Employment Rights Act risks being a handbrake on hiring, new research finds

The CIPD’s Labour Market Outlook shows more than a third (37%) of employers plan to reduce the recruitment of permanent staff due to at least one or more of the Employment Rights Act’s (ERA) key reforms*, while overall hiring intentions remain at their lowest level on record outside the first year of the pandemic. 

The subdued hiring intentions are not surprising given three in four employers (74%) expect the Act to increase employment costs, while more than half (55%) of employers expect workplace conflict to increase because of at least one or more of the key legislative changes being introduced.  

These are the headline findings of the CIPD’s quarterly Labour Market Outlook report which surveys more than 2,000 UK employers on their hiring, pay and redundancy intentions.  

In response, and to prevent the ERA undermining employment growth, the CIPD is calling on the Government to:  

• Continue to consult meaningfully with employers and business bodies and, where necessary, compromise on key measures still to be finalised to ensure they can be implemented without adding to the costs and legal risks of recruiting and managing staff. 
• Launch a communications campaign as soon as possible to ensure employers, and small firms in particular, understand, are aware of and can prepare for new legal obligations in advance of them coming into force.  
• As part of the review of the dispute resolution system, ensure that Acas has sufficient resources to help employers - and SMEs in particular - comply and avoid costly and disruptive conflict and employment tribunal claims.

Further findings from the survey include: 

Reduced hiring intentions 

The survey found that the net employment balance — the difference between employers expecting to increase staff levels and those expecting to reduce them in the next three months — remains low at +7 this quarter, the lowest level on record outside of the pandemic. Among employers that anticipate recruiting fewer permanent staff because of the Act, the net employment balance is -5. 

Permanent jobs at risk 

More than a third (37%) of employers say they plan to hire fewer permanent staff as a result of reforms to unfair dismissal, Statutory Sick Pay, zero-hours contracts or trade union rights. The CIPD notes this could have the unintended consequence of increasing employment insecurity by encouraging employers to rely more heavily on temporary workers and self-employed contractors to avoid rising costs associated with recruiting permanent staff.  

ERA set to increase employment costs 

Nearly three quarters (74%) of employers believe their employment costs will increase because of measures introduced under the Employment Rights Act, while a further 15% remain unsure. Seventeen per cent expect costs to rise “to a large extent”, rising to 31% in social care and 28% in hospitality. 

Increased risk of workplace conflict  

More than half (55%) of employers expect workplace conflict to increase because of at least one of the changes being introduced. Just 4% of employers believe workplace conflict will decrease because of the new trade union measures and more than one in ten (11%) say they don’t know how the ERA measures will impact workplace conflict. This uncertainty highlights that some employers may lack knowledge of how the reforms are likely to impact workplace practices and behaviour.  

Ben Willmott, head of public policy at the CIPD, the professional body for HR and people development, said:

“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.  

“In response, it’s important that Government acts to try and mitigate these potential negative consequences, including through meaningful consultation and where necessary compromise on key measures still to be decided in secondary legislation. 

“We need to see a major communication campaign from Government to ensure smaller businesses in particular are aware of, understand and can prepare for the new legal obligations and know when they come in to effect. Just as important, the Government needs to ensure that Acas and the wider dispute resolution system have sufficient resources to help micro and small firms comply and avoid disputes and costly tribunal claims.”

Concerns over implementation burden and timelines 

While the headline cost of the Employment Rights Act has been estimated by the Government at £1 billion, the CIPD warns this doesn’t reflect the full administrative and operational burden on employers which will include updating internal policies, communicating with staff and training managers. Current Government estimates** suggest it will take just an hour or less for employers to familiarise themselves with many of the changes. The CIPD believes these assumptions significantly underestimate the time required to update payroll systems, internal policies and training for both HR professionals and line managers to be able to manage the legislative changes and to work effectively with unions. 

Willmott adds: 

“The challenges employers face in understanding and getting ready for so many legislative changes over a short period of time needs to be better understood. 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. Smaller businesses in particular will need clear advice and guidance to avoid unintentionally falling foul of the new laws.”

Other findings from the Labour Market Outlook include: 

• The median basic pay award remains at 3% overall, for the seventh consecutive quarter. 
• Just 15% of employers anticipate significant recruitment difficulties in the next six months.

Read the report