This month ACAS published a ‘headline’ grabbing report
into the ‘cost’ of workplace conflict in the UK. It is the first report of its kind to systematically research and map the incidences of conflict across UK workplaces. Crucially, it shows how this effects staff and employers and the shocking estimated financial impact for UK businesses.
As Susan Clews (ACAS Chief Executive) points out: putting the pound sign in front of the cost of conflict at work certainly gets attention. It is well-known that workplace conflict can lead to staff stress, anxiety or depression, which has a knock-on effect on productivity. The report identifies effective conflict management as the key to maximising productivity and efficiency in organisations and ultimately reducing the cost of conflict.
The Report’s Key Findings:
- In 2018 to 2019, just over one-third (35%) of respondents in a CIPD study reported having experienced either an isolated dispute or incident of conflict or an ongoing difficult relationship. Based on those facts it is estimated that 9.7 million employees experienced conflict in 2018 to 2019.
- The vast majority of employees who experienced conflict stayed with the organisation with only 5% resigning as a result of the conflict they experienced. However, 9% reported taking time off as sickness absence owing to the conflict and 40% reported being less motivated with more than half (56%) reporting stress, anxiety and/or depression.
- The report estimates that, on average, 485,800 employees resign each year as a result of conflict. The cost of recruiting replacement employees amounts to £2.6 billion each year whilst the cost to employers of lost output as new employees get up to speed amounts to £12.2 billion. A further 874,000 employees are estimated to take sickness absence each year as a result of conflict, at an estimated cost to their organisations of £2.2 billion.
- The vast majority of those who suffer from stress, anxiety and/or depression due to conflict continue to work. This ‘presenteeism’ has a negative impact on productivity with an annual cost estimated between £590 million and £2.3 billion.
- 1 in 5 employees take no action in response to the conflict in which they are involved, while around one-quarter discuss the issue with the other person involved in the conflict. Just over half of all employees discuss the matter with their manager, HR or union representative. In total, informal discussions cost UK organisations an estimated £231 million each year.
- 5% of respondents took part in some form of workplace mediation in 2018 to 2019 at an estimated cost of £140 million. Nearly three-quarters of those who underwent mediation (74%) also reported that their conflict had been fully or largely resolved. While this points to potential efficacy of the process in terms of resolution, the costs associated with the unresolved conflicts can be exponential.
- It is estimated that there is an average of 374,760 formal grievances each year. The average cost in management time of a formal grievance is estimated at £951, giving a total cost across the economy of £356 million. In addition, there are an estimated 1.7 million formal disciplinary cases in UK organisations each year. The estimated average cost of each disciplinary case is approximately £1,141 – resulting in an economy-wide total cost of £2 billion. In addition, an average of 428,000 employees are dismissed each year and replacing them costs UK organisations an estimated £13.1 billion.
- 136,249 early conciliation (EC) notices were submitted across the UK, including 132,711 submitted to ACAS in 2018 to 2019, indicating an intention to pursue an employment tribunal claim. The total cost of management time spent dealing with potential and actual litigation is estimated at £282 million each year with a further £264 million spent on legal fees. In addition, £225 million in compensation is awarded against employers per year.
- The largest proportion of the costs of conflict are connected to an ending of the employment relationship – either through resignation or dismissal. Costs in the early stages of conflict are relatively low – these start to mount if employees continue to work while ill and/or take time off work through sickness absence. The use of formal processes pushes costs higher, however costs escalate very quickly as soon as employees either resign or are dismissed.
- This analysis estimates the overall total annual cost of conflict to employers (including management and resolution) at £28.5 billion. This represents an average of just over £1,000 for every employee in the UK each year, and just under £3,000 annually for each individual involved in conflict. This points to a clear link between the wellbeing of employees and organisational effectiveness.
The Report suggests that conflict was suppressed during the height of the COVID-19 pandemic. However, the gradual return of employees to the workplace, coupled with insecurity, rapid change and continuing economic pressure, means that it is likely that conflict between individuals in the workplace will resurface.
There is a growing body of research evidence that suggests the quality of management is a key part of solving the UK’s productivity puzzle. In particular, organisations have tended to place too much emphasis on developing leaders concerned with strategy, while overlooking the importance of encouraging excellence in core management practices such as the management of poor performance.
There are three strong messages to take from this Report:
- ‘Conflict competence’ is an essential ingredient in good management and it has a positive impact on organisational effectiveness and performance.
- There is a critical time to intervene. This is before conflict reaches formal workplace procedures, since at this point there is a greater likelihood of resignations, presenteeism and sickness absence.
- While conflict can be very bad and damaging to people and a business, it can also be creative. Conflict that asks questions and challenges prevailing ways of doings things, does give us the opportunity to create fairer and more inclusive workplaces in the future.
The Report encourages employers to invest in effective early resolution mechanisms, place greater emphasis on repairing employment relationships and address performance concerns promptly. It urges employers to address disciplinary issues in a way that focuses on learning and avoids blame, and have more "connected" HR practitioners who foster positive relationships between managers, employees and employee representatives, along with well-trained managers. The Report also argues for rebalancing policy away from legal compliance and reliance on the tribunal system to internal conflict resolution within organisations, following analysis of the escalating costs and impact of conflict to the point of litigation.
The Report highlights three main barriers to effective conflict resolution which organisations must remove if they are to reduce the cost of conflict:
- A lack of voice and representation;
- Remote HR advice; and (most importantly)
- Low levels of management skill and confidence.
The Report shows that even where employees do not make their concerns known, there are hidden costs. Creating channels through which employees can seek help and support is critical. The relationships between employee representatives and HR practitioners are also vital in helping early and informal resolution. This needs more ‘connected’ HR practitioners who understand and work closely with managers, employees and representatives. But, most importantly of all, managers need to have the core people-skills to enable them to have quality interactions with their staff.
In conclusion, the Report shows that the total organisational cost of litigation is one quarter of the cost of absence as a result of conflict, significantly less than the cost of reduced productivity and a fraction of the cost of staff exits through resignation and dismissal. The overall message in the Report is that a ‘stitch in time saves nine’ provided that those managers and HR practitioners tasked with ‘doing the sewing’ have the necessary skills and competence to manage and resolve the conflict effectively at an early stage.
To help businesses estimate the cost of conflict at work the Centre for Effective Dispute Resolution (CEDR) has produced a useful ‘Cost of Conflict Calculator’. This tool attempts to calculate the annual financial cost of poor conflict management as a benchmark to gauge action needed internally to promote conflict resolution.
For more information on how this impacts on you or your business, please contact Burnetts’ Employment Law & HR team at firstname.lastname@example.org or 01228552222.