New research from the Institute of Directors reveals that over eight in 10 (86%) business leaders believe that the Employment Rights Act will have a negative impact on UK economic growth. This represents an increase from 72% since the same research was conducted in May 2025.

As revealed in the IoD’s new policy paper, The Employment Rights Act: insights from employers, the research also explores how business leaders are responding to the Act as its measures begin to come into force. Almost two thirds (63%) report being less likely to hire new staff and over half (57%) state that they are more likely to invest in automation.

In the paper the IoD calls on government to:

Exempt employers with fewer than 250 employees from trade union access provisions.
Increase the planned reference period for the entitlement to guaranteed hours to 52 weeks and set the low hours threshold at eight hours.
Reintroduce the Statutory Sick Pay rebate for SMEs.
Adjust the implementation timeline to give employers more time to prepare for the most complex reforms, including the introduction of additional protections against unfair dismissal and trade union access to workplaces.

Commenting on the launch of the paper, 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.

“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."

Further information, including the full data set, can be found in the IoD’s policy paper – ‘The Employment Rights Act: insights from employers’.