More than eight in 10 business leaders believe the Employment Rights Act will negatively affect UK economic growth, according to research from the Institute of Directors (IoD).
The research found that 86% of business leaders believe the legislation will have a negative impact on growth, up from 72% when the same survey was conducted in May 2025.
The findings were published in the IoD’s latest policy paper, which examined how employers are responding as measures within the Employment Rights Act begin to take effect.
According to the report, 63% of business leaders said they are now less likely to hire new staff, while 57% said they are more likely to invest in automation.
The IoD is calling on the Government to introduce a series of changes to the legislation, including exempting employers with fewer than 250 staff from trade union access provisions and extending the reference period for guaranteed hours entitlement to 52 weeks.
The organisation also called for the reintroduction of Statutory Sick Pay rebates for SMEs and a longer implementation period for more complex reforms.
Alex Hall-Chen, principal policy advisor for employment at the Institute of Directors, said: “These findings are a clear sign that the Employment Rights Act is damaging economic growth and job creation in the UK.
“Our research found that business leaders are already halting or scaling back plans to hire in the UK, outsourcing roles more aggressively, and automating roles where possible in direct response to the reforms.”
Hall-Chen said employers were facing rising costs and increasing risks associated with recruitment.
Hall-Chen added: “These reforms make hiring staff riskier and more expensive for employers. Coming as they do against the backdrop of already low business confidence, last year’s employer’s National Insurance hike, and above-inflation minimum wage increases, they are acting as a strong deterrent to hiring.
“This is borne out in recent labour market figures, with vacancies at a five-year low and the number of payrolled employees down 210,000 over the past year.
“If the Government is serious about driving economic growth and achieving its aim of an 80% employment rate, it must rethink its approach to implementing the Employment Rights Act.
“Implementing the changes recommended in this report would be a welcome first step.”
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