Variation of terms and conditions and the Employment Rights Act
The Employment Rights Act 2025 makes it automatically unfair to dismiss a worker who refuses to accept certain changes to their employment contract, known as “restricted variations”, except in narrowly defined situations. This significantly limits employers’ ability to impose changes to terms and conditions without employee consent.
Under the Act dismissing an employee because they decline to accept a restricted contractual change is automatically be classed as unfair, unless the employer can rely on a limited exemption linked to serious financial pressure. Restricted variations include areas such as pay, working hours and holiday entitlement, as well as the addition of contractual clauses allowing future changes in these areas.
To rely on the financial hardship exemption, an employer will have to demonstrate that the proposed change is necessary to address or reduce the impact of financial difficulties that, at the point of dismissal, were already affecting or were likely soon to affect, the organisation’s ability to continue operating. The employer will also need to show that there are no reasonable alternatives to making the change.
Even where this exemption applies, an employment tribunal will still assess whether the dismissal is fair overall. In doing so, it will examine factors such as the extent of consultation with the employee and whether any compensation or incentives were offered in exchange for agreeing to the revised terms.
The government has signalled that the financial difficulty exemption is intended to be used only in exceptional cases. Employers relying on it are likely to face close scrutiny from tribunals and will need to provide clear, detailed evidence to support their position. As a result, organisations will find it far more challenging to push through contractual changes where employee agreement cannot be secured.
Should you require advice in this area, contact 121 HR Solutions at enquiries@121hrsolutions.co.uk.
0800 9995 121 
enquiries@121hrsolutions.co.uk
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