Unfair Dismissal Claims Rocket
Research from Hiscox has revealed a threefold increase in insurance claims from small businesses being sued by employees for unfair dismissal in the last quarter of 2008.
"Many small-business owners will not have steered a company through a recession before and are unaware of what they need to do," said Hiscox SME expert Gary Head. "All businesses should seek professional advice when it comes to making redundancies or they might find that what started out as a cost-cutting exercise could cost them far more in the long run."
Unfair dismissal claims can arise when employees feel they have been treated unfairly or discriminated against. Firms can also risk claims if they fail to follow procedures correctly.
The research found that the three most common mistakes made by employers were a failure to follow collective consultation procedures correctly, neglecting to carry out a fair and reasonable redundancy selection process, and making people redundant for non-valid redundancy reasons – such as poor performance.
Law firm Peninsula’s senior employment adviser, Ellen Singer, said the most important, and often most overlooked, step of the redundancy process was the ‘reasonable and meaningful’ consultation process with employees.
"This is required even when fewer than 20 people are being made redundant, but smaller firms often skip this first stage, or fail to properly consult with their workforce," she said.
"Employees should be able to affect the outcome of a consultation – in other words, employers can’t just simply announce that redundancies are to be made without inviting staff input," added Singer.
"Employers must remember that redundancy is about the post, rather than the person doing the job," she said. "If work levels have diminished, the employer is obliged to look at whether the employee can be transferred elsewhere, or go part-time.
"Equally, staff conduct or capability must never be taken into account," she added. "Generally, redundancy is an absolute minefield for companies so the message is to always take professional advice."
According to Hiscox, just 15 per cent of small businesses have management liability insurance, which covers the cost of employment tribunal claims.