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Employment law risks for business owners
Improving legal compliance and removing threats to your business
Keeping employees motivated is key to the success of any business, and staff morale is much more likely to remain high when employers comply with their wide-ranging employment obligations. For business owners, it is important to remember that employment legislation applies broadly to all businesses, irrespective of the size of the company or the sector in which they operate. This means, for example, that key obligations such as providing written terms of employment, meeting minimum wage requirements, complying with working time regulations and health and safety laws cannot be ignored. Failure to meet these legal obligations and other employment-related obligations poses serious risk to organisations, from a financial, reputational and legal perspective.
Small and medium sized companies and family businesses face an increased risk. That’s because they often do not have the resources to employ dedicated HR and legal teams. This can lead to a lack of oversight when it comes to monitoring new developments in UK employment law (including the recent changes to the Employment Rights Bill), daily management of employee relationships, onboarding new employees and successfully handling employee departures. Below, our expert employment lawyers highlight some of the principal risks that businesses face when they breach relevant employment legislation or fail to comply with specific regulations governing their industry.
Employment law risks to consider
If the business doesn’t have employment contracts in place or has not updated its standard employment contracts in recent years, this could lead to a range of serious legal, financial and operational risks. Here our employment experts highlight the main threats posed by inadequate contractual documentation:
- A failure to include the minimum information required by section 1 of the Employment Rights Act 1999 (the ‘written statement of employment particulars’) can lead to increased legal risk and financial penalties if an employee brings a claim under section 1 alongside another employment-related claims.
- Poorly drafted employment contracts can leave your business vulnerable if an employee leaves, particularly if confidential and sensitive information or intellectual property is not adequately protected.
- Poorly drafted restrictive covenants or ineffectively introduced restrictive covenants could leave the business vulnerable if key employees leave and appropriate post-termination restrictions are not in place or the restrictions are found to be unenforceable.
- Outdated employment contracts may not reflect current employment legislation or best practice which may affect their enforceability and leave the business vulnerable to employment tribunal claims and other related risks.
- Without an employment contract in place, employees can be uncertain about their role and responsibilities which can lead to costly and time-consuming disputes.
Top Tip
Get your employment contracts and other key staff documentation reviewed regularly by your employment solicitor. If the business has insufficient internal resources to do this then, given the risks we’ve highlighted, obtaining expert employment advice is always a worthwhile investment.
Employees can bring claims against the business on several grounds. Below our experts outline some important factors employers should consider when seeking to minimise the threat of employment-related claims.
- Dismissal without reason or carried out without following due process can leave an employer open to the risk of costly and time-consuming tribunal litigation, financial liability and reputational risk, especially when the qualifying period for unfair dismissal claims will be removed under the Employment Rights Bill, subject to the introduction of a modified procedure during the initial period of employment (anticipated to be introduced in the next couple of years).
- Protection from discrimination applies from ‘day one’ (including to job applicants) so employers should review their job adverts and onboarding processes as well as their employment practices.
- Employers should have appropriate policies in place and roll out training to staff to ensure that employees are familiar with those policies in order to reduce the risk of employment-related claims.
- Employers should follow their internal policies and procedures and, where applicable, the Acas Code of Practice on Disciplinary and Grievance Procedures, when dealing with grievance and disciplinary matters.
- The duty to prevent sexual harassment requires employers to take ‘reasonable steps’ to prevent sexual harassment of their employees. This duty is set to extend to ‘all reasonable steps’ from October 2026, so employers should be taking steps to mitigate this risk, including but not limited to undertaking risk assessments, introducing appropriate policies and reporting mechanisms, and training staff to mitigate the risk of costly and protracted employment tribunal claims.
Top Tip
Being alert to current employment legislation and best practice and the changes being introduced via the Employment Rights Bill in the next few years will be key. Encouraging a safe, non-discriminatory culture across the organisation reduces the prospect of costly and damaging tribunal claims. This can be achieved in a range of ways, including through training, the introduction of appropriate policies, monitoring and the adoption of reporting mechanisms.
Claims for breach of contract pose serious risks to the business – from both a legal and reputational perspective. The more fundamental the breach to the employer/employee relationship, the more damaging the fallout may be. Here are some of the main things to consider in relation to employment contracts.
- Breach of contract (whether intentional or unintentional) can include but is not limited to failure to pay salaries or agreed bonuses, changing terms and conditions of employment without prior consultation and agreement, and failing to abide by contractual or statutory notice periods.
- Contractual terms can be express or implied, oral or written, and can be varied through custom and practice.
- A breach can result in the employer not being able to rely on / enforce the terms of an employment contract, which risks the enforceability of restrictive covenants and confidentiality obligations which may leave the business vulnerable.
- Breaches can result in expensive and time-consuming tribunal litigation and damage employee relations.
