Employment Rights Act 2025

28 Dismissal for failing to agree to variation of contract, etc E+W+S

(1) The Employment Rights Act 1996 is amended as follows.

(2) Part 10 (unfair dismissal) is amended in accordance with subsections (3) to (5).

(3) Before section 105 insert—

“104I Contracts of employment: restricted variations

(1) An employee who is dismissed is to be regarded for the purposes of this Part as unfairly dismissed if—

(a) the employee was employed for the purposes of a business carried on by the employer, and

(b) the reason (or, if more than one, the principal reason) for the dismissal is a reason within subsection (2) or (3).

(2) The reason within this subsection is that—

(a) the employer sought to vary the employee’s contract of employment to make a restricted variation (see subsection (5)), and

(b) the employee—

(i) did not agree to the restricted variation, or

(ii) where the employer sought to make more than one variation, did not agree to a number of variations that included the restricted variation.

(3) The reason within this subsection is to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed.

(4) For the purposes of subsection (3), a contract of employment is a “varied” contract of employment if—

(a) the terms of the contract are not the same as the terms of the contract of employment under which the employee worked before being dismissed, and

(b) one or more of the differences between the two sets of terms constitutes a restricted variation (see subsection (5));

and, in a case where subsection (3) applies, any reference in this section to the restricted variation is to be read accordingly.

(5) In this section “restricted variation” means any of the following—

(a) a reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment (but see subsection (6));

(b) where the amount of any sum payable to an employee in connection with the employment is determined by reference to a measure of the amount of work done by the employee (including a measure referable to results achieved by the employee), a variation of that measure;

(c) a variation of any term or condition relating to pensions or pension schemes;

(d) a variation of the number of hours which an employee is required to work;

(e) a variation of the timing or duration of a shift which meets such conditions as may be specified in regulations made by the Secretary of State;

(f) a reduction in the amount of time off which an employee is entitled to take;

(g) a variation of a description specified in regulations made by the Secretary of State;

(h) the inclusion in a contract of employment of a term enabling the employer to make any variation within any of the preceding paragraphs without the employee’s agreement.

(6) The Secretary of State may by regulations provide that a reference in subsection (5) to a sum payable to an employee in connection with the employment does not include a reference to—

(a) a sum payable in respect of—

(i) any expenses incurred by an employee;

(ii) any expenses of a specified description incurred by an employee;

(iii) any expenses incurred by an employee other than expenses of a specified description;

(b) a payment or benefit in kind, a payment or benefit in kind of a specified description, or a payment or benefit in kind other than one of a specified description.

In this subsection “specified” means specified in the regulations.

(7) Subsection (1) does not apply in relation to an employee if on the effective date of termination the employee has not yet started work.

(8) In the case of an employer that is not a local authority, subsection (1) does not apply in relation to an employee if the employer shows that—

(a) the reason for the restricted variation was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect—

(i) the employer’s ability to carry on the business as a going concern, or

(ii) where the employer is a public sector employer, the financial sustainability of carrying out the employer’s statutory functions, and

(b) in all the circumstances the employer could not reasonably have avoided the need to make the restricted variation.

(9) In the case of an employer that is a local authority, subsection (1) does not apply in relation to an employee if—

(a) at the time of the dismissal, a relevant intervention direction has effect in relation to the authority,

(b) the relevant intervention direction—

(i) specifies that the reason, or one of the reasons, for the giving of the direction is that the authority is undergoing financial difficulties, and

(ii) contains provision relating to the financial management or financial governance of the authority, and

(c) the authority shows that—

(i) the reason for the restricted variation was to eliminate or significantly reduce, or significantly mitigate the effect of, any of the financial difficulties referred to in paragraph (b)(i), and

(ii) in all the circumstances the authority could not reasonably have avoided the need to make the restricted variation.

(10) In determining whether—

(a) in the case of a public sector employer (other than a local authority), subsection (8)(b) is met, or

(b) in the case of a local authority, subsection (9)(c)(ii) is met,

an employment tribunal must apply the same principles as would be applied by a court on an application for judicial review.

