Employment Rights Act set to stall hiring, says report
The government’s new package of employment rights will put a brake on hiring, according to a new report, as businesses worry about the possible risks and costs.
More than a third (37 per cent) of businesses surveyed by the the Chartered Institute of Personnel and Development (CIPD) plan to reduce hiring permanent staff as a result of the measures.
Just under three quarters of employers (74 per cent) said the Act would increase employment costs while more than half (55 per cent) expected workplace conflict to increase.
The findings were part of the CIPD’s quarterly labour market outlook, which surveys over 2,000 employers in the UK.
“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,” Ben Willmott, head of public policy at the CIPD said.
The government entered office promising to deliver the biggest upgrade to workers’ rights in a generation, but the measures have faced significant opposition from business groups who worry that additional red tape will make hiring more expensive.
‘Day one’ rights already taken out of Employment Rights Act
Among the most controversial aspects of the legislation was the proposal to introduce rights against unfair dismissal from day one of employment. Currently there is a two year qualifying period for these rights.
After significant pressure from employers, the government backed down on ‘day one’ rights, but still cut the qualifying period to six months.
The Act will also see the removal cap on compensation for unfair dismissal, which is currently the lower of £118,223 or a year’s pay. Both measures will come into force next January.
Rules around zero-hour contracts will also be tightened while the government has effectively banned ‘fire and rehire’, where employers are dismissed before being offered a new contract on worse terms.
Willmott said that there needed to be a “major communication campaign” from the government to ensure that smaller businesses understand and can 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 said.
The labour market has already come under significant pressure over the past year as businesses face higher taxes on employment and a higher minimum wage.
The unemployment rate currently stands at 5.1 per cent, up from 4.4 per cent when Labour entered office in July 2024.