Labor rights changes are causing a third of employers to stop hiring

More than a third of employers in the UK plan to reduce full-time employment as a result of government changes to workers’ rights, according to research by the Chartered Institute of Personnel and Development (CIPD).

A survey of 2,000 businesses found that 37 percent intend to reduce hiring of new full-time employees once the changes take effect, while more than half expect an increase in workplace conflicts.

Employers have warned that the new Employment Rights Act, which introduces expanded protections including one day’s statutory sick pay, easier trade union recognition and a shorter eligibility period for unfair dismissal claims, could act as a “step forward in job creation”.

Government estimates suggest the law will cost businesses around £1bn a year. However, the CIPD said the formal analysis may underestimate the real impact, particularly the extra time and administrative burden placed on HR departments to implement the changes.

Ben Willmott, head of public policy at the CIPD, said the changes risk increasing the pressure landlords are already facing following last year’s £24bn increase in employers’ national insurance contributions.

“There is a big risk that these measures will act as a significant step in hiring people,” he said, urging ministers to consult with businesses and consider compromises where appropriate.

The survey found that 55 percent of employers expect more conflicts once the changes are made. Businesses have expressed concern over the reduction of the eligibility period for dismissal, from two years to six months, along with new rights for off-hours workers and improved union powers.

Under the law, unions will gain improved access to workplaces to hire and organize jobs, while workers will benefit from “day one” rights.

James Cockett, senior labor market economist at the CIPD, said the findings differed significantly from the government’s expectations. Whitehall’s impact assessment predicted that greater union involvement would reduce conflict, but only 4 per cent of employers surveyed believed that conflict would decrease.

The CIPD has noted that many UK businesses, particularly the 1.4 million small and medium employers, do not officially recognize trade unions. In that context, it was argued, it is not clear how expanding trade union rights can reduce workplace tensions.

The Trades Union Congress (TUC) has welcomed the changes, describing them as the most important improvement in workers’ rights in a generation and saying they will improve dignity and well-being at work.

Business groups, including the Confederation of British Industry (CBI) and the British Chambers of Commerce, have previously expressed reservations, particularly regarding guaranteed hours contracts, seasonal work and restrictions on industrial activity.

The CIPD warned that some aspects of the law could have unintended consequences. Changes to unfair dismissal, statutory sick pay and short-hours contracts may lead some employers to rely more on temporary or contract work instead of permanent employment, potentially increasing job insecurity.

As businesses weigh the costs of compliance against economic uncertainty, the study suggests the government faces a delicate balancing act between strengthening worker protections and sustaining job growth.