Employment law: Hidden dangers and how to protect your business

Trevor Clawson reveals some of the more worrying scenarios lurking beneath the surface

Did you hear the one about the chef whose food was so unpalatable that customers regularly complained?

His employer sacked him on the spot. OK, so as punch lines go, it’s not even remotely funny. But even less amusing is the fact that the chef in question promptly filed a claim for wrongful dismissal – a claim that might well have succeeded had the employer not agreed to settle out of court.

The filing cabinets of law firms and HR consultancies are bulging with similar cases. An employer dismisses or disciplines a member of staff for entirely legitimate reasons but nonetheless ends up on the wrong end of a legal action that is near impossible to defend.

Often the problem is a failure to follow procedure. No one would blame a restaurant owner for sacking a chef who was unable to deliver quality meals, but if you don’t adhere to the proper processes, the one-time employee has been furnished with a gold-embossed invitation to seek legal redress.

And employment law is a labyrinth of unyielding legislation. In addition to legislation designed to protect workers from unfair dismissal, employers must also wrestle with rules and regulations that apply to discrimination – gender, sexual orientation, race, disability, religion and age – redundancy and the treatment of staff in the wake of a merger.

Additionally, it may not always be obvious that you’re in breach of the law. Guy Guinan, an employment partner at law firm Halliwells cites the discrimination laws as an example. “Direct discrimination is rare,” he says. “But companies may be guilty of indirect discrimination without knowing it.”

Guinan recalls the case of a Sri-Lankan teacher who applied for a post as a head of department at a school. The job description stipulated that knowledge of financial management was required. When she didn’t get the post, she claimed that the recruitment process was discriminatory because people from her ethnic background were unlikely to have the financial skills specified. “At first sight the job specification appeared to be entirely neutral,” says Guinan. “But the tribunal ruled that it did discriminate against certain ethnic groups and that the skills could have been learned on the job.”

Even careless words can cost money. “Asking a woman about her family at a job interview could lay you open to a charge of discrimination,” says David Smellie, head of law firm Farrer & Co’s employment practice. “As could saying something such as ‘I can’t believe you want to come back here now you’ve got a child’ to a female member of staff returning from maternity leave.”

The moral – be aware of your responsibilities under the law. Because if you’re not, at least some members of your workforce certainly will be. “Employees today tend to be very aware of their rights,” says Helen Morley, head of employment at Manchester-based law firm, Nexus. “In many cases, they are more aware than the employers.”

If you do fall foul of the law, the financial consequences are potentially very significant indeed. Tribunals have the power to make basic awards of up to £8,000 in cases of wrongful dismissal, plus additional compensatory awards (based on loss of earnings) to a maximum of £55,000. In cases of discrimination there is no ceiling on the amount payable. In practice, though, the sums tend to be much lower. The average wrongful dismissal payout was just over £3,000 in 2004, with average penalties for sex and race discrimination coming in at £5,425 and £8,410 respectively. Even so, it’s money you would rather not spend and even if you win the case there are the legal fees to consider. “We had one case that went to a tribunal,” recalls Gill Baum, office manager at network services company, The Internet Group. “We won, but the legal fees really stung. It was at that point that the company decided to do something about its HR procedures.”

The truth is that when companies are young, HR is unlikely to be much of a priority. Resources are tight, everyone is focused on creating, marketing and selling the products that will keep the whole show on the road and the last thing you want to do is devote precious time and energy getting to grips with the intricacies of UK employment law. But here’s the rub. The legislation that governs a business with 18,000 employees can be applied with equal force to a company that has 10, 20 or 100 people on its payroll. The sooner you put your HR processes in order, the safer you will be.

It’s a realisation that strikes most growing firms sooner or later. “When we started out, our HR processes were pretty anecdotal,” says Justin Lewis, CEO of corporate synergy, a City broker that has expanded from 10 to 30 employees in a relatively short space of time. “But as you get bigger, more HR issues tend to arise and you have to address that.”

Putting the basics in place

But what does that mean in practice? Well a good first step is to ensure that someone is in charge of HR policy, within your business. For instance, at Corporate Synergy one of the company’s directors has taken responsibility for people management while an assistant has been employed to handle the day-to-day administration. It’s a similar story at The Internet Group, where HR is an important part of Baum’s brief. This doesn’t necessarily mean employing someone to cover people management issues on a full-time basis but you do need a hand on the tiller. Then you can begin to put your ducks neatly in a row.

For many companies the weak spot is a failure to spell out the rights and responsibilities of staff and the employer. “It’s surprising how many companies don’t even bother to provide their staff with contracts,” says Steve Richards, head of RBS Business Solutions, a unit of the Royal Bank of Scotland that includes an HR consultancy (RBS Mentor) among its product offerings.

Well-drafted documentation – contacts, handbooks or written policies – will remove ambiguity from the relationship that you have with your staff. Even small issues such as personal use of company phones or the internet and even the organisation’s approach to staggering holiday can lead to friction unless everyone is clear what the policies are.

You can buy contracts off-the-shelf but be careful. If your business has specific requirements – say a need to prevent senior staff from leaving to join a rival company and subsequently poaching old colleagues or clients – it would be wise to get a contract drawn up by a law firm or HR consultancy with experience in your field. For instance, at The Internet Group new members of staff are not even allowed to log onto the company network before their contracts have been signed. As Baum explains, this policy is seen as crucial security protection for a business that provides often sensitive network services to its clients. But a contract can be a pretty worthless document unless it is legally enforceable. “We did use fairly standard contracts,” says Baum. “But we’re currently having new contracts drawn up by Liquid HR [an HR consultancy] that will be easier to defend should a case go to court.”

