It's the letter every small-business owner dreads: a notice to appear at an employment tribunal informing you that one of your ex-employees has made a claim for unfair dismissal. The case itself is likely to prove stressful and to cost valuable management time; lose it and you could be forced to pay compensation of up to £60,000.
If you own a business, you have to hire people; and if you hire them, then from time to time you're going to have to fire them. Few entrepreneurs approach the task with relish, and many choose to use a more euphemistic description such as 'letting him/her go'; but you can't shirk it, and nor can you afford to get it wrong. Effective firing, in other words, can be as important to a small business as it is to an infantry platoon.
To begin with, sacking somebody can be just as stressful for the person doing the firing as it is for the person being fired. A survey of 200 managers for interim management firm Alexander Hughes last year found that four out of 10 who had had to dismiss somebody felt their health and family life had suffered as a result. One in eight said that the stress had affected their work. Almost 40% said that they enjoyed their work less as a result; and, tellingly, 71% said they would be upset if they were expected to take the lead in making people redundant. For small-business owners, the decision to dismiss someone - or to make them redundant - is usually one they have to make themselves.
The issue is exacerbated for small businesses, because they often can't afford the luxury of a dedicated HR manager and lack the basic understanding of employment law that comes with that role. According to legal compliance speci- alists Croner, small-business owners often labour under a series of ill-informed myths about their ability to sack employees without redress.
One is that 'an employee with less than a year's service can be dismissed for any reason'. But although employees of less than 12 months' standing have fewer rights, there are more than 20 grounds for unfair dis- missal that they can take to a tribunal. Small-business owners are equally deluded to think that they can simply sack on the spot someone guilty of gross misconduct, without following any procedure; or that there is no contract if nothing is in writing.
It's also vital to understand the distinction between dismissal and redundancy. Explains Peter Gourri of Saunders Solicitors LLP: 'Redundancy is a form of dismissal where somebody's job no longer exists. In that circumstance, the recommended procedure is that you should consult with them to find out if they can be placed into a different job within the business. You have to work with the employee, ask for their suggestions.'
It may be tempting to dismiss an employee you want to get rid of under the cloak of redundancy, but unless you can prove at an employment tribunal that their job really was no longer needed, you could be found to have dismissed them unfairly.
There is no finite list of justifiable grounds for dismissing an employee. One of the main reasons for dismissal is gross misconduct - which covers a multitude of sins, including abusive behaviour or violence, theft, fraud, discrimination, damaging property, negligence, contravening safety regulations or serious insubordination. Repetition of minor transgressions such as being late, or using company equipment for unauthorised personal use, can also be grounds for dismissal.
The other main reason for dismissal is on capability or performance grounds - in other words, if they're not up to the job or they're not trying. This is vital for many small businesses, which are usually run with a minimum headcount and can't afford to carry somebody who isn't pulling their weight.
Gourri points out that the dismissal process is much simpler if an under-performing employee has been with you for less than 12 months - including notice period - although best practice would be to give them a chance to improve. However, he adds: 'I always say to companies that they should put people on a six months' notice period when they are first taken on; with new staff you don't always see their true colours immediately.'
There is an ever-growing list of grounds on which it is illegal to sack someone, most of them coming under the heading of discrimination. Areas of discrimination include gender, race, religion, pregnancy, union affiliation, disability and age. Even if you cite a different reason for dismissal - capability, say - if an employment tribunal decides the real reason was one of the aforementioned brands of discrimination, your pleas will be in vain.
Dismissing an employee is a legal minefield. Says Belinda Webb at the Federation of Small Businesses: 'There were more than 7,000 calls about dismissal to our legal helpline last year. So many detailed laws now relate to dismissing an employee that you must take advice before embarking on that road.'
What has made the situation far more challenging for employers - particularly small- business owners - is the increasingly onerous requirements of the procedure to be followed in the case of dismissal, over and above the substance of the reasons. Explains Michael Burd, head of employment practice at lawyers Lewis Silkin: 'In October 2004, new regulations were brought in that were designed to cut down the number of employment tribunal cases by encouraging employers to sort out grievances in the workplace.'
The new regulations ushered in a three-stage procedure for all disciplinary action, involving a letter, a disciplinary meeting and giving the right to an appeal. 'If you dismiss someone and you haven't followed these three steps, then if you are taken to a tribunal you won't even have the chance to argue about whether it was unfair dismissal - it will be automatic unfair dismissal,' adds Burd.
The unintended consequence of this has been that disciplinary actions - and employee grievances - 'go formal' at a much earlier stage, with even greater legal involvement. This could lead to a legislative U-turn in the next couple of years.
But for now, it means that small businesses are saddled with having to ensure that they have disciplinary and grievance procedures in place, and that these are followed to the letter. And, says Gourri at Saunders: 'You can still have an informal talk with one of your employees if you're not happy with them, but you can't give them a written or verbal warning and then leave it at that. Once you've started, you have to see the process through.'
