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Anyone caught in a workplace conflict, in whatever capacity, will know how distressing, draining, disruptive and time consuming it can be. And now – thanks to new research commissioned by ACAS – we need to add expensive to this list.

Independent research published last month set out to put “the pound sign in front of the cost of conflict at work”. The aim? To help employers understand the impact of conflict on their businesses, take workplace conflict more seriously and look to learn from the data and manage conflict better. And the final figures are certainly attention grabbing. The report found that conflict costs UK organisations £28.5 billion a year, which is the equivalent of more than £1,000 per employee and more than the GDP of Malta! This would be a sobering sum in normal times, but now as employers face recession, inflation and post-pandemic economic uncertainty, it is surely a figure that cannot be ignored.

This blog unpacks the numbers in a bit more detail and reflects on what we can be doing to avoid these unwelcome costs.

Why does conflict arise and how common is it?

It is unsurprising that poor management is put forward as the major cause of workplace conflict. Managers who focus on leadership, vision and goals could be neglecting their “core management competencies”, ie addressing misconduct or performance issues and managing workplace relationships, and it is competency in these areas which can reduce the scope for conflicts to arise. Capability and disciplinary processes are seen as fertile ground for formal complaints, which can often result in costly absences, a lack of engagement at work, departures and legal claims.

According to the CIPD study, which supplied the data, 9.7 million people experienced conflict at work in 2018/19. This was 35 per cent of those who responded to the survey, and they defined conflict as an isolated incident or dispute or an ongoing difficult relationship.

The impact of the pandemic?

ACAS commentary on the report suggested that although they had – anecdotally - seen a reduction in the instances of conflict during the pandemic, they expected this to increase now workers are returning to the workplace and facing a climate of insecurity, change and economic pressure. The report also noted that a sustained shift to remote working and the impact of AI (see Rachel Lewis’ recent blog on AI for more), will present new challenges to managing people well.

Why is it so expensive?

Of those who had experienced conflict, 9 per cent said they took time off as sick leave as a result and 40 per cent reported being less motivated at work. 56 per cent reported anxiety, stress or depression. Covering work, managing absence and making adjustments involve time and expense, and the loss of productivity also needs to be factored into the mix. Although hard to estimate, the report considers the productivity dip flowing from conflict to cost between £590 million to £2.3 billion.

When conflict cannot be resolved and an employee resigns or is dismissed (and there are reportedly 485,800 resignations due to conflict a year) - the employer needs to manage this departure and recruit and train up a replacement. The report estimates this process incurs an impressive £14.9 billion. There will also likely be time and costs spent in negotiating and finalising settlement arrangements in some cases, and needless to say, if the individual threatens or brings a tribunal claim the legal and management costs involved in responding to claims can be very steep. The report sets the price tag of tribunal claims at £771 million – broken down into management time, legal fees and tribunal awards.

In summary conflict costs are incurred in four key areas:

  1. Resignations, absence and productivity dips.
  2. Management time attempting to resolve issues.
  3. Time and money spent following formalised mechanisms (including mediation and grievance / disciplinary processes).
  4. Litigation and associated costs.

How can all this be avoided?

Unsurprisingly prevention is better than cure and the earlier intervention happens and conflicts can be addressed the less likely an organisation will find itself dealing with (and paying for) some or all of the issues set out at 1 – 4 above.

What can be done?

  • Invest in training effective managers who have the confidence, time and skills to identify and manage their direct reports’ conduct and performance well. Although it may seem attractive to overlook or avoid addressing developing performance or conduct problems with a particular employee – a sensitive and informal intervention at an early stage can save a huge amount of trouble and expense down the line. See Tabitha Juster’s top tips on managing performance well.

  • Relatedly, grasping the nettle too firmly or too soon – for example, by deciding to simply dismiss a difficult or underperforming employee or “manage them out” – can also create a needless dispute, increase legal risk, as well as create the impression for others that the organisation is not supportive and relatively ruthless.

  • Encourage engagement between managers, HR and staff. The average costs of conflict where employees did not engage with their managers, HR or union were higher than when those discussions took place. If an issue is identified – invite the employee to a meeting to talk it through and ensure HR and managers have a linked up approach from the start. It is important not to overlook opportunities to find a resolution by following processes and policies too blindly (although they do of course have an important place).

  • Focus on solutions and not on blame – the ACAS guidance is clear that performance and disciplinary processes are intended to support improvements and development and not punish staff. This does not mean that employers can’t take “swift and decisive action […] to establish clear red lines around unacceptable behaviours” but for many issues a more supportive approach is likely to be the better option.

If you require further information about anything covered in this blog, please contact Sophia Coles, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2021

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