Employment Rights Act Set to Stall Hiring, New Report Warns
A new report from the Chartered Institute of Personnel and Development (CIPD) indicates that the government's recently introduced Employment Rights Act could significantly slow down hiring across the United Kingdom. The comprehensive package of employment rights, designed to enhance worker protections, is raising concerns among businesses about potential risks and escalating costs.
Businesses Plan Hiring Reductions
The CIPD's quarterly labour market outlook, which surveyed over 2,000 employers, found that more than a third (37 per cent) of businesses intend to reduce hiring of permanent staff as a direct result of the new measures. This cautious approach stems from widespread apprehension about the financial and operational impacts of the legislation.
Ben Willmott, head of public policy at the CIPD, emphasized the timing of these reforms. "Against a backdrop of low business confidence and already weak hiring intentions, our research suggests there is a real risk that the Employment Rights Act measures will act as a further handbrake on job creation and recruitment," he stated.
Increased Costs and Workplace Conflict
The report highlights specific concerns from employers regarding the Act's implications:
- 74 per cent of employers anticipate an increase in employment costs.
- 55 per cent expect a rise in workplace conflicts.
- These factors contribute to a broader unease about the legislation's effect on business operations.
The government, which entered office promising the most significant upgrade to workers' rights in a generation, has faced substantial opposition from business groups. Critics argue that additional regulatory burdens will make hiring more expensive and complex, potentially stifling economic growth.
Key Provisions of the Act
Among the most contentious aspects of the legislation was the initial proposal to grant rights against unfair dismissal from the first day of employment, a significant reduction from the current two-year qualifying period. After considerable pressure from employers, the government revised this provision, shortening the qualifying period to six months instead of eliminating it entirely.
Additional measures set to take effect next January include:
- The removal of the compensation cap for unfair dismissal, currently set at the lower of £118,223 or one year's pay.
- Tighter regulations on zero-hour contracts.
- An effective ban on 'fire and rehire' practices, where employees are dismissed and then rehired under less favorable terms.
Call for Government Support and Communication
Willmott stressed the necessity for a "major communication campaign" from the government to ensure that smaller businesses, in particular, understand and can adequately prepare for the new obligations. "Giving organisations the time and support they need will be essential if these reforms are not to undermine employment growth or increase workplace disputes and employment tribunal claims," he explained.
Broader Labour Market Context
The introduction of the Employment Rights Act occurs within a challenging labour market environment. Over the past year, businesses have already contended with higher employment taxes and an increased minimum wage, placing additional pressure on hiring and operational costs.
Currently, the unemployment rate stands at 5.1 per cent, a notable increase from 4.4 per cent when the government took office in July 2024. This rise underscores the delicate balance between enhancing worker protections and maintaining a dynamic, growing job market.
As the implementation date approaches, the interplay between regulatory changes and economic realities will be closely monitored by employers, policymakers, and workers alike.
