases. It is a bit odd, however, that this particular reason for dismissal should have its own list of things for a Tribunal to take into account. Surely the same list would be applicable in a redundancy dismissal, for example? It strikes me as a needless complication. 

Replacing employees

Having created one loophole – admittedly a much needed one – The Government is seeking to close another. As originally drafted the fire and rehire provisions would not apply in a situation where the employer seeks to make the change by dismissing its employees and replacing them with people who are not employees – such as agency workers. The Government seeks to address that with a new section (S.104K)  inserted into the Employment Rights Act headed “Redundancy: replacement of employees with people who are not employees”

This is essentially a completely new right – it does not depend on an employer seeking to engage people on varied terms and conditions. It applies whenever an employer dismisses employees for the principal reason of replacing them with people who are not employees. Such a dismissal will be automatically unfair provided the new individual is carrying out substantially the same activities as the employee and the dismissal is not wholly or mainly attributable to the fact that the employer’s need for those activities have ceased or diminished (NB: the same ‘financial difficulties’ exception applies here as it does in relation to straightforward cases of fire and rehire).

So if an employer replaces a senior admin person with a self-employed contractor who only works occasional hours then that will not be automatically unfair if the change has been prompted by the fact that the employer no longer has enough admin work to justify having an employee to do it. But if on the other hand the employer simply wants to replace all of its employees with self-employed contractors or agency workers because that would be cheaper, then any dismissals would be automatically unfair. 

This is actually quite a significant change and it is more than a little surprising that it is being made so late in the day.

Financial difficulties in the public sector

The final big change being made to the fire and rehire provisions relates specifically to public sector organisations. Currently, the only exception to the rule that dismissal for refusing to agree to a restricted variation is automatically unfair is that the employer is facing ‘financial difficulties’ that affect its ability to carry on its business. It has been pointed out since the Bill was published that this effectively excludes public sector bodies such as local authorities. They may face financial difficulties – but these do not lead to them going out of business and shutting down. 

The Government is now addressing that problem. The financial difficulties exception will no longer apply to the public sector and two new tests are inserted – one for public sector bodies generally and one specifically for local authorities. 

For public sector bodies generally the exception will apply if the employer faces financial difficulties  that are likely in the immediate future to affect “the financial sustainability of carrying out the employer’s statutory functions”. For local authorities the position is rather more specific. The exception will apply if financial difficulties have resulted in a ‘relevant intervention direction’ relating to the financial management or governance of the authority. 

A ‘relevant intervention direction’ refers to directions issued under the Local Government Act 1999, the Local Government and Elections (Wales) Act 202, or the Local Government in Scotland Act 2003. Essentially this would mean that a local authority that has got itself into such financial difficulties that central or devolved government had intervened would be able to fire and rehire on the same basis as a commercial employer facing financial difficulties affecting its ability to carry on as a going concern. 

This seems sensible enough – but it really does emphasise how limited the financial difficulties exception is. There would be no need for these amendments if it just referred to the normal financial pressures that might cause an employer to look again at the terms and conditions it offered to employees. To avoid an automatically unfair dismissal, the financial pressures must be immediate and existential. 

What’s next?

My first reading of these amendments taken as a whole is that the fire and rehire provisions have been made slightly more workable – but much more complex. At least we can now see why the Government would be planning to consult on the issue in the autumn. Employers will want to pay close attention to that consultation to make sure that the scope of the right is not widened further. This remains an extremely significant change to unfair dismissal law and we will be working out the ramifications of the new right for years to come.