Fear of legal action puts small firms off redundancy

Published on Monday 3 August 2009 21:47

A QUARTER of Scottish small business owners are afraid of making redundancies for fear of being sued by disgruntled former employees, according to new research.

Fears over expensive court battles are holding some firms back from sacking staff, with 15 per cent of Scottish small and medium-sized (SMEs) reluctant to make redundancies because of the consequences.

Throughout the UK as a whole, more than one-third of businesses are worried about legal action if they were to reduce their workforce.

Of the owners worried about being sued by workers, 33 per cent said it was because their firm does not have the necessary funds to afford a big payout, while two-thirds would be worried that they had not followed the correct procedures in dismissing a member of staff.

Yet Scottish businesses are not as worried as their peers in the north of England, where more than 40 per cent of SMEs are concerned that disgruntled former employees will sued them. Figures for the south of England are similar to those for Scotland.

More than two-thirds of bosses in the north of England think that staff would be out for revenge and one-third suspect they would attempt to get a bigger compensation payout from their former employer.

A spokesman for the Federation of Small Businesses in Scotland said: "The FSB has seen a large spike in the number of calls to its legal advice line on the subject of employment law over the past four months.

"Small firms are looking to ensure they're on the right side of the law. But there are a lot of firms having to look at their options during the recession."

Kate Robertson, an associate at law firm Ledingham Chalmers, said procedural mistakes are one of the main issues to fear for any employer.

She added: "The path is pretty well tried and tested – a potential redundancy situation triggers an obligation on any firm to inform and consult employees who would be affected.

"A simple rule for employers is to go the extra mile, wherever possible, when dealing with a redundancy situation."

Sarah Chilton, a solicitor at law firm Murray Beith Murray, which is running redundancy workshops targeted at SMEs, said: "If employers do not know quite how to deal with these situations and know what their obligations are it is quite easy for them to fall down.

"Unfortunately, employment law is still complex and sometimes a bit of a minefield."

Some 45 per cent of SMEs in the UK have legal protection insurance to meet the costs of court battles, according to insurance firm Premierline Direct, which commissioned the study by YouGov, with only 40 per cent of Scots firms taking out cover.