Research from leading risk management, insurance and consulting firm, Gallagher has found UK businesses are facing a rise in workplace conflicts with almost two-thirds (63%) of complaints now resulting in attempted legal action.
The research is released as significant changes under the Employment Rights Act 2025 take effect. From 1 October, the time limit for bringing most employment tribunal claims increased from three to six months. Further measures are due from 30 October, including requiring employers to take all reasonable steps to prevent sexual harassment and new obligations around third-party harassment. Further reforms are scheduled for 2027, including changes to unfair dismissal and flexible working rights.
The data shows these changes are arriving at a time when workplace disputes are already becoming more frequent. Among employers that had dealt with an employee disagreement, 40% said flexible-working disagreements had become more frequent compared with two years ago, 37% said the same of bullying, harassment or discrimination disputes and 36% of sickness, absence or disability-related issues.
Gallagher’s study of 501 UK employers found the average dispute costs £2,500 to resolve, with legal costs potentially arising long before a case reaches an Employment Tribunal. Many employers will seek legal advice to navigate increasingly complex HR legislation and determine how best to respond. According to Government figures HR lawyers cost an average £388 per hour to provide advice, so it is easy to see how these costs can rack up.
The burden on management time is also significant. Almost six in ten (59%) employers said senior management, HR or legal teams had spent at least 25 hours dealing with employee disputes over the past two years.
For complaints that escalate the cost can increase quickly. Acas estimates that formal disciplinary and grievance procedures cost UK employers £2.36 billion annually. Where disputes escalate to an Employment Tribunal, separate Government analysis has estimated that defending a claim costs businesses £13,170 on average, including legal representation and management time.
These costs are being borne by businesses regardless of whether the complaints are found to be justified and, on average, firms’ face multiple complaints per year resulting in a significant impact on their finances. This rise is further evidenced by data from the Employment Tribunal which is currently facing a backlog of 70,000 claims due to the volume of complaints submitted.
“Employee disputes should not be viewed only as a HR issue – they are a significant operational and financial risk, consuming management time, driving legal costs and creating reputational exposure at a time when employers are already navigating a more complicated regulatory landscape,” commented Laura Parris, Executive Director of Management Liability at Gallagher. “Based on our research, the average dispute can cost thousands of pounds to resolve, while disputes that escalate into legal action carry an even greater financial and organisational burden.”
Many employers are not insured for costs relating to employee litigation because they mistakenly think it is covered under employers’ liability insurance, which is widely purchased as it is compulsory. A third (34%) of business owners incorrectly thought this insurance covers legal costs relating to employee grievances or disputes, a similar number (31%) thought it would pay out for employment tribunal claims and 27% selected settlement agreements with employees.
Turning to UK businesses’ ability to manage increasingly complex HR legislation, Alistair Dornan, Managing Director, Gallagher’s HR and Consulting Division said: “Workplace disputes divert valuable time and resources away from core business priorities. Employers that invest in clear policies, manager training and early intervention are likely to be better placed to prevent issues escalating into costly and time-consuming disputes. Investing in manager training is key to this, ensuring those on the frontline have the confidence and skills to navigate difficult conversations, resolve issues early and prevent disputes becoming costly legal battles.”
