For many SMEs, changing employment contracts has historically been treated as a practical business decision. If costs increase, working patterns change, premises move, or operational needs shift, employers may look to update terms and conditions to keep the business moving.
But the legal landscape around contract alterations is changing fast.
The UK Government’s employment law reforms are placing much greater scrutiny on the practice known as “fire and rehire”, where an employer dismisses an employee and offers to re-engage them on new terms if agreement cannot be reached.
For SMEs, contract changes are often handled informally. A quick conversation, a revised letter, or an assumption that “everyone understands why we need to do this” may no longer be enough.
If your contracts, policies or working practices are outdated, now is the time to review them.
What is Fire and Rehire?
Fire and rehire, formally known as dismissal and re-engagement, happens when an employer wants to change an employee’s contractual terms, but the employee does not agree. The employer may then dismiss the employee and offer them a new contract on different terms.
This can involve changes to pay, hours, benefits, location, duties, working patterns or other contractual arrangements.
Fire and rehire has always been controversial because it can place significant pressure on employees to accept worse terms. It can also damage trust, morale and internal relations.
The current statutory Code of Practice on Dismissal and Re-engagement, introduced in July 2024, already makes clear that dismissal and re-engagement should only be used as a last resort when seeking to change contractual terms.
Employment Tribunals can increase compensation by up to 25% in certain cases where an employer has unreasonably failed to comply with the Code.
What is changing under the employment rights reforms?
The Government has set out plans to significantly restrict fire and rehire practices. While implementation dates have shifted, the direction is clear: employers will face a much higher bar when dismissing employees who refuse to accept contractual changes.
Current government factsheets say the reforms are designed to stop employers using fire and rehire as an easy route to impose changes, while allowing scope for genuine business rescue situations where financial difficulties are severe. Until those measures come into force, the existing Code of Practice continues to apply.
The reforms are expected to make it automatically unfair in many circumstances to dismiss an employee for refusing a contractual variation, unless the employer can show very limited justification, such as serious financial difficulties affecting the viability of the business.
That means employers will need to be able to show that they have consulted properly, explored alternatives and acted reasonably before making any decisions.
For SMEs, this is a major shift.
Small businesses often need flexibility.
- You may need to change hours because customer demand has shifted.
- You may need to amend duties because roles have evolved.
- You may need to review benefits because costs have increased.
These are real business challenges.
But under the new direction of employment law, the way you handle contract changes will matter just as much as the reason behind them.
If changes are introduced without proper consultation, without clear evidence, or without considering alternatives, the risk of dispute increases. And once stronger fire and rehire protections are in force, those risks will become even more serious.
The businesses that prepare now will be in a much stronger position than those that wait until change is urgent.
Why contract reviews are the first step
Many employment contract problems start long before a proposed change.
Outdated contracts often don’t reflect how people actually work. Roles may have evolved, working patterns may have changed, hybrid arrangements may have become normal, or benefits may be applied inconsistently across the team.
When contracts don’t match reality, any attempt to change terms becomes harder.
A contract review helps you understand what your current obligations actually are. It also highlights areas where wording is unclear, inconsistent or no longer suitable.
For SMEs, this is particularly important because informal arrangements can easily become implied contractual terms over time. If someone has worked in a certain way for months or years, it may not be as simple as saying, “We’re changing this from Monday.”
Common contract areas that need reviewing
The areas most likely to cause problems are often the ones businesses assume are straightforward.
Pay, working hours, overtime, bonuses, commission, location, travel expectations, job duties, flexibility clauses, benefits and notice provisions should all be checked.
It is also worth reviewing whether your contracts include clear variation clauses. These clauses may help explain how changes can be proposed, but they do not give employers a free pass to impose major changes without consultation.
A variation clause is useful. It is not a substitute for fairness.
Consultation will become even more important
One of the clearest messages from the current Code of Practice is that employers should consult meaningfully and in good faith when proposing contractual changes.
This means explaining the business reason for the proposed change, sharing relevant information, listening to employee concerns, considering alternatives and avoiding threats of dismissal too early in the process.
The Code also expects employers to re-examine their proposals in light of employee feedback, and the Government guidance stresses that dismissal and re-engagement should be a last resort.
For SMEs, consultation does not need to feel overly corporate. It can be straightforward, human and practical. But it must be genuine.
Employees need to feel that their views have been heard, not that the outcome was already decided.
The people impact of getting it wrong
Fire and rehire is also about trust.
Even where changes are commercially necessary, poor communication can cause lasting damage. Employees may feel undervalued, anxious or forced into accepting terms they do not understand or support.
In a small business, this can quickly affect morale across the whole team.
People talk. If a contract change is handled badly, it may lead to resignations, grievances, poor engagement or reputational damage. It can also make future recruitment harder if the business becomes known for instability or poor communication.
That is why contract changes should never be treated as a paperwork exercise. They are people decisions.
A better approach: Review, Plan, Consult
The best way to avoid fire and rehire risk is to avoid reaching crisis point in the first place.
Start by reviewing your current contracts and working practices. Identify where terms are outdated, unclear or inconsistent. Then think ahead.
- Are there changes you may need to make in the next 12 to 24 months?
- Are roles evolving?
- Are costs rising?
- Are working patterns shifting?
Once you understand the likely pressure points, you can plan changes carefully rather than reacting under time pressure.
Where changes are needed, communicate early. Explain the business reason. Invite feedback. Consider alternatives. Keep records of what has been discussed and why decisions have been made.
This approach reduces risk and preserves trust.
The most practical starting point is a contract and policy review.
Look at whether your employment contracts reflect current law, current practice and future business needs. Check whether your policies support fair consultation and change management. Make sure managers understand that contractual changes cannot simply be announced and imposed.
It is also sensible to create a simple internal process for handling proposed contract changes, including consultation steps, documentation and escalation points.
Don’t wait until change is urgent
The biggest mistake SMEs can make is waiting until the business has no choice.
When change is urgent, decisions become rushed. Consultation feels like a barrier. Communication becomes reactive. That is when legal and cultural risk increases.
By reviewing contracts now, you give yourself time to make improvements calmly and properly.
You also create a stronger foundation for future growth, restructuring or operational change.
Fire and rehire reform is part of a wider shift in UK employment law towards stronger employee protections, greater transparency and fairer processes.
For SMEs, this does not mean you can’t make necessary business changes. It does mean you must approach contract changes with more care, structure and evidence.
The sooner you understand where your contracts stand, the easier it will be to protect your business and your people.
How Professional Pitstop can help
At Professional Pitstop, we help SMEs prepare for employment law changes in a practical, people-first way.
We can support you with contract reviews, policy updates, consultation planning, manager guidance and HR audits to identify risk before it becomes a problem.
Whether you are planning changes now or simply want confidence that your contracts are fit for the future, we’re here to help.
Email: nic@professionalpitstop.com
