The letter that used to end the conversation
For years, the fire-and-rehire playbook worked the same way everywhere it was used. An employer wanting to cut pay, reduce holiday entitlement, or change shift patterns would issue notice of dismissal to the whole affected workforce, then offer immediate re-engagement on the new, worse terms. Refuse the new contract and you were simply gone, with no redundancy process, no real negotiation, and often no more than a few weeks to decide. P&O Ferries made the tactic a household phrase in March 2022, sacking 800 seafarers by video call and replacing them the same day with agency crew on lower pay — a move that was widely condemned in Parliament but, crucially, wasn't actually unlawful under the law as it stood at the time.
That gap is now closed, and if you're an employee who's just received a "protective notice" letter alongside a new contract you're being pressured to sign, the rules protecting you are considerably stronger than they were even two years ago. The Employment Rights Act 2025 didn't just tighten the existing statutory Code of Practice on fire-and-rehire — it rewrote the underlying dismissal law so that using the tactic to force through a contract change is now automatically unfair in almost every circumstance, not merely a factor a tribunal weighs alongside everything else.
What changed, and what was already there before 2025
The statutory Code of Practice on Dismissal and Re-engagement came into force on 18 July 2024, before the wider Act. It didn't ban the practice outright — it required employers to consult meaningfully, share the reasons for the proposed changes, and treat fire-and-rehire as a genuine last resort rather than a negotiating tactic. Where an employer unreasonably failed to follow the Code, employment tribunals gained the power to apply an uplift of up to 25% to compensation in any related unfair dismissal or protective award claim under section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992. That uplift still applies, and it stacks on top of everything the Employment Rights Act 2025 added.
What the 2025 Act did differently is remove the employer's ability to treat dismissal as a legitimate route to a new contract at all, except in one narrow situation: where the employer can show the business faces genuine financial difficulties that threaten its ability to continue operating as a going concern, and that there was truly no alternative to changing terms this way. Outside that narrow exception, dismissing someone and offering to re-engage them on worse terms is automatically unfair — full stop, regardless of how reasonable the consultation process looked on paper.
The financial-difficulty exception is the one employers will lean on hardest, and it's worth being sceptical of it whenever you hear it invoked.
That scepticism is earned. "Financial difficulty" under the Act means the business's ability to continue trading is genuinely at risk — not that profits dipped for a quarter, not that a shareholder wants a better margin, and not that a competitor undercut prices. If your employer cites the exception while simultaneously announcing a dividend or a director bonus round, that's a fact worth writing down and raising with ACAS early, because it will matter if the case ever reaches a tribunal.
The Tesco precedent that already existed
Employees don't need to wait for a tribunal ruling to find out that courts take a dim view of using dismissal purely as leverage. In Tesco Stores Ltd v Usdaw [2022] UKSC 8, the Supreme Court considered Tesco's attempt to remove "retained pay" — a permanent pay premium promised to staff who relocated during depot closures — by dismissing and re-engaging anyone who refused to give it up. The Supreme Court ultimately allowed the fire-and-rehire route on a technicality specific to that case's contractual wording, but the judgment made clear that courts are willing to scrutinise the substance of what's being removed, not just the process followed to remove it. Under the 2025 rules, a case with those facts would almost certainly fail outright, because retained pay wasn't a response to financial difficulty — it was a straightforward attempt to cut a cost that had become inconvenient.
What to actually do if it happens to you
Read the dismissal letter for the stated reason before anything else. If it doesn't mention a specific, evidenced financial threat to the business — accounts, insolvency risk, a named creditor pressure — the employer is very likely relying on the old playbook without realising the law underneath it has moved. Ask for the information in writing: what financial evidence supports the claim, what alternatives were considered, and why consultation couldn't run longer. Employers who've taken proper advice will have this ready; employers still running the 2022 P&O-era approach usually won't, and that gap shows up fast once you push.
- Request the financial evidence behind any "difficulty" claim in writing — vague references to "market conditions" don't meet the statutory bar
- Check whether 20 or more redundancies are proposed at one establishment, which triggers separate collective consultation duties under section 188 of TULRCA 1992, with a minimum 30- or 45-day consultation period depending on numbers
- Contact ACAS early for free, confidential advice — their early conciliation service is a mandatory first step before most tribunal claims anyway, so there's no downside to calling sooner
- Keep every version of the proposed contract; the difference between what was offered on day one and what's on the table by week three often reveals how much room the employer actually had to negotiate
Don't sign a replacement contract under time pressure without at least a phone call to ACAS or your union rep first, even if the deadline on the letter says 48 hours. That deadline is almost always negotiable in practice, whatever the letter implies — employers who've genuinely done the financial-difficulty analysis required by the Act have no reason to rush you, because the case for the change should already be documented and defensible.
The exception that still needs watching
None of this means fire-and-rehire has vanished from UK workplaces. Genuinely distressed businesses — a manufacturer facing a real risk of administration, a hospitality group that's lost its primary lender — can still use it, and the Act was deliberately written to avoid trapping struggling employers into insolvency purely to protect a headline pay rate nobody would be paid anyway if the company folded. The distinction that matters is between a business fighting for survival and a business fighting for margin, and the Employment Rights Act 2025 finally puts a legal line between the two rather than leaving it to a code of practice and a discretionary uplift. Employment tribunals will spend the next few years drawing that line case by case, and the early rulings are worth watching if you work somewhere the tactic has been used before.
The clock that starts the day you're dismissed
One deadline gets overlooked more than any other in these situations: a claim for unfair dismissal has to reach ACAS for early conciliation within three months less one day of the effective date of termination, and missing that window by even a single day is usually fatal to the claim, no matter how strong the underlying case looks. Colleagues facing the same letter often organise informally — a shared spreadsheet of dates, a group chat comparing what each person was told — and that habit is worth encouraging rather than dismissing as unnecessary. Tribunals pay close attention to whether affected staff were treated consistently, and a paper trail built collectively tends to expose inconsistencies that a single individual's account never would on its own.
Union involvement changes the maths further. Where a recognised union is consulted properly, employers face a much higher bar to justify skipping the financial-difficulty exception's alternatives test, because a union side typically proposes the cost-saving alternatives — reduced hours, temporary pay freezes, voluntary redundancy — that the Act now requires employers to have genuinely considered before reaching for dismissal. Non-unionised staff aren't left without options, but building that same evidence alone takes more deliberate effort, and it's exactly the kind of groundwork ACAS conciliators are used to helping people put together before a claim is even lodged.