The Employment Rights Act 2025 introduced a significant package of reforms being phased in over several years. Businesses need to stay abreast of the changes; make necessary adjustments to internal policies, systems and training; and review how they manage people, risk and compliance. Although much of the Act is still to come into force, already the exposure to employment litigation is intensifying. Acas, for example, recently reported a 27% increase in early conciliation notifications than the previous year.
Legislative change is only part of the picture
AI is often viewed as a new superpower. Increasingly, staff are using AI to help understand their rights and draft grievances, appeals, and claims that are longer and more legalistic than anything organisations have previously encountered. All at a time when employing people is becoming more expensive.
Last year employer NICs increased from 13.8% to 15%, and there have been annual hikes in minimum wages, too. Higher salary expectations amongst staff, partly driven by a desire for income to at least keep pace with the cost of living, add further to the financial burden.
One of the consequences of this landscape is that many employers are becoming more cautious about recruiting. However, the answer is not necessarily to stop hiring. Instead, employers should be more selective and plan recruitment carefully.
This means prioritising roles that will deliver value, creating clear job descriptions and robust selection processes, structuring probation periods effectively and addressing performance issues early. Before considering hiring freezes or redundancies, employers should also look at other ways to manage costs, such as reducing working hours, reviewing reward models, or limiting the use of contractors and agency staff.
Balancing prudence with progress
The challenge is to ensure that caution does not become paralysis. A decision not to hire can immediately reduce costs, but failing to recruit for essential roles can place additional pressure on existing employees, constrain growth, and ultimately reduce productivity.
Another symptom of a subdued economic outlook is less competitive pay. This can discourage job moves and cause what is sometimes described as ‘job-hugging’, when staff stay in existing roles rather than risking a move elsewhere. The result is reduced labour market mobility and workers becoming less engaged and less productive
This challenge is compounded by the fact that the growing cost and complexity of employment is often diverting HR and talent management functions away from progressive activities like developing skills, training, improvements in leadership capability, workplace culture and investment in technology – all key contributors to a productive and engaged workforce.
The CIPD Working Lives Scotland 2025 reported that 26% of Scottish employees said work had a negative impact on their mental health, citing factors such as high workloads, stress, exhaustion and work-life balance. The solution therefore does not lie in expecting existing employees to do more, as this risks increased stress, sickness absence and staff turnover, ultimately creating further employer costs. Instead, improving productivity is about working better, not simply harder.
Impacts beyond the workplace
The consequences of this period of workforce disruption are rippling into wider society. The number of Scottish businesses in critical financial distress has risen significantly, while unemployment has increased from 3.7% to 5.1% over the past year. Against this backdrop, policymakers and employers face a difficult balancing act. Strong employment protections are important and can help create fairer, more sustainable workplaces. However, businesses must have confidence and financial resilience to hire, invest and grow. Striking that balance is not a choice between protecting workers or supporting business; it is about creating the conditions in which both can thrive.
*Originally featured in The Business Autumn 2026: View Article
