What key pieces of knowledge should a small business owner be equipped with when it comes to employment law?
It’s a good question because employment law can be confusing for all employers, but particularly for small businesses and start-up owners. The whole area consists of a mix of complex regulations in a landscape of ever-changing legislation that is challenging to keep up with.
While business owners are not expected to be experts in legal matters, there are a number of legal implications that you should be aware of, at the very least.
So, we hope our advice helps in the short term, until your business reaches a point where it must engage in more formal legal procurement. We also offer advice on taking those first steps to acquiring professional legal services when the time comes.
Why is employment law important?
The old adage about prevention being better than cure is not just applicable to our health, it applies equally to employment law, not least because of the very real financial impact that businesses have faced on the wrong side of judgements.
It’s all too easy to assume that headline cases are the exception rather than the rule. But this is particularly untrue for small businesses in the UK. SMEs are said to encounter as many as eight legal issues per year (according to lawbite.co.uk).
A YouGov survey of SMEs has predicted an estimate industry loss of £13.6 BILLION a year – the financial cost of not taking care of legal business. The survey found that almost half (43%) of the legal issues that occurred for SMEs had resulted in individual case-costs of £5,000 or more. That’s a big bill for any small business.
Unfortunately, the costs can run a lot higher than that. For example, in 2016:
- The highest sum awarded in a tribunal claim was £1,762,130 (in a sex discrimination claim)
- The highest award for an unfair dismissal claim was £470,865
- The average award for unfair dismissal was £13,851 (up by about £1,500 on the previous year)
Such cases are rising in occurrence because employees are proactively educating themselves in the area of employment law. Workers want to know their rights. Everyone’s an expert now. So too are those who would seek to exploit it.
Not considering the legal side of HR within the business can result in a vulnerability which is easy to exploit. Some of the most common complaints and claims are as follows:
- Unfair dismissal or other dismissal related risks and workplace rights claims
- Reasonable notice of termination when there is no written contract of employment
- Backpay or an award breach where employees are paid a “flat rate” or salary without the correct written agreement
- Payroll related claims, e.g. wage deductions without authority or incorrectly calculated leave pay.
The important thing to remember though is that many of these legal issues can be avoided.
The most common risks noted above can be mitigated simply through crafting the correct contractual documents and following procedures lawfully.
But with only 12% of the industry thinking these legal issues will ever happen to them, there are a lot of risks being taken through ignorance or avoidance of employment law issues.
Foreseeing and avoiding these risks also becomes even more vital as your business grows.
What SMEs should do to comply with employment law?
There are many practical steps you can take, and knowledge you can acquire, to arm yourself in the area of employment law. We have summarised some of the simplest steps regarding the most commonly-found issues here;
When it comes to recruitment in employment law, the easiest advice to follow (yet often overlooked) is the simple keeping of records. By documenting the decision-making process, you can show – if required – why you chose a candidate for a particular role, or why you chose to dismiss someone.
When hiring, you must focus on the role requirements and be able to prove you didn’t discriminate (because that is illegal).
Surprising to some, an employee enters into a contract as soon as they accept a role. This applies regardless of whether the offer is in writing or signed. Therefore, it can be a good idea to state that you are not in a position to offer a job during the interview process, just to mitigate any misunderstandings. Like-wise, in any written job offer, explain that the contract terms will follow at a later date.
Within the first two months of employment, you must provide full employment T&Cs covering:
- Working hours
- Holiday entitlement
- Job title (or description)
- Place of work
Also include a line that entitles you the right make amendments for instance, the right to change the place of work. Otherwise, you may be in breach if you were to relocate. Any changes you do make to the contract have to be with consent of the employee or you risk being sued for constructive dismissal, or breach of contract.
By default, employees have a number of standard rights which are implied and therefore don’t need to be spelled out in black and white. There are also rights which you can’t impact as an employer. Ultimately, you can’t jeopardise a relationship based on ‘trust and confidence’ with employees and they too have a reciprocal duty to serve with honesty, integrity and due diligence.
- You have a duty to provide a safe and healthy working environment.
- Your employees have the right to a reasonable amount of privacy
- Employees retain the right to call out any wrongdoings by an employer and can sue for full compensation should doing so result in any negative losses onto them such as demotion, or dismissal
In the event of the employee leaving, all staff are entitled to a notice period once they have been in service for over a month.
- For one month, they get one week
- After two years, they get two weeks
- And so on, up to a maximum of twelve weeks after twelve years
Employees also have the right to keep their jobs should the business change hands. Any job losses could be classed as unfair dismissal.
Disciplinary and Grievance Issues
The disciplinary and grievance procedures need to outline who an employee should contact if they have a discipline or grievance issue and what steps will come as part of the process. These procedures must be fair and reasonable and should follow the Acas Code of Practice.
A good tip for avoiding such issues in the first place is to ensure your employees know the kinds of behaviours and conduct that would qualify for disciplinary action. Let them know the grounds on which an employee would be dismissed from their job including issues like gross misconduct, unauthorised absences or being convicted of a crime.
One of the most common employment law risks for businesses involve claims for unlawful or unfair dismissal. In general, employees who claim they have been dismissed for “unfair” reasons must have two years’ service, but for some cases the length of service can be irrelevant.
A related case type is “constructive dismissal” where an employee can sue if they feel you made it impossible for them to continue to do their job, or where you breached a fundamental term in their contract. They must raise a grievance first, though.
Top Take-aways and Advice:
Prevention is better than cure – while investing in legal support can be difficult to assign value to until it’s needed in an emergency, the numbers that exist should act as fair warning.
Documentation and contracts – many issues begin because of the lack of documentation, or because documentation isn’t correct or legal, or because it is breached by an employer, even if breached unknowingly. Taking advice and proactively covering this aspect of your business will serve as a stable foundation.
Up to date knowledge – the area of law that regulates relationships between employers and their employees is constantly being updated to stay in line with modern practice, European law and case precedents. You aren’t expected to be a lawyer but it is advisable to keep abreast of the basics and resources like the CIPD can help you to do that.
Health and safety – one of your employees’ most basic rights is to be provided with a secure, safe and healthy working environment. This is also the area of employment law that includes issues which can pose a real physical risk to people and so it should always be a priority, even if the main crux of your business doesn’t involve manual labour.
Hiring and firing – when employees are joining or leaving the business, maintaining records and following due process is the key. Focussing on the requirements of the role, and not discriminating in hiring is essential. When dismissing employees, the rules are similar. You cannot discriminate and you should have clear procedures and follow them properly.
Employee theft – within the workplace is on the increase. In the retail sector in particular, employee theft is estimated by the Global Retail Theft Barometer figures to account for over £2billion in lost revenue in the UK alone. Investigations are extremely sensitive and have to be conducted in line with fair procedure. Seek specialist advice before undertaking an investigation.
Don’t expect help from the police or CPS – though they are often our first contact when we feel we’ve been legally wronged, their resources are stretched. Add to that the fact that business crime isn’t the highest priority when it comes to protection of life, especially when it’s internal crime. The crown prosecutions service cannot justify supporting your case if your own policies and processes have let you down.