Too skint to sack people?

Are small firms really not sacking people because they're worried about the cost of getting sued?

Last Updated: 31 Aug 2010

So claims a new study by insurer Premierline Direct, which suggests that small business owners are shying away from redundancies because they’re too worried about the potential cost of compensation claims from disgruntled ex-employees. We can well believe that business owners are nervous about plotting their way through the minefield of redundancy – but if that’s the only way to prevent the business going under, we're not convinced this is sufficient grounds to reject the idea entirely...

It clearly hasn’t helped small firms that the legal limits for unfair dismissal and redundancy payments were increased earlier this year, so there’s now more of an incentive for people to have their day in court. And employers don’t seem to be very optimistic about parting ways with their staff on good terms: two-thirds suggested those given the chop would be out for revenge, and 55% felt they’d angle for a bigger payout. Maybe this means that these firms tend to handle the process badly; or maybe acrimony is just an inevitable consequence of redundancy.

It’s true that small firms don’t want to be getting sued at the moment. At a time when they’re desperately trying to keep their heads above water, the last thing they need is the hassle (let alone the potential expense) of fighting a court case. We can also see why they’d be worried about the redundancy process: it’s a complicated business, and in the current climate many can’t afford to hire a phalanx of employment lawyers to watch their back (one in three of those surveyed said they were worried that they hadn’t followed procedures correctly).

Nonetheless, we’re not sure we really buy this. If a company is struggling and needs to make redundancies, it has more immediate problems than a potential lawsuit further down the line. And surely the kind of firms who worry about the prospect of getting sued are precisely the kind of firms who’d do their homework in advance?

Premierline Direct isn’t exactly an impartial witness here: it wants to get firms to insure against this kind of unforeseen cost (apparently only about half have the relevant cover). Even the free advice helpline it offers clients (to help them jump through the correct hoops) basically stems from enlightened self-interest: after all, it’s a lot cheaper than shelling out a fortune for compensation claims against the badly-behaved. But small firms would still be well advised to take advantage of such services...


In today's bulletin:
Northern Rock sinks again as losses widen
Toyota and BMW caught in worldwide car crash
Workers follow French lead with sit-in protests
Editor's blog: More nonsense from Harman
Too skint to sack people?

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