The CIPD’s Quarterly Labour Market Outlook reveals that over a third (37%) of UK employers plan to recruit fewer permanent workers due to one or more of the Employment Rights Act (ERA)’s reforms.
Published on 16 February 2026, the findings show that hiring intentions are at their lowest on record, outside of 2020 – the first year of the pandemic.
Of the 2,082 UK employers surveyed, three-quarters (74%) expect the ERA to increase employment costs, while more than half (55%) expect workplace conflict to rise.
Ben Willmott, head of public policy at the CIPD, the professional body for HR and people development, says: “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.”
What’s the recruitment outlook across sectors?
Hiring intentions differ considerably across sectors and company sizes. Large private-sector organisations show a more positive outlook, with 31% expecting an increase in recruitment in the next three months. Small and medium-sized enterprises (SMEs) and the public sector, on the other hand, report more constrained hiring expectations at 23% and 17%, respectively.
The public sector is not only the least likely to be hiring – it’s also the most likely to see staff cuts across the next quarter, with 28% expecting a reduction in employee numbers. The anticipated fall in headcount is much lower in large private-sector businesses (16%) and SMEs (14%).
Giving context to this negative public sector outlook, the CIPD notes that across the government there is currently a mix of voluntary exits, recruitment freezes, and redundancies – both voluntary and compulsory. Public sector employers are significantly more likely to be planning redundancies than those in the private sector (27% versus 20%).
Hiring intentions across industries also vary widely. Healthcare, professional services, and transport expect growth, while non-compulsory education, the public sector, and real estate anticipate cuts.
The impact of the Employment Rights Act on hiring and workplace conflict
With some ERA measures coming into force in 2026, three-quarters of employers believe this will add to employment costs, and over a third plan to hire fewer permanent employees.
The changes employers see as most likely to impact their recruitment plans include the unfair dismissal qualifying period and Statutory Sick Pay (SSP) – both at 24%. This could lead employers to rely more on self-employed contractors to avoid the increased cost of hiring permanent staff, the CIPD notes.
Only 4% of employers believe workplace conflict will decrease because of the new trade union measures. Over half (55%) expect a rise in disputes due to at least one of the new ERA measures.
Willmott comments: “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.”
CIPD’s recommendations to the UK government
The CIPD is urging the government to continue with meaningful consultation to ensure that UK employers and business bodies can voice their recruitment concerns. In instances where key measures are not yet finalised, the professional body is calling for compromise, where necessary, to help prevent rising costs and legal risks for UK employers.
The Outlook report also highlights the need for a robust communication rollout to increase awareness and preparedness for upcoming reform. “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 into effect,” Willmott says.
To address the anticipated rise in workplace conflict, the CIPD is calling on the government to review the dispute resolution system and ensure that Acas has the resources it needs to help employers – particularly SMEs – comply and avoid employment tribunal claims and high legal costs.
CIPD’s recommendations to employers and people practitioners
For employers navigating these changes, the CIPD sets out several practical steps.
- Plan your workforce strategically. Consider the skills you’ll need in the future and build capabilities in those areas, avoiding short-term cuts where possible.
- Update talent attraction strategies. With less pressure to recruit new talent, use this time to strengthen your employer brand, paying particular attention to inclusion, role design, and job quality.
- Prepare for unfair dismissal reform. Ensure your organisation is ready for the changes coming on 1 January 2027.
- Manage absences proactively. To reduce the financial impact of day-one rights to SSP on 6 April 2026, take a preventative approach to employee sickness.
Key findings from the CIPD Labour Market Outlook
The CIPD’s Quarterly Labour Market Outlook survey, conducted by YouGov Plc, included a sample size of 2,082 senior UK HR professionals and decision-makers. Data was collected between 18 December 2025 and 17 January 2026.
- Over a third (37%) of employers plan to recruit fewer permanent workers due to one or more ERA reforms.
- Three-quarters (74%) of employers expect the ERA to increase employment costs, with 17% expecting costs to rise “to a large extent.”
- More than half (55%) of employers expect workplace conflict to rise because of at least one ERA measure.
- Only 4% of employers believe the new trade union measures will decrease workplace conflict.
- The net employment balance stands at +7 – the lowest on record outside of the pandemic.
- The median basic pay award remains at 3%, for the seventh consecutive quarter.
- Public sector employers are significantly more likely to be planning redundancies than private sector counterparts (27% versus 20%).
