The Employment Rights Bill, introduced by Labour in October 2024, is set to shake up the rules on 'fire and rehire' – and in-house lawyers across the UK need to get ready.

If you're advising your business on workforce changes, or gearing up for more negotiations on terms and conditions, you’ll want to be across what’s happening, what’s changing, and how you can best support your business.

The current landscape: Fire and rehire 101

Right now, 'fire and rehire' – dismissing staff and offering them new contracts on different terms – is still lawful. Risky from a reputational and employee relations perspective? Absolutely. But still available as a last resort when negotiations over changes to terms break down.

Following the 2022 P&O Ferries scandal, the government introduced a new Code of Practice on fire and rehire, effective from July 2024. While it doesn’t impose legal obligations, it can sway Tribunal outcomes, with non-compliance potentially bumping up compensation awards by 25%.

What's on the horizon: The Employment Rights Bill

Labour’s Bill doesn’t completely ban fire and rehire practices – but it does make using them far more difficult. Key points in-house lawyers should know:

• Automatic unfair dismissal: Dismissing someone because they refused a contractual change, or because you planned to replace them with someone else on different terms, would now be automatically unfair.
• A narrow exception: Dismissals may still be lawful if they’re essential to keep a business afloat. Even then, employers must show they acted fairly and followed further regulations (still to be published).
• Higher penalties: The maximum protective award for failure to consult properly is set to double from 90 to 180 days’ pay per affected employee. Add a potential 25% uplift for non-compliance with the Code of Practice, and the costs could spiral fast.

An early proposal to offer interim relief to dismissed employees has been dropped – for now. However, the government is keeping the door open for future tweaks once they’ve seen how the new rules bed in.

What it means for in-house lawyers: Practical takeaways

 If your business is planning to change employee terms without their consent, the road ahead is about to get a lot trickier. Some key points to flag:

• Wider impact: It’s not just about pay cuts or reduced hours. Any contractual change – from tweaking disciplinary procedures to adjusting shift patterns – could trigger issues.
• Increased union leverage: Workers and their representatives will have more power to negotiate changes, making it harder to push through variations unilaterally.
• Potential for more redundancies: Ironically, limiting fire and rehire could lead to more job losses if businesses can't amend contracts to avoid redundancies.
• Flexibility clauses under the microscope: Some businesses might consider expanding flexibility clauses in contracts. But there's a body of case law limiting how far you can go without risking unenforceability.

One big unanswered question? What exactly counts as a business being unable to continue "as a going concern". The Bill leaves this open, creating uncertainty about whether profitable divisions must subsidise loss-making parts.

What you can do now

• Audit your contracts: Are flexibility clauses drafted tightly enough to give the business the room it needs?
• Plan ahead for changes: If significant contractual variations are likely, acting before the Bill comes into force could be less risky.
• Prepare stakeholder briefings: Boards and leadership teams will need clear, practical guidance on these risks and options.
• Stay close to legislative updates: The detail in the forthcoming regulations will be key to interpreting the Bill’s practical impact.

The reforms aren’t in force yet – but proactive legal support now will put your business in a stronger position to adapt.