The Contract Trap And The Law

Kate 0:00

Picture this. You run a small business. A few years ago you took on a team and gave them contracts that, in hindsight, are too generous in one or two specific places. Maybe you offered overtime rates you can't really sustain. Maybe you offered enhanced sick pay that's now an annual cost you can't quite carry. Maybe the bonus structure is, on reflection, ruinous. You've been losing sleep about this. A friend at the golf club who runs a similar-sized business said, just dismiss them and re-engage them on new terms. That's what we did. You'd already half thought about it. You hadn't done it yet. You came home. You opened your laptop. You started Googling. You read about Tesco. You read about PO ferries. You read about how the public reacted. You're not PO ferries. You don't want to be, but you also can't keep paying these contracts. You've been quietly waiting to see what the government did. The government has now done it. From October 2026, in most cases, dismissing and re-engaging staff on new terms will count as unfair dismissal. The fire and rehire route is, for most practical purposes, closing. So what do you do? You can't keep the contracts as they are. You can't fire and rehire. What's left? That's what today's episode is for. Because the answer is actually quite a lot. It's just slower, more legitimate, more careful, and frankly, more grown up. A contract review conversation is a real thing. It is not soft, it is not a workaround. It is, in 2026, your main tool. The Welcome to the Hive Intro. Hey there, welcome back to Buzzing About HR, the podcast for small business owners and HR professionals who want straight talking, plain English advice. I'm Kate, your host, HR Queen B, and someone who has talked more than one frazzled business owner down from the fire and rehire ledge. With me as ever, fundamentally non-contractual, is Hazel, our well-being officer. Her terms and conditions are simple: food, naps, and the occasional bark at the doorbell. She is open to renegotiation only on the food.

Welcome And The 2026 Landscape

Kate 2:32

This episode is about contract change in 2026. Specifically, the post-October landscape where fire and rehire is, for most uses, no longer legally available. We'll cover what changes you can make to a contract, what you can't, how to consult properly, and what a contract review conversation in a small business actually sounds like. This one is genuinely important. Most SMEs have at least one contract clause they wish they'd written differently. Most are still operating under old assumptions about what they can do. Kettle on, let's go. The Buzz. What's changed on fire and rehire? Quick recap. Fire and rehire, formerly known as dismissal and re-engagement, has been controversial for years. The principle was if you couldn't agree a contract change with your employee, you could dismiss them lawfully with notice and offer to re-engage them on new terms. The previous code of practice introduced in 2024 made this harder but didn't ban it. The Employment Rights Act 2025 then took the next step. From October 2026. Dismissal and re-engagement in most circumstances

Why Fire And Rehire Fails

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will be treated as automatically unfair dismissal. The narrow exceptions are essentially where the business is genuinely facing financial collapse without the change and where extensive proper consultation has been carried out. In practice, those exceptions are very narrow indeed. For most small businesses, fire and rehire is now off the table. Practically, if you've been quietly assuming you can dismiss and re-engage someone on lower terms because their contract is too generous, you can't, after October 2026, without taking on serious legal risk. You need a different approach. That different approach has always existed. The legal framework for changing terms by agreement, by consultation, or by variation has been there all along. It's just that fire and rehire was a faster and more legally risky alternative that some employers reached for. Now you can't reach for it, so we'll cover the proper way. The hive check, the numbers. Some numbers. A 2024 CIPD survey showed 22% of UK employers had used dismissal and re-engagement at some point in the previous five years to change contractual terms. Of those, 56% said they would not use it again given the reputational damage. That public mood is one of the reasons the law has changed. Tribunal claims involving dismissal and re-engagement increased significantly in 2024 and 2025. Employers won far fewer than they expected to. Average tribunal awards for unfair dismissal in 2025 sat at around £13,000, but some have run into six figures, particularly where multiple employees are affected. For SMEs, most of you have one or two contracts you wish were different. The cost of getting that wrong post-October has gone up considerably. The Sting. Why this catches small businesses out? Three reasons. SMEs end up here. One, the contract was generous in the early years. When the business was small and growing, you offered terms to attract people. Enhanced sick pay, generous overtime. Notice periods longer than the legal minimum. Bonuses tied to revenue. Now, with more staff, those terms are an enormous fixed cost. 2. Change is hard and gets put off. You meant to renegotiate during the last review. You meant to

Why SMEs Get Stuck Here

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during the pandemic. You meant to in 2023. You didn't. The longer the contracts stay as they are, the harder they are to change. 3. The assumption that I'm the boss, I can change it. You can't unilaterally change a contract. A contract is a binding agreement between you and your employee. Both sides have to agree to changes to most material terms. Some terms allow flexibility, built-in variation clauses. Some can be changed via collective consultation if you have a recognised union or staff representative process. Some can be changed by mutual agreement, but the bits some owners genuinely don't realise, you cannot just send a letter saying as of next month your terms have changed. If you do, and the employee continues to work without protest while reserving their position, they may be working under protest and could later claim breach of contract. The waggle dance, how to change a contract in 2026. Write, five steps, the clean way. Step one, be clear what you actually need to change and why. Don't try to change five things at once. Start with the most pressing issue. Document the business case. Why this change? What's the financial or operational driver? What happens if it doesn't change? This is your foundation. Without it, everything else collapses. Step two review the existing contract. Does the contract have a built-in flexibility clause