(11) Where the employer shows that the conditions in paragraphs (a) and (b) of subsection (8) are met, or (where the employer is a local authority) the conditions in paragraphs (a), (b) and (c) of subsection (9) are met, the matters that must be considered in determining the question whether the dismissal is fair or unfair include the following—

(a) any consultation carried out by the employer with the employee about varying the employee’s contract of employment;

(b) if the employee is of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with that trade union;

(c) if the employee is not of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with any other person representing the interests of the employee that, at the time of the dismissal, had authority to receive information and to be consulted about the dismissal on the employee’s behalf;

(d) anything offered to the employee by the employer in return for agreeing to the restricted variation;

(e) any matters specified for the purposes of this subsection in regulations made by the Secretary of State.

(12) In this section—

• “English local authority” means—

  (a)

  a county council or district council in England;

  (b)

  a London borough council;

  (c)

  the Greater London Authority;

  (d)

  the Council of the Isles of Scilly;

  (e)

  the Common Council of the City of London in its capacity as a local authority, a police authority or a port health authority;

  (f)

  a combined authority established under section 103 of the Local Democracy, Economic Development and Construction Act 2009;

  (g)

  a combined county authority established under section 9(1) of the Levelling-up and Regeneration Act 2023;

• “local authority” means—

  (a)

  an English local authority,

  (b)

  a Welsh local authority, or

  (c)

  a Scottish local authority;

• “public sector employer” means a person that—

  (a)

  is wholly or mainly funded from public funds,

  (b)

  is under a statutory duty to carry out any functions of a public nature, and

  (c)

  so far as carrying out those functions, does not operate on a commercial basis;

• “recognised”, in relation to a trade union, has the same meaning as in the Trade Union and Labour Relations (Consolidation) Act 1992 (see section 178 of that Act);

• “relevant intervention direction” means—

  (a)

  in the case of an English local authority, a direction under section 15(5) or (6)(a) of the Local Government Act 1999 (powers to deal with failure to comply with duties relating to best value authorities);

  (b)

  in the case of a Welsh local authority, a direction under section 106 or 107 of the Local Government and Elections (Wales) Act 2021 (asc 1) (intervention powers of Welsh Ministers);

  (c)

  in the case of a Scottish local authority, an enforcement direction under section 24 of the Local Government in Scotland Act 2003 (asp 1) relating wholly or partly to a failure of the authority to comply with its duties under section 1 of that Act (local authorities’ duty to secure best value);

• “Scottish local authority” means a council constituted under section 2 of the Local Government etc. (Scotland) Act 1994;

• “statutory duty” means a duty imposed by or under any enactment, including—

  (a)

  a Measure or Act of the National Assembly for Wales or an Act of Senedd Cymru, and

  (b)

  an Act of the Scottish Parliament;

• “statutory functions”, in relation to a public sector employer, means functions of a public nature which the employer is under a statutory duty to carry out;

• “Welsh local authority” means—

  (a)

  a county council or county borough council in Wales;

  (b)

  a corporate joint committee established under Part 5 of the Local Government and Elections (Wales) Act 2021.

(13) The reference in subsection (9)(a) to a relevant intervention direction includes a relevant intervention direction given before the day on which the Employment Rights Act 2025 was passed.

104J Contracts of employment: variations that are not restricted variations

(1) This section applies to the dismissal of an employee if—

(a) the employee was employed for the purposes of a business carried on by the employer, and

(b) the reason (or, if more than one, the principal reason) for the dismissal is a reason within subsection (2) or (3).

(2) The reason within this subsection is that—

(a) the employer sought to vary the employee’s contract of employment,

(b) the variation was not a restricted variation or, where the employer sought to make more than one variation, none of the variations was a restricted variation, and

(c) the employee did not agree to the variation.

(3) The reason within this subsection is to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed.

(4) For the purposes of subsection (3), a contract of employment is a “varied” contract of employment if—

(a) the terms of the contract are not the same as the terms of the contract of employment under which the employee worked before being dismissed, and

(b) none of the differences between the two sets of terms constitutes a restricted variation;

and, in a case where subsection (3) applies, any reference in this section to the variation is to be read accordingly.

