Subsection (1) provides that a dismissal will be unfair where an employee is employed for the purpose of a business carried out by the employer and the reason for the dismissal falls within subsection (2) or (3). This means that section 104I does not apply to employees employed by private individuals for non-business reasons.
	Subsection (2) provides that a dismissal will be unfair where the reason for the dismissal is that an employer has sought to make a restricted variation to the employee’s contract to which the employee did not agree or where the employer sought to make more than one variation, the employee did not agree to a number of variations that included a restricted variation.
	Subsection (3) provides that a dismissal will be unfair where the reason for the dismissal is to enable the employer to employ someone else or re-engage the employee on a varied contract to carry out the same duties or substantially the same duties as the employee carried out before the dismissal.
	Subsection (4) sets out for the purposes for subsection (3) what a ‘varied’ contract of employment is. The effect of this is that there must be a restricted variation for a dismissal to be automatically unfair under subsection (3) of section 104I of ERA 1996.
	Subsection (5) lists the changes to an employment contract which are treated as ‘restricted variations’. These include reductions to or removals of sums payable to the employee, which would cover any reductions to base pay and other forms of contractual pay such as contractual allowances, contractual enhanced redundancy pay, etc. These also include variations to measures of amount of work done where these determine an element of pay, which would cover, for example, changes to contractual targets which are linked to pay. These also include variations relating to pensions, variations of the number of hours required to be worked by an employee, and reductions to time off an employee is entitled to take. In this section references to an employee’s ‘contract of employment’, are references to all an employee’s contractual terms, whether these are express or implied and, if express, whether they have been agreed in writing or verbally. In addition to any individual employee’s written contract, contractual terms may be found in other sources such as collective agreements, handbooks or letters, provided that these have been expressly or impliedly incorporated into the contract.
	Subsection (5)(e) allows the Secretary of State to set out in regulations which variations to the timing or duration of a shift are to be restricted variations.
	Subsection (5)(g) allows the Secretary of State to set out additional variations that will be restricted variations by specifying them in regulations.
	Subsection (5)(h) provides that a variation which will insert a term in a contract of employment that enables the employer to make any of the restricted variations without the employee’s agreement, for example by a variation clause, is also a restricted variation.
	Subsection (6) gives the Secretary of State power to make regulations which limit the restricted variation in section (5)(a) (reductions to sums payable to an employee) to exclude certain expenses and benefits in kind.
	Subsection (7) provides that subsection (1) will not apply where the dismissal takes place before the employee has started work.
	Subsection (8) provides that subsection (1) will not apply where an employer that is not a local authority can show:
the reason for the restricted variation was to eliminate, prevent, significantly reduce or significantly mitigate the effects of any financial difficulties which, at the time of the dismissal, were affecting or likely in the immediate future to affect:
the employer’s ability to carry on the business as a going concern; or
where an employer is a public sector employer, the financial sustainability of carrying out the employer’s statutory functions (and subsection (12) defines "public sector employer" and "statutory functions");
in all the circumstances the employer could not reasonably have avoided the need to make the restricted variation.
	Subsection (9) provides that if the employer is a local authority (as defined in subsection (12)), subsection (1) will not apply if it can show that:
at the time of dismissal took place, the local authority is under a relevant intervention direction (as defined in subsection (12)) by the Secretary of State, Welsh Ministers or Scottish Ministers;
the ‘relevant intervention direction’ specifies that the reason, or one of the reasons, for the giving of the direction is that the authority is undergoing financial difficulties, and contains provision relating to the financial management or financial governance of the local authority;
the reason for the restricted variation(s) to the contract was to eliminate or significantly reduce, or significantly mitigate those financial difficulties; and
the local authority could not reasonably have avoided the need to make the restricted variation.
	Subsection (10) explains that where the employer is a public sector employer or local authority, the employment tribunal, when determining whether or not the employer could have reasonably avoided the need to make the restricted variation, should apply the same principles as would be applied by a court on an application for judicial review.
	If an employer can demonstrate that subsection (8) or (9) of new section 104I is met, the dismissal will not be automatically unfair, but the employment tribunal will still have to assess whether the dismissal was fair in all the circumstances.
	Subsection (11) provides that the employment tribunal must consider a number of (non-exhaustive) matters when determining whether the dismissal was fair or unfair. This includes whether any consultation was carried out by the employer with the employee, an independent trade union or another employee representatives about the variation of the employee’s contract of employment, and whether the employer offered the employee anything in return for agreeing to a variation. Subsection (11)(e) of new section 104I also provides the Secretary of State with a power to specify other factors which must be considered, in secondary legislation.
	Subsection (12) includes definitions of various terms used in this section. For an English local authority, a ‘relevant intervention direction’ is a direction made by the Secretary of State in relation to the local authority’s failure to meet its best value duty, which either directs the authority to take specified actions to comply with the duty, or directs that specified functions of the local authority are to be exercised by the Secretary of State or their nominee (known as commissioners).In Wales and Scotland, a ‘relevant intervention direction’ refers to similar intervention powers exercisable by the Welsh and Scottish Ministers, respectively. Subsection (12) define Welsh and Scottish local authority.
	Subsection (13) provides that relevant intervention directions under subsection (9)(a) include intervention directions that were given before the day the Employment Rights Act 2025 was passed.
Part 1: Employment Rights Dismissal New Section 104I