The Government has published its response to its consultation on expenses, benefits and shift patterns under the Employment Rights Act’s new fire and rehire regime. The regulations are expected to come into force in March 2027 alongside wider reforms designed to restrict the use of dismissal and re-engagement as a means of changing employees’ contractual terms.
Whilst much of the media attention has focused on the headline “fire and rehire” reforms, the Government’s latest response provides important detail on which contractual changes will receive the highest level of protection and where employers will continue to retain flexibility.
For employers, the consultation outcome offers welcome clarification on where contractual flexibility will remain and where future contractual changes may carry greater legal risk. It also reinforces the importance of clear contractual drafting and meaningful consultation when implementing organisational change.
What is changing?
As part of its wider employment reforms, the Government consulted on whether certain changes to expenses, benefits and working patterns should be treated as “restricted variations”.
A restricted variation is, broadly speaking, a contractual change that attracts enhanced statutory protection and greater legal risk where an employer seeks to implement the change through dismissal and re-engagement. Essentially, for restricted variations, any dismissal and re-engagement to impose such changes will from March 2027 result in an automatic unfair dismissal without any qualifying service requirement, other than where the change was due to severe financial difficulties of the employer.
Expenses and benefits
The Government has adopted a relatively targeted position.
Most expenses and benefits in kind will fall outside the restricted variation regime. However, three categories will remain protected:
- travel expenses (including mileage);
- accommodation expenses; and
- long-term accommodation provided as a benefit in kind.
Importantly, these protections will only apply where the entitlement forms part of the employee’s contractual terms, whether as express provisions or implied, such as through custom and practice. This means the practical impact of the reforms may differ significantly between employers depending on how benefits and expenses arrangements are documented, and whether they are expressed to be contractual or non-contractual.
Share schemes
Employers operating share-based incentive arrangements will welcome confirmation that changes to share schemes will not amount to restricted variations.
The Government concluded that share schemes should remain outside the scope of the regulations, preserving employers’ ability to amend such arrangements without triggering the enhanced protections.
Shift patterns
The Government has also taken a targeted approach to changes in working patterns.
A restricted variation will arise where an employee who previously worked:
- only on weekdays is being required to work weekends;
- only on weekends is being required to work weekdays;
- only during the day is being required to work at night; or
- only at night is being required to work during the day.
For these purposes, “night work” will mean work undertaken between 11pm and 6am.
However, not all changes to working patterns will be caught. The Government has confirmed that changes to availability windows and smaller adjustments to existing shifts will remain outside the restricted variation framework.
For example, moving an employee’s daytime shift by a few hours will not constitute a restricted variation. The distinction highlights the Government’s intention to focus on changes that fundamentally alter when work is performed, rather than ordinary adjustments to working patterns.
Why does this matter for employers?
Whilst the consultation outcome stops short of creating a broad restriction on all benefits and working-pattern changes, it contains three important messages for employers.
Contractual wording will matter more than ever
Perhaps the most significant aspect of the Government’s response is the confirmation that these protections only apply where the relevant entitlement is contractual.
Benefits contained in non-contractual policies, or which are subject to effective contractual flexibility, are less likely to engage the new restricted variation framework and can ultimately be amended without agreement of the employees.
This means that employers offering identical benefits may face very different legal risks depending on how those arrangements are documented.
Employers should therefore consider reviewing:
- contracts of employment;
- staff handbooks;
- benefits policies;
- flexibility clauses; and
- contractual variation provisions.
As March 2027 approaches, the distinction between a contractual entitlement and a discretionary benefit is likely to become increasingly important. Employers may therefore wish to review employment contracts, handbooks and benefits policies before the reforms take effect, particularly where historic documents have blurred the distinction between contractual and discretionary entitlement, and certain benefits are potentially implied into contracts by way of custom and practice over time.
Workforce planning may become more complex
Many businesses rely on flexibility when responding to changing operational demands.
Employers operating shift-based workforces, particularly in sectors such as retail, manufacturing, logistics, hospitality and care, should carefully consider how the new rules may affect future workforce planning exercises.
Changes which require employees to move between weekday and weekend working, or between day and night working, may attract greater legal scrutiny than under the current framework.
What has traditionally been viewed as an operational adjustment may become a more significant employee relations and legal risk issue, and careful planning and legal advice will be needed in communicating and consulting on proposed changes.
Process remains critical
Employers should also avoid assuming that changes falling outside the restricted variation regime can simply be imposed via “fire and rehire” without consequence. There is an inherent risk that proposed changes could unintentionally fall wholly or partly within the restricted variation regime.
The wider reforms also place considerable emphasis on meaningful consultation and engagement before contractual changes are implemented.
Even where a proposed variation is not classified as “restricted”, employers will still need to consider fairness, employee consultation, and compliance with the revised Code of Practice on Dismissal and Re-engagement, and fire and rehire very much remains a last resort for employers for any termination to be fair . The ideal outcome remains that changes to terms, following meaningful consultation, are agreed variations to contract whether a change falls within the restricted regime or not.
Failure to follow the Code may result in a tribunal uplift of up to 25% in relevant compensation awards. Put simply, a proposed change may fall outside the restricted variation regime but still expose the employer to significant legal risk if the process followed is inadequate.
In practice, how an employer seeks to implement change may prove just as important as the nature of the change itself.
What should employers be doing now?
Although the regulations are not expected to come into effect until March 2027, employers may wish to use this period to review their existing arrangements and assess any potential areas of risk.
Practical steps could include:
- auditing contractual travel and accommodation benefits;
- reviewing whether benefits are genuinely contractual or discretionary;
- assessing the effectiveness of flexibility and variation clauses;
- identifying shift arrangements that may be affected by the new rules;
- reviewing consultation procedures; and
- ensuring managers understand the increasing importance of employee engagement when implementing contractual changes.
Looking ahead
The Government’s response provides greater clarity on how the new fire and rehire framework is intended to operate in practice. Whilst employers have avoided a broader regime encompassing all benefits and working-pattern changes, certain contractual entitlements and shift arrangements will receive enhanced protection from March 2027.
The key takeaway for employers is that the reforms are not simply about what can be changed, but how change is implemented. In many cases, the level of legal risk will turn on whether an entitlement is contractual, whether the proposed change falls within the restricted variation regime, and whether the employer can demonstrate a fair and meaningful consultation process. Organisations that understand their contractual arrangements and prepare accordingly will be better placed to navigate the new regime when it takes effect.
How can we help?
For further information on the issues raised in this article, please contact a member of our Employment team.
David is a Partner in our Employment and Immigration team. He advises employers and employees on all aspects of employment law.... Read More
Taylor is a Trainee Solicitor in our Employment and Immigration Team. Taylor completed his LLB Law degree at Cardiff University where he undertook a professional placement year at Hugh James, gaini... Read More
