Fire and rehire: cash protected, shares not

On 22 October 2026 the Government published its response on the scope of the new fire and rehire protections (Make Work Pay: Fire and Rehire – Changes to Expenses, Benefits and Shift Patterns). One sentence matters particularly for executive pay: “Changes to share schemes will not be in scope of the restricted variation.”

That appears to draw a line between cash and shares. The more important line, however, is the one the statute already draws at the contract of employment.

The scheme

Section 28 of the Employment Rights Act 2025 inserts new ss 104I and 104J into the Employment Rights Act 1996. Under s 104I, a dismissal is automatically unfair if the principal reason is that the employee did not agree to a “restricted variation” of the contract of employment, or if the purpose is to re-engage the employee, or employ someone else, on varied terms that include one.

The restricted variations are listed in s 104I(5). Four bear on remuneration:

• (a) “a reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment”;
• (b) where a sum payable is determined by reference to a measure of the 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 relating to pensions or pension schemes; and
• (h) the inclusion in the contract of a term enabling the employer to make any of the listed variations without the employee’s agreement.

For an ordinary private-sector employer, the exception is narrow. The employer must show that the variation was made to eliminate, prevent, significantly reduce or significantly mitigate financial difficulties affecting, or likely in the immediate future to affect, its ability to carry on the business as a going concern, and that it could not reasonably have avoided the need for it.

Variations outside the list fall under s 104J. That section adds the reason for the variation, consultation and anything offered in return to the otherwise conventional inquiry into fairness.

Timing and exposure

The Government’s timeline, updated on 22 October 2026, gives March 2027 for the fire and rehire protections. So far, s 28(3) has been commenced only for limited regulation-making purposes (SI 2026/3; SI 2026/323). The promised regulations are to be made “when parliamentary time allows”.

The provision carries weight for executives because of two other changes. A s 104I dismissal needs no qualifying period (ERA 1996, s 108(3), as amended by s 28(5) of the 2025 Act). Section 124 of the 1996 Act, which limits the compensatory award, is omitted by s 25(3) of the 2025 Act where the effective date of termination is on or after 1 January 2027 (SI 2026/559, regs 3–4).

An executive dismissed for refusing a reduction in salary or contractual bonus may therefore recover compensation by reference to the full loss, without the existing statutory ceiling and regardless of length of service.

Why shares are out

The Government’s reasons explain the exclusion. Respondents said that participation was often voluntary and that the detail of schemes was often “too complex to be set out within contractual terms”. Participation was therefore governed “by separate arrangements, which could not be covered by the scope of the restricted variations”.

That reasoning is not confined to shares. Executive incentives commonly sit in separate plan rules, which may provide that they form no part of the contract of employment and confer no entitlement until an award is made or vests. Where that is the legal effect of the arrangements, changing the plan is not a variation of the contract of employment at all. On that analysis, the treatment of share schemes reflects a more general boundary in the statute rather than creating an entirely separate one.

What is protected

What remains is the contractual core: salary, any contractual bonus entitlement or formula, cash allowances and pension terms. Here the difference between cash and shares is real. A contractual cash entitlement is a “sum payable”. A contractual entitlement to shares appears not to be, and the Government has said in any event that changes to share schemes are outside the protection. Two executives with economically equivalent entitlements may therefore be protected differently, depending on how those entitlements are settled.

Paragraph (b) is narrower than it may first appear. Its language naturally covers commission and measures of individual performance. Whether it extends to group financial measures or relative total shareholder return, commonly used for senior executives, is less clear. Those measures are not obviously measures of the amount of work done, or results achieved, by the individual employee. A change to such a measure that reduces a contractual sum payable may in any event fall within paragraph (a).

Paragraph (h) is likely to matter more. Replacing a contractual bonus with one at the employer’s discretion, or adding a power to vary pay unilaterally, is itself a restricted variation.

It appears to be an open question whether a new malus or clawback provision in a service contract is such a term. A malus or clawback provision may enable the employer to reduce or recover remuneration, but it does not necessarily confer a power to vary the contract. The distinction may matter.

Consequences

From March 2027, a solvent employer that wants to reduce contractual cash pay, or turn a contractual bonus into a discretionary one, will in practice be confined to agreement. Dismissal and re-engagement will expose it to an uncapped claim for automatically unfair dismissal unless the survival of the business is in question. The executive’s refusal acquires real negotiating value.

Changes made under plan rules, including amendments under the plan’s own amendment power, are unaffected by s 104I where the arrangements do not form part of the contract of employment. They remain subject to the contractual limits on discretion and any shareholder approval requirement.

The protection does not extend to non-executive directors who have no contract of employment, or to members of an LLP, whose remuneration is governed by the members’ agreement.

The real dividing line is therefore not simply between cash and shares. It is between contractual entitlements and separate plan arrangements. For many senior executives, that will determine how much protection the new regime actually provides.