One of the (many) changes that the Employment Rights Act 2025 (ERA25) is bringing into force is greater protection for employees when it comes to changes to their terms and conditions. Once this is in place, it will be harder, or even unsafe in some situations, to make changes without employee agreement.
With this in mind, it will be important for businesses to consider now whether any changes to terms and conditions are needed (for example reduction in pay, changes to employees’ working hours or where relevant and appropriate formalising hybrid/office attendance days). Identifying any necessary changes early can help you to take appropriate action in good time before the changes to the law.
- What is the current position?
- What is changing?
- What should I do now?
1. What is the current position?
In most cases, the safest and best way of making changes to an employee’s terms and conditions is by obtaining their agreement to it. This will usually involve consulting with employees about the proposals, complying with the ACAS Code of Practice on Dismissal and Re-engagement and hopefully securing the employee’s consent to the change/s. Bear in mind it is not generally safe to simply impose changes on employees, such as pay reductions or changes in hours.
If, after appropriate consultation and process, agreement to the proposed change/s cannot be obtained, as a last resort, it may ultimately be necessary to dismiss the employee with an offer to re-hire them under a contract which contains the change/s you wish to make (sometimes known as ‘fire and re-hire’). This is not a step to be taken lightly as, amongst other things, it will be important to ensure that the dismissal of any employee with sufficient qualifying service for ordinary unfair dismissal is fair. As such, you should always seek specific advice on the facts of your case and the steps involved before taking any action to try to change an employee’s terms and conditions.
Bear in mind that there can be further additional consultation obligations in some situations, for example, due to the number of employees affected.
2. What is changing?
Whilst it is not always easy to change employees’ terms and conditions now, the position will become more restrictive due to changes expected to come into force in January 2027.
In brief, it will be automatically unfair to dismiss an employee:
- Where the employer sought to make any of the specified ‘restricted variations’ to an employee’s contract and the employee did not agree or
- To enable the employer to employ another person, or re-engage the employee, under a varied contract to carry out substantially the same duties where at least one of the differences between the two sets of terms is a ‘restricted variation’
There will be an extremely narrow exception for employers facing ‘genuine financial difficulty that threatens the survival of the business’ which if it applies, will mean that a dismissal would not be automatically unfair. However, coming within the exception doesn’t mean a ‘free pass’ – an employer will still need to be able to show that the dismissal of an employee with sufficient service to claim ordinary unfair dismissal was fair in the usual way.
Restricted variations are changes to the contract relating to:
- A reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment
- Where pay is linked to measures of work done, changes to those measures
- Changes to pensions
- Changes to total working hours
- Changes to timing or duration of a shift (to be specified in regulations)
- A reduction in the amount of time off which an employee is entitled to take
- After January 2027 inserting a variation clause authorising future restricted variations
The outcome of a consultation on exactly which expenses, benefits and shift changes should be treated as restricted variations is awaited.
‘Fire and rehire’ will remain available for variations that are not restricted variations, but whether there is an ‘ordinary unfair dismissal’ will depend on the facts of the case, with the ERA25 setting out fairness factors to be considered including the reason for the variation, whether the employer offered anything to the employee in return for agreeing to the variation, any consultation and any other matters specified in future regulations.
3. What should I do now?
Consider whether your business may need to make changes to employees’ terms and conditions and if so, get in touch for advice on your situation.
If you have a HR matter you need help with, remember we are here to help.