(5) The matters that must be considered in determining the question whether the dismissal is fair or unfair include the following—

(a) the reason for the variation;

(b) any consultation carried out by the employer with the employee about varying the employee’s contract of employment;

(c) if the employee is of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with that trade union;

(d) if the employee is not of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with any other person representing the interests of the employee that, at the time of the dismissal, had authority to receive information and to be consulted about the dismissal on the employee’s behalf;

(e) anything offered to the employee by the employer in return for agreeing to the variation;

(f) any matters specified for the purposes of this subsection in regulations made by the Secretary of State.

(6) In this section—

• “recognised”, in relation to a trade union, has the same meaning as in the Trade Union and Labour Relations (Consolidation) Act 1992 (see section 178 of that Act);

• “restricted variation” has the same meaning as in section 104I.

104K Redundancy: replacement of employees with people who are not employees

(1) An employee who is dismissed is to be regarded for the purposes of this Part as unfairly dismissed if—

(a) the employee was employed for the purposes of a business carried on by the employer, and

(b) the reason (or, if more than one, the principal reason) for the dismissal is to enable the employer to replace the employee with an individual who is not an employee of the employer.

(2) For the purposes of this section—

(a) an employer replaces an employee with an individual who is not an employee of the employer if (and only if)—

(i) the individual, or the individual taken together with one or more employees of the employer or other individuals, is to carry out activities, in pursuance of a relevant contract, for the purposes of the employer’s business,

(ii) those activities are the same, or substantially the same, activities as the employee, or the employee taken together with one or more other employees of the employer, carried out before being dismissed, and

(iii) the employee’s dismissal is not wholly or mainly attributable to the fact that the requirements of the employer’s business for those activities to be carried out have ceased or diminished or are expected to cease or diminish;

and any reference in this section to replacing an employee is to be read accordingly;

(b) a reference to replacing an employee with an individual who is not an employee of the employer includes the case where the individual is the one who has been dismissed;

(c) “relevant contract”, in relation to an employer, means a contract, other than a contract of employment, to which the employer is a party (whether or not the individual carrying out activities in pursuance of the contract is a party to it).

(3) Subsection (1) does not apply in relation to an employee if on the effective date of termination the employee has not yet started work.

(4) In the case of an employer that is not a local authority, subsection (1) does not apply in relation to an employee if the employer shows that—

(a) the reason for the replacement was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect—

(i) the employer’s ability to carry on the business as a going concern, or

(ii) where the employer is a public sector employer, the financial sustainability of carrying out the employer’s statutory functions, and

(b) in all the circumstances the employer could not reasonably have avoided the need to replace the employee.

(5) In the case of an employer that is a local authority, subsection (1) does not apply in relation to an employee if—

(a) at the time of the dismissal, a relevant intervention direction has effect in relation to the authority,

(b) the relevant intervention direction—

(i) specifies that the reason, or one of the reasons, for the giving of the direction is that the authority is undergoing financial difficulties, and

(ii) contains provision relating to the financial management or financial governance of the authority, and

(c) the authority shows that—

(i) the reason for the replacement was to eliminate or significantly reduce, or significantly mitigate the effect of, any of the financial difficulties referred to in paragraph (b)(i), and

(ii) in all the circumstances the authority could not reasonably have avoided the need to replace the employee.

(6) In determining whether—

(a) in the case of a public sector employer (other than a local authority), subsection (4)(b) is met, or

(b) in the case of a local authority, subsection (5)(c)(ii) is met,

an employment tribunal must apply the same principles as would be applied by a court on an application for judicial review.

(7) Where the employer shows that the conditions in paragraphs (a) and (b) of subsection (4) are met, or (where the employer is a local authority) the conditions in paragraphs (a), (b) and (c) of subsection (5) are met, the matters that must be considered in determining the question whether the dismissal is fair or unfair include the following—

(a) any consultation carried out by the employer with the employee about replacing the employee;

(b) if the employee is of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with that trade union;

(c) if the employee is not of a description in respect of which an independent trade union is recognised by the employer, any consultation carried out by the employer with any other person representing the interests of the employee that, at the time of the dismissal, had authority to receive information and to be consulted about the dismissal on the employee’s behalf;

(d) any matters specified for the purposes of this subsection in regulations made by the Secretary of State.