Being taken to an employment tribunal can be a harrowing affair for a small-business owner, particularly if they don't have legal or other support. Rod Langford, who runs a day nursery in Boston, Lincolnshire, found himself accused of constructive dismissal by an ex-employee. She had handed in her resignation during an investigation into complaints against two colleagues. Although the allegations didn't involve her, Langford had asked to interview her as part of the investigation. Some 15 months later, it emerged that she had taken unnecessary legal action to 'clear her name', and the tribunal rejected her case.
Says Langford: 'It was very stressful, especially for my wife, and our legal costs were around £10,500, in addition to around £2,000 of my own time preparing for the case.'
He was covered for legal representation through membership of the Federation of Small Businesses. 'If I hadn't had their backing, I would have been £12,500 out of pocket. I'd advise anyone running a small business to take out some form of legal protection.'
The legal minefield of employment certainly makes it much more difficult to sack an employee than it did a couple of decades ago; but it also obscures the fundamental question about how you decide when it is right and fair to dismiss somebody in your employ. Some business owners agonise about the decision and take it only as a very last resort; there is, after all, the condideration that you may be destroying somebody's livelihood. Others take a more objective and less emotional view. Says one entrepreneur: 'There is always a moment when I know somebody is wrong for me and I've got to let them go. I don't have any problems about sacking somebody in those circumstances. My priority is to focus on the wellbeing of the business, which means the livelihoods of all the others who work there.'
There are many ways in which sacking somebody can be made a more civilised and less acrimonious process. Don't belittle people; you can still thank them for the con- tribution they made and offer them help with finding a new job. If you have instilled a culture of openness and honesty in your business from the outset, and your reasons for dismissing them are clear enough, they are less likely to be embittered, and may even acknowledge that your decision is the right one.
It's vital that your other employees see that you have acted fairly, not least so that they have a sense of security about their own job. And never forget: the best way to avoid having to sack people is to make sure that you recruit the right people in the first place.
JAMES MINTER - ADAM STREET
For James Minter, owner of Adam Street, a private members' club for entrepreneurs in London's Covent Garden, the first time he had to sack someone was shortly after leaving the Royal Navy in 1999, to set up a business that marketed serviced offices. 'The individual involved was our office manager, and there was a particular problem in that you need a different type of person during the start-up period than when the business is up and running,' explains Minter. 'This woman was brilliant at setting up the business: she was very decisive and she got things done. But the trouble is that she was a real little Hitler, and once everything was up and running, she just kept shouting at everyone.'
Minter says he spent 'three or four weeks' thinking about it once he had made a decision, and discussed the dismissal with his sister, who was his partner in the business. 'We had a meeting with the three of us, and we tried to handle it in a very open way. I said that she had outgrown the role - she was upset and it was a big blow to her pride because it wasn't her decision,' says Minter. 'But I wrote her a supporting letter to help her get another job. It's not good for the person or for the business if they're in the wrong job.'
Since then, he has had to lose a number of other employees. 'You usually worry for a few weeks, then do it and you feel over the moon - it's such a big relief - and wonder why you didn't do it much earlier.'
The serviced-office business and Adam Street now employ about 40 people between them, and Minter says although a dismissal can 'send shockwaves' through the rest of the workforce, it can affect your reputation as a manager if you don't act when somebody is wrong for the job. 'The important thing is always to make sure that people understand when they are performing well and when they are not performing well,' he concludes.
PETER BENNETT - LONDON TRANSLATIONS
Peter Bennett set up London Translations, a company offering translation and interpreting services to corporate clients, at the end of 2003. 'It was my first proper company and the first time I'd had to let somebody go,' he says. 'I found it stressful and unpleasant - certainly not a nice thing to have to do.'
Within the first few months of operation, he had hired a salesman for the business. 'He was quite good, but the problem was his time-keeping,' says Bennett. 'I had made it very clear in the interview that time-keeping is paramount in our business. Translation is all about timely delivery - if somebody wants a translation to read on a plane and you don't deliver on time then it's worthless.'
After repeatedly turning up for work late, with a succession of unlikely excuses, the salesman was given a verbal warning and told that if he was late again, he would receive a written warning. The written warning was duly given - 'I made him sign that he'd accepted it, and put it in his file' - and he was told that if he was late again he'd face dismissal.
'When I had to let him go, he was apologetic and he begged me to give him another chance, but I think once you know that someone is wrong for the job, then you're just delaying the pain,' says Bennett. 'There's a fine line between being a fair employer and being a sucker, and you have to do what's right for the business.'
Nevertheless, he gave the departing salesman a month's pay, without being obliged to, on the grounds that it was better to part on amicable terms than have an ex-employee with a chip on his shoulder. 'Fortunately, the rest of the staff were behind me; he was adding to their workload and letting the side down. If they'd had their way, I think he would have gone earlier.'