Only employees, i.e. people working under contracts of employment (even short fixed-term contracts) where you operate PAYE.  They don’t apply to workers (that middle status between employee and self-employed).  And if someone is genuinely self-employed (controlling how their own work is done, bearing financial risk, working for multiple clients etc) fire and rehire restrictions don’t apply because there is no employment relationship. 

It’s also kown as ‘dismissal and re-engagement’ and it is: 

1. When an employer proposes changes to employees’ contracts (e.g., reducing pay, changing hours, removing benefits),  

2. And employees refuse to agree to the changes, 

3. And then the employer dismisses those employees and either rehires them on the new terms, or hires replacements on the new terms. 

Unfortunately, the mere threat of ‘fire and rehire’ can be enough to pressure employees into accepting worse terms. They ‘voluntarily’ agree because the alternative is losing their job. 

Examples in screen businesses might include: 

• Reducing post-production staff salaries due to budget pressures, dismissing those who refuse, and rehiring them (or replacements) at lower rates, 

• Changing production coordinators’ working hours or removing overtime pay, then dismissing and rehiring those who don’t accept, or 

• Removing benefits like enhanced sick pay or pension contributions from employee contracts through dismissal and re-engagement. 

Currently, businesses can use ‘fire and rehire’ where they have a ‘sound business reason’ for changing employment contracts which might include responding to economic changes, changing working practices, or harmonising terms & conditions. 

But from January 2027, dismissals for refusing contractual changes (or dismissals to replace/re-engage employees on different terms) will be deemed automatically unfair, meaning that an employment tribunal (court) won't consider whether the dismissal was reasonable, it'll be immediately unfair by law. That is, unless the employer can prove all of the following: 

1. Financial difficulties, by providing evidence that they were affecting, or were likely to affect, the business’s viability, 

2. That the changes address those difficulties, by showing that the changes were intended to eliminate, prevent, significantly reduce, or significantly mitigate the effects of the financial difficulties, and 

3. That the need to make the change in contractual terms was unavoidable. 

This test has a high bar. You must prove genuine financial difficulties threatening viability, not just that it would be convenient or profitable to reduce costs. 

And even if you meet that test, the employment tribunal will still assess whether the dismissal was fair ‘in the circumstances’, meaning they'll look at the specific facts of the case, how you handled it, what you did, what alternatives you looked at, by considering: 

• Whether you properly consulted with the employee, trade union, or other employee representatives, and 

• Whether you offered the employee anything in return for agreeing to vary their contract (e.g. enhanced redundancy, transitional payments). 

The process of changing terms by ‘fire and rehire’ is already a high risk approach and one which should only be taken as a last resort after following the steps set out in the ACAS 2024 Code of Practice referred to above. But the new restrictions mean that ‘fire and rehire’ becomes very difficult from January 2027. You can’t use it just because: 

• A production budget has been cut, 

• You want to harmonise terms across different teams, 

• You want to reduce costs to increase profitability, 

• You’re changing working practices and need contractual changes to support this, or 

• Market conditions have changed. 

…which previously were all potential ‘sound business reasons’. Now, unless you can prove genuine financial difficulties threatening viability, ‘fire and rehire’ is automatically unfair dismissal. 

Screen industries rely heavily on fixed-term contracts tied to specific productions. ‘Fire and rehire’ restrictions will apply even to fixed-term employees. So if you have post-production staff on a six month contract and want to reduce their pay halfway through, you can’t simply dismiss and re-engage them on lower terms unless you meet the new financial difficulties test. 

But, to be clear, these restrictions don’t prevent you from: 

• Letting a fixed-term contract expire and not renewing it, 

• Offering a new contract for a different production on different terms (as that isn’t ‘fire and rehire’, it’s a new engagement), or 

• Making genuine redundancies where roles no longer exist. 

Some businesses may consider building flexibility into employment contracts (e.g., ‘working hours may vary between 35-45 hours per week’, ‘salary subject to annual review and may be adjusted based on business performance’). While this can provide some flexibility, do be cautious: 

• Flexibility clauses must be clearly worded and agreed upfront, 

• You can’t use them to make changes outside the agreed range or beyond what’s reasonable, and 

• Employment tribunals will scrutinise whether you’re genuinely exercising contractual flexibility or effectively imposing unilateral changes. 

Review your approach to contractual changes so that ‘fire and rehire’ is not part of your toolkit for managing contractual changes. If you do need to change employees’ terms: 

• Your first priority is to negotiate and seek genuine agreement, 

• Consult properly with employees (or their representatives if unionised), 

• Explain clearly and transparently why the changes are needed,  

• Consider offering something in return (enhanced benefits, one-off payments, transitional protections), and 

• As ever, make careful records of everything. 

If employees genuinely don’t agree and you can’t meet the financial difficulties test, you won’t be able to proceed lawfully with ‘fire and rehire’. 

Build some flexibility into new contracts, but carefully! For new contracts of employment, consider whether you can build in reasonable flexibility up front: 

• Variable hours within a defined range, 

• Project-based pay structures, 

• Performance related elements (make sure they are genuinely discretionary, not guaranteed contractual terms), 

• Clear terms about what happens between productions or during quiet periods. 

Obtain employment law advice when drafting such clauses as poorly worded flexibility clauses may not protect you and may be unenforceable. 

• Have clear evidence of financial difficulties (accounts, forecasts, advice from accountants), 

• Show that the proposed changes would eliminate/reduce/mitigate those difficulties, 

• Prove the changes are unavoidable (you’ve considered alternatives), 

• Consult thoroughly with affected employees, and 

• Consider offering something in return for agreement. 

And the consequences of getting this wrong? 

If a business dismisses an employee for refusing contractual changes (or to re-engage them on different terms) without meeting the financial difficulties test, it’s automatically unfair dismissal. 

The employee can then bring a claim in the employment tribunal for compensation (including a basic award and compensatory award for financial losses), additional compensation of up to 25% if the business failed to comply with the 2024 Code and potentially (though rare) for reinstatement or re-engagement.  

Employment tribunals have broad discretion on compensation. For a skilled employee in a well-paid role who takes months to find alternative employment, awards can be substantial. 

Beyond financial cost, unfair dismissal findings damage a business’s reputation, particularly important in the screen sector where word travels fast...