(8) In this section—

• “contract” means a contract whether express or implied and (if it is express) whether oral or in writing;

• “English local authority” means—

  (a)

  a county council or district council in England;

  (b)

  a London borough council;

  (c)

  the Greater London Authority;

  (d)

  the Council of the Isles of Scilly;

  (e)

  the Common Council of the City of London in its capacity as a local authority, a police authority or a port health authority;

  (f)

  a combined authority established under section 103 of the Local Democracy, Economic Development and Construction Act 2009;

  (g)

  a combined county authority established under section 9(1) of the Levelling-up and Regeneration Act 2023;

• “local authority” means—

  (a)

  an English local authority,

  (b)

  a Welsh local authority, or

  (c)

  a Scottish local authority;

• “public sector employer” means a person that—

  (a)

  is wholly or mainly funded from public funds,

  (b)

  is under a statutory duty to carry out any functions of a public nature, and

  (c)

  so far as carrying out those functions, does not operate on a commercial basis;

• “recognised”, in relation to a trade union, has the same meaning as in the Trade Union and Labour Relations (Consolidation) Act 1992 (see section 178 of that Act);

• “relevant intervention direction” means—

  (a)

  in the case of an English local authority, a direction under section 15(5) or (6)(a) of the Local Government Act 1999 (powers to deal with failure to comply with duties relating to best value authorities);

  (b)

  in the case of a Welsh local authority, a direction under section 106 or 107 of the Local Government and Elections (Wales) Act 2021 (asc 1) (intervention powers of Welsh Ministers);

  (c)

  in the case of a Scottish local authority, an enforcement direction under section 24 of the Local Government in Scotland Act 2003 (asp 1) relating wholly or partly to a failure of the authority to comply with its duties under section 1 of that Act (local authorities’ duty to secure best value);

• “Scottish local authority” means a council constituted under section 2 of the Local Government etc. (Scotland) Act 1994;

• “statutory duty” means a duty imposed by or under any enactment, including—

  (a)

  a Measure or Act of the National Assembly for Wales or an Act of Senedd Cymru, and

  (b)

  an Act of the Scottish Parliament;

• “statutory functions”, in relation to a public sector employer, means functions of a public nature which the employer is under a statutory duty to carry out;

• “Welsh local authority” means—

  (a)

  a county council or county borough council in Wales;

  (b)

  a corporate joint committee established under Part 5 of the Local Government and Elections (Wales) Act 2021.

(9) The reference in subsection (5)(a) to a relevant intervention direction includes a relevant intervention direction given before the day on which the Employment Rights Act 2025 was passed.”

(4) In section 105 (redundancy), in the heading, after “Redundancy” insert “: other cases”.

(5) In section 108 (qualifying period of employment), in subsection (3), before paragraph (h) insert—

“(go) subsection (1) of section 104I (read with subsections (7) to (9) of that section) applies,

(gp) subsection (1) of section 104K (read with subsections (3) to (5) of that section) applies,”.

(6) In section 236 (orders and regulations), in subsection (3) (regulations subject to affirmative procedure), after “99,” insert “104I, 104J(5)(f), 104K(7)(d),”.

Commencement Information

I1 S. 28 not in force at Royal Assent, see s. 159(3)

I2 S. 28(1)(2) in force at 6.1.2026 for specified purposes by S.I. 2026/3, reg. 2(13)(a)

I3 S. 28(1)(2) in force at 6.4.2026 for specified purposes by S.I. 2026/323, reg. 3(1)(5)(a)

I4 S. 28(3) in force at 6.1.2026 for specified purposes by S.I. 2026/3, reg. 2(13)(b)

I5 S. 28(3) in force at 6.4.2026 for specified purposes by S.I. 2026/323, reg. 3(1)(5)(b)

I6 S. 28(6) in force at 6.1.2026 by S.I. 2026/3, reg. 2(13)(c)