E is a myth that should be dispelled. Despite many commentators and business owners believing the contrary, it’s relatively easy to hire and fire employees in Britain.
This myth gained particular currency prior to recent legislative changes but still persists. Since 6 April 2012, employees must have been employed by a company for two years before acquiring unfair dismissal rights and, since 29 July 2013, employees have had to pay a fee to make an Employment Tribunal claim and another fee if their claim goes to a full hearing. Compensation payable to an employee for a successful unfair dismissal claim has also been capped at £90,000 or the employee’s annual pay – whichever is lowest. These changes have made a huge difference, resulting in the number of Employment Tribunal cases dropping by 70 per cent.
This hiring and firing myth will be reinforced as we head into the referendum on Britain’s membership of the EU. However, despite a few outcomes less popular with employers as a result of our membership – such as the decision that employees accrue holiday during sick leave and commission when on holiday – we have managed to integrate EU legislation to better protect workers while maintaining a relatively flexible system. Brexit would certainly give us more independence on employment matters. But in truth, we seem to have managed to strike the right balance without a need to leave the EU.
This is not to suggest that hiring and firing isn’t without risks. At some stage, all fast-growing businesses will need to decide whether or when to take someone on to manage HR issues. When it’s best to do this should be principally based on how much time, focus and money senior management is spending on employment matters. For an entrepreneur employing lots of people, this may be necessary straight away, while for some – even businesses like hedge funds that can be turning over huge profits – the need to employ a dedicated HR manager may be put off indefinitely. It may also be an issue of how proactive or reactive an entrepreneur wants to be when dealing with his or her staff.
One of the biggest employment challenges owners of fast-growing companies are likely to face comes when expanding overseas. Even our neighbours in Europe have very different employment laws, which need to be understood on a country-by-country basis. Non-European clients often choose the UK as their base to enter the European market because of its relative flexibility. It is not unheard of for unprofitable businesses in Europe to be kept open because it’s cheaper and easier than closing the office. As such, the ease and cost of extraction needs to be a factor in any decision to expand overseas.
The UK’s employment landscape is as good as it has ever been for entrepreneurs. Employees have a good level of protection, including from suffering detriment as a result of discrimination and whistleblowing, but the rights are sensibly limited and the bar to accessing the Employment Tribunal has now been set sufficiently high, so that vexatious claims are much reduced in number. We sit – as with so many other things – in a happy medium between the US and Europe. It’s just a shame so few entrepreneurs – perhaps blinded by scare stories – appear unaware of the reality.
Daniel Naftalin is a partner and head of the employment department at Mishcon de Reya.