Can You ‘Fire & Rehire’ in 2026? How to Handle Contract Changes Legally

For many employers, the phrase “fire and rehire” still raises a knot in the stomach. It’s a practice that has attracted intense scrutiny in recent years, and by 2026, expectations around how businesses handle contractual change are clearer, firmer and far less forgiving.

If you’re an SME facing the need to change terms and conditions, you may be wondering whether fire and rehire is still lawful, what the risks are, and what alternatives exist. The short answer is this: while it hasn’t been outright banned, it has become a last resort, surrounded by tighter expectations, higher risks and far greater consequences if mishandled.

Understanding how to approach contract changes responsibly is now essential for protecting both your business and your people.

What does “fire and rehire” actually mean?

Fire and rehire is where an employer dismisses employees and offers to re-employ them on new terms, usually when agreement to contract changes cannot be reached. It’s most commonly used to change pay, hours, benefits or working patterns.

In theory, dismissal and re-engagement can still be lawful if carried out correctly. In practice, it’s one of the fastest ways to damage trust, invite legal challenge and harm your reputation as an employer.

Employees increasingly see it as heavy-handed and unfair, particularly where alternatives haven’t been genuinely explored. Tribunals and regulators are also far less tolerant of employers who use it as a shortcut rather than a last option.

The risks employers face in 2026

The legal risk is significant. If an employee has sufficient service, dismissal linked to contract changes can lead to claims for unfair dismissal. Where consultation is poor or non-existent, awards can be increased. In collective situations, failures to consult properly can result in protective awards that are costly and time-consuming.

Beyond this, employers face a range of wider risks that are often underestimated, including:

• Discrimination claims, where changes disproportionately affect certain groups such as working parents, disabled employees or older workers, even if the policy appears neutral on the surface.
• Reputational damage, particularly on social media and employer review platforms, which can quickly undermine your ability to attract talent.
• Employee relations issues, including loss of trust, reduced morale and disengagement among those who remain.

For SMEs that rely heavily on loyalty, productivity and word-of-mouth recruitment, these risks can be far more damaging than the original business problem the change was meant to solve.

The legislative direction of travel

By 2026, the direction of UK employment law is clear: employers are expected to prioritise fair alternatives to dismissal when making contractual changes. Recent legislative developments and statutory guidance place heavy emphasis on meaningful consultation, transparency and proportionality.

While the law still allows dismissal and re-engagement in limited circumstances, it is increasingly framed as a measure of absolute last resort. Employers are expected to demonstrate that they have genuinely tried to reach agreement, explored alternatives and acted reasonably throughout the process.

In simple terms, being able to do something legally does not mean you can do it lightly.

Lawful alternatives to fire and rehire

In most cases, SMEs can achieve necessary changes without going anywhere near dismissal. The key is approach.

• Meaningful consultation sits at the heart of lawful change. This means engaging with employees early, explaining the business reasons clearly, listening to concerns and being open to compromise. Consultation isn’t about telling people what will happen; it’s about dialogue.
• Agreed contract variation is always the safest route. Where employees understand the rationale and feel respected, agreement is far more likely than many employers expect. Sometimes changes can be phased in, trialled, or offset with other adjustments to make them more palatable.
• Mutual consent is critical. Employees should never feel ambushed or coerced into signing new terms. Giving reasonable time to consider proposals, ask questions and seek advice demonstrates fairness and strengthens your legal position.

In some situations, flexibility rather than uniformity can help. Not every role or individual may need the same changes, and exploring tailored solutions can avoid unnecessary conflict.

Best practice when managing contract changes

How you handle the process matters just as much as the change itself. Clear, consistent communication is essential. Employees should understand not only what is changing, but why, how it affects them and what options are available.

Good practice when managing contractual change includes:

• Communicating clearly and consistently, avoiding surprises and mixed messages.
• Documenting every stage of the process, including proposals, consultation meetings, feedback and responses, to ensure fairness and consistency.
• Preparing and supporting managers, so they can handle sensitive conversations with confidence, empathy and professionalism.
• Offering appropriate support, such as transitional arrangements, compensation for losses or temporary flexibility where changes have a real impact.
• Tracking employee responses, recognising patterns of concern and addressing issues early before they escalate.

Handled well, these steps don’t just reduce legal risk; they help maintain trust, engagement and stability during periods of change.

Planning ahead to reduce risk

The strongest position is always proactive rather than reactive. Reviewing contract templates regularly ensures they remain fit for purpose and flexible enough to accommodate future change where possible.

Educating managers is another key step. Many disputes arise not because the change itself is unlawful, but because managers don’t understand how to communicate it properly. Confidence, empathy and consistency are skills that can be developed with the right support.

Most importantly, seek advice early. Too often, employers ask for help once positions have hardened and relationships are already strained. Early guidance can help you shape proposals, plan consultation and avoid missteps that are difficult to undo later.

How The HR Dept can support you

Navigating contract changes in 2026 is no longer something SMEs should attempt alone. The legal, emotional and reputational stakes are simply too high.

The HR Dept works alongside businesses to manage contractual changes lawfully, transparently and constructively. We help you explore alternatives to fire and rehire, structure meaningful consultations and implement agreed variations in a way that protects your business and maintains trust with your people.

From reviewing contracts and advising on risk, to supporting sensitive conversations and negotiations, our tailored support ensures you’re not only compliant, but confident in your approach.

If you’re considering changes to terms and conditions, or want to future-proof your contracts and processes, speak to The HR Dept early. The right advice at the right time can make all the difference.