Five Steps To Change Terms

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that already allows the change? Sometimes yes, sometimes no. What is the current contract's variation clause? How would amendments need to be made? Get a lawyer or HR advisor to look at this if there's any doubt. £200 of advice now saves £20,000 later. Step 3. Consult. Genuinely. This is not inform. Consultation means you talk to the affected employees, explain the proposed change, listen to their concerns, consider alternatives, and document the conversation. If multiple employees are affected, you may need formal collective consultation. Get advice on this. Even with one employee, you should. Tell them in writing what's proposed and why. Offer a meeting to discuss. Listen to their concerns and consider alternatives. Document everything. Allow reasonable time, at least a few weeks, often longer. Step four. Seek agreement. The strongest way to change a contract is by mutual agreement. The employee says yes, you both sign, you both move on. Make that as attractive as you can. Offer a one-off payment, a transition period, a different benefit in exchange. The cost of mutual agreement is almost always less than the cost of conflict. Step 5. If you can't agree, take advice before doing anything. If after genuine consultation an employee won't agree, you have very limited options post-October 2026. Some businesses will accept the cost and keep the existing terms. Some will need to consider redundancy if the role itself can be removed, with all the proper redundancy process that requires consultation, alternative employment, statutory pay. Very narrowly, dismissal and re-engagement might still be lawful if the business is genuinely facing collapse and proper extensive consultation has been carried out. But this is so risky in 2026 that most reasonable advisers will steer clients away. This is the bit where you stop, take advice, and don't just do something because it feels efficient. The swarm, Mythbuster Parade. Myth 1. Fire and rehire is banned outright. Wrong. It is not banned. It is, in most cases, automatically unfair after October 2026. There are narrow exceptions for genuine business survival situations. The practical effect is similar. Most employers will not use it. But it isn't formally banned. Myth 2. I have a flexibility clause, so I can change anything. Sometimes. Often, no. Generic flexibility clauses are interpreted narrowly by

Mythbusting Flexibility And Notice

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courts. They typically allow incidental changes, not fundamental ones. Pay, hours, roll. If your flexibility clause is the entire basis for a major change, expect that to be challenged. Myth three. I can just give notice of the change and move on. No, unilateral changes are a breach of contract. Even if the employee continues to work, they may be working under protest and may have a claim later. Always get agreement or follow proper consultation and process. Myth four. Small businesses won't be challenged. Some will, some won't. Tribunal claims against small businesses have been rising every year. Employees have access to free initial legal advice through ACUS, free representation in some cases, and increased awareness of their rights. Don't assume invisibility. The honeycomb, your quick action list, seven actions. 1. List every contract clause across your team that you wish was different. Be honest. 2. For the top one, write a one-page business case. Why does this need to change? What's the cost if it doesn't? 3. Review the relevant contracts. Is there a flexibility clause that already allows the change? If unsure, get advice. 4. Plan a consultation process. Who, when, how. Document everything. 5.

Action List And Next Steps

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Write a contract review conversation script. We've got one in the show notes. Adapt it. 6. For new hires. Update your contract templates so this isn't an issue in 12 months for new starters. 7. Book a 30-minute call with a HR advisor or employment lawyer if you're contemplating any actual change. £100 spent here saves a lot. Flying the hive, close. Right before I go. Fire and rehire is in 2026 on its way out. That is, in my view, broadly a good thing. The fast, brutal version of contract change was always corrosive, to trust, to teams, to reputation. What replaces it is slower, more deliberate, and more grown up. You will not be able to make changes to contracts overnight. You will need to plan, consult, document, and get agreement. Most of the time, this works. Most employees, when given a clear business case, a respectful conversation and a fair offer will engage in the process. The ones who don't, well, you have a different problem and that's a different conversation. This week, do the audit, just the audit. List the clauses, write the business case for the top one. That counts as progress. If this episode helped, share it with another business owner. Especially one who's been quietly thinking about contract changes. Especially one who's heard about fire and rehire and assumed it's still on the menu. Find me at kateunderwoodhr.co.uk or email buzz at kateunderwoodhr.co.uk. Subscribe so you never miss an episode. And if you haven't left a review yet, it takes 30 seconds, it genuinely helps, and it is easily the cheapest good deed you'll do all week. More satisfying than a biscuit with your tea. Not quite as good as cake, but nearly. Until next time, keep buzzing and take care of your people. Kettle on, standards up.