Top Tip
Reduce the risk of claims by always following the terms of the contract, and don’t change terms and conditions of employment without consultation and/or employee consent. If in doubt, speak to a specialist employment lawyer.
Contentious employee departures can lead to significant financial consequences, damage the image of the business and can undermine relations with remaining staff members. Consider the following:
- Disgruntled employees are more likely to try to exploit any flaws in an employment contract or any dismissal procedure.
- Unscrupulous or disgruntled employees may misuse confidential information or steal copyrighted material.
- Employers who do not have appropriate exit procedures in place in relation to the management and return of company property and confidential information risk disgruntled employees being able to damage the business when they leave.
- Employees may breach their restrictive covenants which could lead to financial loss and the need for injunctive relief which is typically very expensive, time sensitive and puts pressure on management and other key staff.
- Disgruntled employees are far more likely to lodge employment tribunal claims (whether they have any merit or not) which is likely to incur significant financial cost and management time.
Top Tip
Be fair and transparent in your dealings with departing employees. Comprehensive employment contracts and a fair procedure mitigate many of these risks as well as clearly documented exit procedures. In complex or sensitive cases, seek specific legal advice at the earliest opportunity so that you have a clear plan in place, which may include exploring settlement discussions.
The Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as “TUPE” protects the terms and conditions of employees when the business they work for is transferred to a new employer. Compliance with TUPE is mandatory and there are complex information and consultation obligations. Some things to be aware of are:
- TUPE applies to the transfer of the assets of a business or part of a business or an outsourcing arrangement.
- Affected employees automatically transfer to the new employer or service provide under TUPE.
- TUPE requires certain information to be shared with appropriate representatives of the affected employees (or the employees themselves in certain cases) and, where appropriate, consultation with those individuals. In the event of a successful claim, failure to inform and consult can result in an award of up to 13 weeks’ gross (actual) pay per employee.
- Changes to terms and conditions of employment can be made only in very limited circumstances, known as economic, technical or organisational reasons.
- The business may face automatic unfair dismissal claims if the sole or principal reason for terminating an existing employee’s contract is the transfer itself.
Top Tip
Seek legal advice early to understand whether TUPE applies and the extent of your legal obligations under TUPE to mitigate the risk of any TUPE-related employment claims.
Employers should be mindful that they may be required to consult with staff when seeking to make changes to their business. This means being aware that:
- There are financial and legal risks if an employer fails to consult with affected employees before making reductions in headcount and/or changing terms and conditions of employment, including the threat of claims for breach of contract, constructive or unfair dismissal, claims for redundancy pay and potentially breaches of other employment legislation.
- Depending on the number of affected employees, the employer may be required to collectively consult with appropriate representatives of the affected employees. Failure to do so can lead to expensive claims for a protective award of up to 90 days’ gross pay per employee.
- Failing, when required, to file an HR1 form for collective redundancies can lead to criminal liability, prosecution and unlimited fines, as well as potential director disqualification.
Top Tip
Plan well ahead for any significant changes to your business. Consult with staff before making any reductions to headcount or changes. Support from employment law specialists can ensure changes are introduced as seamlessly as possible, minimising legal risk and harmful disruption to the business.
Data security is integral to any business. Failure to comply with data protection legislation can result in significant legal and financial risk for your business. Be aware of:
- The risk of mishandling employee or customer personal data.
- Your extensive obligations under the UK GDPR and Data Protection Act 2018.
- The penalties for data breaches can be significant.
- Breaches can lead to damage to reputation and loss of customer confidence and goodwill.
- Data subject access requests can be expensive and time consuming
Top Tip
Appoint qualified and trained data protection officers (DPOs) to manage data security across the business. Even if you are not legally required to do so, appointing a DPO voluntarily can aid oversight of your data processes and ensure that you only use, collect and retain the information you need which may reduce your exposure to regulatory scrutiny, fines and reputational harm.
Well-drafted company policies ensure your organisation operates consistently with employees, customers and all external stakeholders. Here are some risks of failing to review and maintain key policies:
- Outdated or ineffective policies can expose the business to legal risk, including costly legal disputes, financial penalties and reputational harm.
- Regulated businesses may be subject to additional requirements. Non-compliance can result in unwanted public scrutiny and financial penalties.
- Policies that are applied inconsistently can lead to disputes and potentially legal claims, including but not limited to claims for unfair dismissal and discrimination.
Top Tip
It’s imperative to regularly review and update all policies and to communicate any changes to staff. Seek employment legal advice to ensure that your policies are consistent with current law and industry best practice.
As specialist employment solicitors, we pride ourselves on being client-focused in all that we do; working as trusted advisors to help our clients achieve their objectives in a way that aligns with their values and priorities.
Adam Williams, Partner, Employment
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