The financial cost of workplace conflict, and how to reduce it

How common are conflicts?

According to the report, in 2018 - 2019, 35% of companies that responded to a CIPD study said that they had experienced either (i) an isolated dispute or incident of conflict, and/or (ii) an ongoing difficult relationship, during the last 12 months.

To put this another way, the report estimates that as many as 374,760 individual grievances are made against employers every year. It is also suggested that 1 in 5 employees take no action in response to a conflict in which they are involved, and this highlights how the majority of workers are willing to act when the opportunity arises.

Despite the fact that so many employees seem willing to take action when they can, only 5% of employees involved in conflict are willing to resign as a result of their experience. This amounts to an estimated 485,000 resignations each year.

Cost to Employers

The cost associated with the 374,760 annual grievances noted above is significant for employers. The average cost in management time when working to resolve each of these individual grievances is £951. This leads to a total cost across the economy of £356m.

In addition there are an estimated 1.7m formal disciplinary cases in UK organisations each year. The estimated cost of each disciplinary case is supposedly £1,141, resulting in an economy wide cost of £2 billion per year.

The dismissal of employees is even more expensive for employers. Each year, 428,000 employees are dismissed in the UK, and replacing them and training their replacement equates to a total cost across UK organisations of £13.1 billion.

The effect on employees

For employees, being involved in a workplace conflict can be incredibly costly to their mental health.

According to the report, close to 10 million individuals experience workplace conflict every year and over half of these employees suffer from stress, anxiety and depression as a result of it.

This leads to 900,000 employees requiring time away from work in order to overcome the strain on them that is caused by their experience in the workplace.

However the vast majority of those who suffer from stress, anxiety and depression as a result of conflict, continue to work. This ‘presenteeism’ negatively effects an individual employee’s productivity by as much as 28%, and as a result can cost the economy anything between £590 million and £2.3 billion (Source: Health, absence, disability and presenteeism cost estimates of certain physical and mental health conditions affecting US employees. Journal of Occupational and Environmental Medicine, 46, 398-412).

Reducing the costs and avoiding disputes – HR considerations

A resolution that is borne out of the report by ACAS is that companies should invest in effective and early resolution procedures. Failure to do so can be costly, and companies that do not deal with employees in an open and transparent way, and do not encourage disgruntled employees to engage with their managers or HR, typically end up paying more in order to resolve the issues at hand.

Furthermore, where conflict leads to formal procedures being required, costs for employers can be 3 times greater than if they had dealt with the issue early.

The cost associated with dismissing an employee and replacing them is also significant. One way that employers can reduce this cost is by creating a robust and reliable performance management strategy. This may encourage employees to share their concerns or problems at an early stage, and it allows employers to track the performance of their workforce and proactively make changes before matters escalate.

Legal advice during the initial informal stages of a potential conflict can also be crucial in preventing a matter from escalating, and can lead to a significant saving in overall costs.

It is also essential that employers try to provide a welcoming, supportive and inclusive work environment, so that any employee suffering from a deterioration in their mental health as a result of a workplace conflict can feel encouraged and confident to discuss how they are feeling. A problem shared is often a problem halved, and early intervention can be key.