Jessica O'ConnorA majority of UK employers believe the Employment Rights Act 2025 will make the UK less attractive for investment, according to the latest employment survey from Freeths.
The 2026 survey, based on responses from senior HR and business leaders across a range of sectors, highlighted a workforce environment undergoing significant change, driven by legislative reform, shifting employee expectations and increasing organisational complexity.
While awareness of the Employment Rights Act is widespread, understanding remained limited, with 61% of respondents expressing a pessimistic view of its likely impact.
Employers expected the most significant effects to arise from changes to unfair dismissal and flexible working, prompting many to prioritise updates to contracts, policies and management capability.
More than a quarter (27%) said they plan to revise collective or information procedures in response to reforms strengthening trade union powers.
Employers have also increasing focus on preventing workplace sexual harassment, with the survey indicating a rise in reported incidents, including 10.5% noting a slight increase and 1.5% reporting a significant increase over the past year.
Forthcoming changes to legislation will require employers to take “all reasonable steps” to prevent harassment, including in relation to third parties, increasing compliance obligations and reinforcing the need for updated policies, training and reporting mechanisms.
Most organisations reported they are operationally prepared for the introduction of day-one parental and paternity leave rights, although only 2% said they plan to enhance pay.
Hybrid working continued to present challenges, with 47% identifying maintaining team cohesion and organisational culture as the primary issue rather than technical capability.
Adoption of artificial intelligence (AI) within HR remained limited, with 12% of respondents using AI for recruitment screening, while preparedness for governance, ethical standards and regulatory compliance remains low.
At the same time, neurodiversity and menopause support emerged as leading diversity, equity and inclusion priorities, although only 12% of organisations said they currently provide training to managers on menopause, indicating low confidence in supporting affected employees.
Performance management has become a key focus for employers, with nearly half of respondents identifying it as a top priority for 2026, compared with 16% in 2025, reflecting a growing emphasis on productivity, accountability and capability in hybrid working environments.
Despite increased enforcement activity and higher civil penalties, concern around right to work compliance remained relatively low, with more than a third of organisations reporting no changes to their processes, suggesting a potential gap between regulatory risk and employer awareness.
Rena Magdani, head of employment, pensions and immigration at Freeths, said: “This year’s survey shows employers bracing for the most significant employment law reforms in a generation.
“The findings make clear that increased flexible working, stronger sexual harassment protections and rising expectations around people leadership are reshaping organisational priorities.
“As the Employment Rights Act approaches, many organisations are only just beginning to grasp the scale of what’s coming.
“The next twelve months will be pivotal as employers strengthen their foundations, equip managers and prepare for a far more regulated, people-first era.”
