Continued Pressure of ERA Reforms on Employers: Institute of Directors Policy Paper It will come as little surprise to employers following recent developments in employment law, particularly the new Employment Rights Act (ERA), that many view the reforms as strongly pro-employee. The Institute of Directors (IoD), which represents business leaders, has published a policy paper reporting that more than eight in ten businesses surveyed believe the ERA will have an overall negative effect on economic growth. Against that backdrop, the IoD has urged the Labour Government to soften some of the further changes still to be implemented under the Act. What Does The IoD Policy Paper Find? In 2025, 72% of business leaders said the Act would slow the economy. That figure has now risen to 86%. More strikingly, the proportion who believe the Act will have a strongly negative impact has increased from 37% to 51%, suggesting concern is not only widening but deepening. While that shift is notable, it is perhaps unsurprising as more employers become familiar with the reforms and the first changes begin to take effect. The paper argues that employers have, in effect, faced a double burden: not only are the reforms expected to have an economic impact, but delays in progressing the legislation through Parliament have also reduced the time available to prepare. HR teams in particular have been left with limited lead time to update policies, contracts, and training in readiness for the changes. The IoD also notes that important details remain unconfirmed in relation to certain provisions, particularly those affecting zero-hours and low-hours contracts. Neither the definition of “low hours” nor the reference period for entitlement to a guaranteed-hours contract has yet been finalised, leaving businesses without clear parameters against which to model future hiring and retention decisions. A “colossal shift” compounded by wider reforms The IoD says the impact of this “colossal shift in employment relations within a short timeframe” has been amplified by other recent employment-related measures, including increases in employers’ National Insurance contributions and successive rises in the National Living Wage. The IoD further argues that “the decline in employers’ hiring intentions over the past 18 months cannot be solely attributed to one factor; it is the result of a perfect storm of employment policies which have combined to significantly weaken the business case for hiring”. The report also highlights that the cost burden is likely to fall most heavily on smaller employers, many of whom lack the in-house HR capacity to absorb change on this scale. As the IoD puts it, the Act is “an unnecessary burden on SMEs, especially those that are too small to justify having an HR department”. The IoD also found a marked shift in how employers expect to recruit in future. Several respondents said they would be more cautious about candidates without a proven track record, particularly in light of the reduction in the unfair dismissal qualifying period from two years to six months. That trend could have significant implications for early-career applicants, returners, and candidates with gaps on their CVs. What Businesses Should Be Doing Now Despite the IoD’s lobbying, HR teams and business owners should not assume that the implementation timetable will materially soften. Given the current political landscape, the Government appears unlikely to abandon one of its flagship reforms altogether, even if there remains scope to adjust aspects of the timetable, as it has already done in limited areas. In practical terms, employers should be auditing zero-hours and low-hours arrangements ahead of the guaranteed-hours regime, reviewing dismissal procedures and probation practices in light of the shorter unfair dismissal qualifying period, and preparing line managers for trade union access provisions. Employers that have not yet updated sickness policies to reflect the changes to Statutory Sick Pay should also do so. As always, this advice is general in nature and should be tailored to the circumstances of any individual case. As an RMI member, you have access to the RMI legal advice line, as well as a range of industry experts who can assist you. If you find yourself facing any of the issues outlined above, please contact us at any stage for advice and support as appropriate. Motor Industry Legal Services Motor Industry Legal Services provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only regulated law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.