The Government has provided further detail on the changes to dismissal and re-engagement being introduced under the Employment Rights Act 2025 (“the Act”), including a revised implementation timetable.
The reforms, which were previously expected to come into force in January 2027, are now scheduled for March 2027. The Government has also published a draft revised Code of Practice on Dismissal and Re-engagement and confirmed which expenses, benefits and changes to shift patterns it intends to bring within the new protections.
What is changing?
The Act will significantly restrict employers' ability to dismiss employees and offer re-engagement on new terms where the proposed change concerns certain key contractual terms.
These are known as "restricted variations". They include changes to areas such as pay, working hours, holiday entitlement and pensions. Dismissal in order to impose a restricted variation by re-engagement on the new terms, will generally be automatically unfair, unless the employer can satisfy a tightly drawn exception relating to serious financial difficulties.
The Act also introduces automatic unfair dismissal protection where an employee is dismissed so that they can be replaced by someone who is not an employee but will undertake substantially the same role.
Which expenses, benefits and shift changes will be protected?
The Government has now responded to its earlier consultation on how the restricted variation regime should apply to expenses, benefits in kind, and shift patterns. The consultation had specifically sought views on bringing these additional areas within the new statutory protection.
The Government intends the protected categories of expenses and benefits to cover:
- travel expenses, including mileage;
- accommodation expenses; and
- long-term accommodation provided as a benefit in kind.
Changes to share schemes will not be included.
For shift patterns, the enhanced protection will apply to changes between day and night working and between weekday and weekend working. Night work will be defined for these purposes as work between 11pm and 6am.
A new Code of Practice
Alongside these developments, the Government is consulting on a revised Code of Practice on Dismissal and Re-engagement. The consultation is open until 11.59pm on 17 December 2026. Though the statutory protections are scheduled to take effect in March 2027, the Government have advised the new Code will not come into effect until Summer 2027.
The revised Code is intended to reflect the new statutory regime and places particular emphasis on employers providing relevant information and undertaking meaningful consultation before proceeding with dismissal and re-engagement.
The Code deals with the financial difficulties exemption by sector. In particular, the legislation distinguishes between private sector employers, public sector employers and local authorities. The threshold will be high, for example, in relation to private sector employers, the difficulties must threaten the viability of the business as a going concern. Employers will need to establish not simply that financial pressures exist, but that the statutory requirements are met and that the proposed contractual change is necessary to address those difficulties, with no reasonable alternative available.
Hannah Pryce comments:
These changes will substantially increase the risks for employers seeking to use dismissal and re-engagement to make changes to key contractual terms. Employers considering changes to pay, hours, benefits or shift arrangements should identify at an early stage and in advance of March 2027 whether the new restrictions could apply. If so, consideration should be given to whether there are alternative ways of achieving the change and/or whether change should be implemented sooner. In any event, appropriate consultation with affected employees will be important (increasingly so under the new regime), so employers should ensure that they build sufficient time into any proposed contractual change process.
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