The other aspect of documentation that should be addressed is the ongoing collection of records, covering matters such as sickness absence, timekeeping and performance. “Documentation is necessary all through a person’s working life,” asserts Angela Dyett, managing director of Liquid HR.

This is not just a question of good housekeeping. Let’s say you have decided to take action against a member of staff over an issue such as persistent lateness or poor personal appearance. When you confront the employee, would you prefer to rely on anecdotal evidence provided by their line manager or head of department – ‘I, er, think he was several times last month and I did mention it to him at least once’ – or a systematic log detailing not only the incidents themselves but any consequent discussions between the employee and a department head?

And when you look at the risks posed by the discrimination laws, keeping comprehensive and consistent records could be all that stands between you and a very large fine.

Let’s assume that you’re not the kind of employer who would ever dream of discriminating against anyone on the grounds of race, creed, gender or age. Great – you’re in the clear. Well, not necessarily. Dismiss someone on the grounds of poor performance and you may find yourself facing a counter-claim that the real reason was racial or gender discrimination. Pass over a long-standing employee for promotion and the employee could allege the decision was influenced by a recent pregnancy and spell of maternity leave. Carelessly drop a CV into the bin and you may find yourself on the wrong-end of a discrimination sting. “There are people who will send two identical applications under different names,” says Smellie. “The only difference will be that one will include a photograph of an applicant who is disabled.” Interview one and not the other and you could be in trouble.

Whether a discrimination claim against your company succeeds or fails, will often depend on the bigger picture. If your company has, broadly speaking, a 50/50 mix of men and women, a tendency to promote only men to senior positions could prove damning, unless you can clearly show why that is the case.

So keep accurate records. When was Jones in accounts warned about timekeeping and why? Why did you choose a particular group of people for training? On what grounds did you select 10 short-listed candidates for interview? What were the criteria that underpinned that recent promotion to head of department? If you can demonstrate sound reasons behind your decisions you should be OK. And as Kathy Halliday, an employment partner at Birmingham law firm Cobbetts, advises: “All verbal warnings should be noted down.”

There is one position that is virtually impossible to defend. As Morley stresses: “Pregnant women are the most protected group in the workplace. You don’t dismiss a woman who is pregnant.” Even if you have reasons to do so which are nothing to do with pregnancy itself you would be on very shaky ground.

The final piece of the jigsaw is ensuring that you follow the processes set down in the law. For instance, under the Employment Act 2002 (Dispute Resolution) Regulations, which came into force last year, all employers must at the very least follow a three step process before dismissing a member of staff.

This involves a written invitation to the employee to attend a disciplinary meeting (with the letter including details of the matters that will be discussed), the meeting itself and a right of appeal. Failure to comply with this will mean that the dismissal is automatically unfair as will a failure to respond to any written grievance filed by the employee. “There may be a temptation to sack someone on the spot,” says Guinan. “That urge should be resisted.”

Hired help

At this point you could be forgiven for sighing out loud, burying your head in your hands and muttering something completely unprintable about how red tape is smothering business. More practically, you might ask ‘how is my company going to get to grips with all this and stay on the right side of the law?’.

Whoever is ultimately responsible, it is vital that all managers stay on top of the issues, so some basic awareness training is vital. If you already employ the services of a law firm, you should be able to secure a certain amount of training for senior and line managers at no extra cost, provided you agree to use their employment practice when issues do arise. Training is also available from consultancies and from e-learning specialists. Consultancies in this field include Croner, Peninsula, Human & Legal, its subsidiary Liquid HR and RBS Mentor.

In terms of documentation, law firms and consultancies will draft supply the documentation you need, including contracts, policies and employee handbooks.

On the administrative side, there are a number of options. When the company is small, it may be enough to employ a freelance HR specialist for one day a week to ensure that records are being properly kept. However, even relatively small businesses can benefit from employing full time HR staff. A case in point is Innocent Drinks (see box). With just 70 employees, the company nonetheless employs four full time HR people to handle not only administration but also the development of talent within the organisation.

The alternative is to outsource a majority of the work to a third party. This can be incredibly cost-effective. For instance, Liquid HR provides contracts, HR policies and an internetbased employee database – that can be used to record details such as absence, holidays and training records – legal advice on specific cases and legal disputes insurance. It charges £13 per month per employee with that amount falling on a sliding scale for companies with more than 25 people on the payroll. RBS Mentor’s prices vary depending on the level of service, but charges start at £49 per employee per year.

There is no single route to take – it’s a question of getting the right solution for your business.

POSITIVE THINKING

?Our view is that an organisation is a community of individuals. Our focus is on ensuring that the people who work for us become the best possible versions of themselves.?

So says Richard Reed, co-founder of Innocent Drinks, a company that in six years has expanded to employ 70 people on the production and sales of fruit smoothies and other drinks. And according to Reed, a positive approach to people management has helped the company attract and retain the best available talent. ?Staff churn? We don?t really have staff churn,? he asserts.

With a team of four people working on people management, Innocent has assigned a considerable resource to HR. This has allowed the company to put ?hard structures? in place to facilitate reward-based pay underpinned by six-monthly appraisals. The philosophy is that you get out what you put in, with each member of staff responsible for his or her own development.

Staff also enjoy a considerable degree of flexibility. ?As long as you?re delivering the doughnuts, we don?t care where you are. If someone can do the job from home and that will help them, we?ll allow them to do that,? says Reed.

Reed is aware that there is a danger of staff abusing privileges such as flexible working but with a sizeable HR structure in place the capability is there to ?come down hard? on errant employees. ?But we haven?t really had a problem,? he says. ?Our HR effort is really about keeping up with peoples? aspirations rather than seeking out wrongdoers.?

The company provides a great example of how HR policy is about much more than compliance with employment laws. It is also about managing people and bringing out the best in them and the business.

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