Dismissing someone to force through a change to their contract, then offering to rehire them on the new terms, has been a lawful if reputationally risky tactic for years. From 1 January 2027, for most core contractual changes, it stops being lawful at all.
The Employment Rights Act 2025 introduces the concept of a "restricted variation": a change to pay, pensions, working hours, shift patterns or leave entitlement. From January 2027, dismissing an employee because they won't agree to a restricted variation will be automatically unfair in almost every case. There's a narrow exception where an employer can show genuine, evidenced financial distress affecting the business's ability to continue as a going concern, but that exception is deliberately tight. Tribunals are expected to want contemporaneous financial evidence, not a business case written up after the decision was already made.
This doesn't mean every contract change is now off the table. Changes to non-core terms, such as job duties or place of work, aren't restricted variations and remain subject to ordinary unfair dismissal principles rather than an automatic finding against the employer. But if you're planning to touch pay, hours, pensions or leave for any group of staff, the calculation has changed completely.
There's also an existing layer that predates this reform and still matters. The statutory Code of Practice on Dismissal and Re-engagement has been in force since July 2024, and it already expects employers to give as much notice as reasonably practicable, consider going further than contractual notice entitlements, and engage properly with staff before reaching for dismissal as a lever. Tribunals can already increase awards by up to 25% for a failure to follow it. That code isn't going away, and it applies before you even get near the new restricted variation rules.
If 20 or more employees at one site are affected, collective consultation obligations kick in on top of all this: an HR1 notification to the Secretary of State, election of employee representatives if there's no recognised union, and a minimum consultation period of 30 days for 20 to 99 proposed dismissals or 45 days for 100 or more, running before any dismissal notices go out.
If you're planning any restructuring, cost-saving contract changes or benefits harmonisation that touches pay, hours, pensions or leave, the practical message is simple: get it done, or at least properly under way, before January 2027, and build a genuine consultation process now rather than treating it as a formality.
Neathouse Partners can review your restructuring plans against both the current Code of Practice and the incoming restricted variation rules before you commit to anything irreversible. Call 0333 041 1094.
For further reading see Disciplinary & Dismissals
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