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A softer touch on ‘Fire and Rehire’? A proposal to ease clause 26 in the Employment Rights Bill
Sophie Robertson
The Employment Rights Bill is shaping up to be one of the most significant reforms in decades. A key change is within clause 26, which in its original form, would ban employers from dismissing staff who refuse to accept variations to their employment contracts. But recent proposed amendments suggest a more flexible approach may be on the horizon.
The original clause 26: A blanket ban
As drafted, clause 26 would add section 104I to the Employment Rights Act 1996, introducing a new category of automatic unfair dismissal.
Section 104I: How it works
- Subsections (2) & (3) make it automatically unfair to dismiss an employee either:
- for refusing to accept a variation to their contract; or
- in order to re-engage them (or someone else) under altered terms.
- Subsection (4) offers a narrow exemption for employers facing genuine financial distress. They must show the variation was necessary to eliminate or mitigate serious financial difficulties, and that the changes could not reasonably have been avoided.
- Subsection (5) outlines a statutory checklist for tribunals to consider in deciding whether a dismissal was fair, including the level of consultation and any incentives offered.
Proposed Amendments
A number of amendments have been suggested – seeking to soften clause 26 and ease the employers’ burden. Here’s what could be changing, and what it means:
- ‘Restricted Variations’ only:
The most significant amendment, seeks to narrow the scope of the automatic dismissal ban to ‘restricted variations’ only, which is defined as changes relating to:
- pay;
- pensions;
- hours of work;
- holiday entitlement; and
- any other term the Secretary of State may specify in future regulations.
Crucially, even a variation to include a variation clause (allowing future changes) would count as a restricted variation. Employers considering such clauses may therefore need to act quickly before the new law takes effect.
A separate amendment excludes minor variations (those not involving pay, hours, or work location) from automatic unfair dismissal rules altogether, acting to restore flexibility for routine contractual adjustments.
- Relaxing the tribunal checklist:
Another proposed change removes the statutory checklist in cases where the employer can prove serious financial hardship. Once the financial defence is established, the tribunal would simply apply the normal “reasonableness” test under section 98(4) of the Employment Rights Act. This eases the evidential burden on employers, although the stakes remain high: if the financial defence fails, the dismissal is still automatically unfair.
- Lighter rules for non-restricted variations:
If an employee is dismissed for refusing a non-restricted variation, the automatic unfair dismissal rule will not apply. Instead, the tribunal applies the former six-point checklist to assess fairness—focusing on consultation efforts, alternative solutions, and whether inducements were offered.
- Redundancy rules clarified:
Another welcome amendment clarifies that standard location-based redundancies are unaffected and will remain under the existing redundancy regime. However, if employers attempt to outsource work as a way to avoid redundancy, it could trigger automatic unfair dismissal unless the employer can show serious financial distress.
What Comes Next?
Whether these amendments will be accepted is yet to be confirmed.
If accepted, employers will gain back some flexibility in making contractual adjustments. The scope of this flexibility will depend on forthcoming Regulations around what counts as a ‘restricted variation’.
The government has indicated that a public consultation will begin soon, with the new legislation expected by October 2026. It is, therefore, recommended that employers act now if you plan to introduce variation clauses or revisit employment terms—before stricter rules apply.
How Bermans can help
If you need support reviewing your documentation or implementing a change of terms and conditions, our Employment Team is here to help.
Contact Bermans Head of Employment, Adrian Fryer.