Imagine you’re running a small business in the UK right now. You’ve got a decent team, orders are coming in, and you’re thinking about bringing on a couple more people to handle the growth. But then you hear about the latest changes coming down the line in employment law. Suddenly, that idea doesn’t look so appealing anymore. In fact, it starts feeling downright risky.
That’s the reality many employers are facing as sweeping new worker protections move closer to becoming law. What started as promises to improve rights for employees is turning into something that could fundamentally alter how companies approach hiring. And not in a good way.
The Quiet Storm Brewing in the UK Labour Market
We’ve all heard the headlines about protecting vulnerable workers, making workplaces fairer, and giving people more security. Those sound great on paper. Who wouldn’t want better treatment for employees? But dig a little deeper, and the picture gets more complicated.
The trouble is, when you pile on layer after layer of new obligations and risks, something has to give. In this case, it’s likely to be the willingness of businesses to take on new staff. I’ve spoken to several company owners recently, and the mood is shifting from cautious optimism to genuine concern.
Unlimited Claims: A Lawyer’s Dream, Employer’s Nightmare
One of the most eye-opening changes involves compensation caps in employment tribunals. Right now, there’s a ceiling on what someone can be awarded in most cases. That limit has helped keep claims somewhat grounded in reality.
But under the new proposals, that cap is being removed entirely for certain types of claims. This opens the door to potentially massive payouts, especially for higher earners who feel they’ve been treated unfairly.
Think about it. A senior executive earning seven figures could theoretically claim multiple years’ worth of salary if they pursue a discrimination or unfair dismissal case. With the best legal representation money can buy, these claims become very attractive propositions.
From an employer’s perspective, this dramatically increases the financial risk of every hiring decision. One wrong move—or even a perceived wrong move—could cost millions. It’s hard to see how that doesn’t make businesses think twice before expanding their teams.
The removal of compensation limits fundamentally changes the risk-reward calculation for employers when bringing on new people.
Special Protections Creating New Challenges
Another significant shift involves protections for working parents, particularly mothers returning from maternity leave. The new rules would make it extremely difficult to take action against someone who’s recently had a child, even in cases of persistent underperformance or attitude issues.
Now, don’t get me wrong—supporting parents in the workplace is important. But when protections become so absolute that normal management becomes almost impossible, it creates real dilemmas for employers.
With millions of working parents in the UK, this isn’t some niche issue. It’s going to affect a huge portion of the workforce. Companies will need to factor in these extended protection periods when making hiring decisions, particularly for roles that require consistent performance.
- Extended protection periods after maternity leave
- Very limited grounds for performance management
- Increased planning required for workforce coverage
- Potential impact on team morale and productivity
In my experience, most businesses want to do right by their employees. But when the rules make it nearly impossible to address genuine performance problems, it forces difficult choices.
Day-One Rights Reshaping Employment Relationships
The list of new entitlements starting from the very first day of employment is growing longer by the month. Flexible working requests that employers can’t reasonably refuse. Sick pay from day one. Enhanced parental leave rights immediately.
These might seem like small changes individually, but together they represent a fundamental shift in power dynamics from the moment someone walks through the door.
Traditionally, many of these benefits built up over time as trust and commitment developed on both sides. Now they’re available immediately, which changes how both parties approach the employment relationship.
Perhaps most significantly, larger companies will need to produce annual gender equality plans. While well-intentioned, this adds another layer of administrative burden and potential legal exposure.
The Current State of Play Isn’t Encouraging
Let’s look at where we are right now. Unemployment has climbed to levels we haven’t seen in years. Job vacancies are falling month after month. More people are economically inactive, many citing health reasons.
For recent graduates, the job market has rarely felt this tough. Many are struggling to find that crucial first role that launches their career.
Add in the recent increases to employer national insurance contributions, and the cost of employing someone has already risen significantly. Now layer on these additional risks and obligations, and you can see why many businesses might decide that growth through hiring just isn’t worth it anymore.
| Factor | Current Trend | Potential Impact |
| Unemployment Rate | Rising | More competition for fewer roles |
| Job Vacancies | Falling | Employers pulling back on recruitment |
| Hiring Costs | Increasing | NI rises plus new obligations |
| Tribunal Claims | Record highs | System already overwhelmed |
The tribunal system itself is creaking under the weight of existing claims. Adding hundreds of pages of new legislation can only make this worse.
What Might This Mean for the Wider Economy?
A hiring freeze across multiple sectors would have ripple effects throughout the economy. Less employment means less spending power. Lower tax revenues. Reduced business investment.
Young people struggling to enter the workforce face long-term consequences for their earnings potential and career progression. Small businesses, often the engine of job creation, would be hit particularly hard by these changes.
It’s worth remembering that the best protection for workers is a strong, dynamic labour market with plenty of opportunities. When businesses are confident about hiring, employees have choices and can negotiate better terms.
When hiring becomes too risky and expensive, everyone loses. Workers face fewer opportunities, and businesses struggle to grow.
A vibrant job market with plentiful opportunities offers workers far more genuine security than pages of protective legislation ever could.
Alternative Approaches That Might Work Better
There’s no doubt that some workers need better protection. But there are other ways to achieve this without creating such significant disincentives to hire.
Simplifying the tribunal system rather than expanding its scope. Encouraging better workplace practices through incentives rather than penalties. Focusing protections on those who genuinely need them most.
- Target protections where they’re most needed
- Streamline dispute resolution processes
- Support businesses in managing people effectively
- Promote skills development and internal progression
- Create genuine flexibility that works for both sides
These approaches might deliver better outcomes for workers without choking off job creation.
Looking Ahead to 2026 and Beyond
As these changes move closer to implementation, businesses will need to adapt their strategies. Some may shift toward more contractors and freelancers. Others might invest heavily in automation. Many will simply pause expansion plans.
The graduates entering the market next year could face an even tougher environment than today’s cohort. Established workers might find progression opportunities drying up as companies become more cautious about creating new roles.
In the end, the real test of any employment policy should be whether it creates more opportunities and better outcomes for workers overall. If these changes lead to fewer jobs and slower growth, they’ll have failed that test.
Sometimes the road to hell really is paved with good intentions. Protecting workers matters—but not at the cost of destroying the very job market that sustains them.
The coming months will tell us whether policymakers recognize these risks and adjust course, or whether we really are heading for the kind of hiring collapse that some fear. Either way, it’s a development worth watching closely.
Because when businesses stop hiring, everyone feels the impact eventually.
