5 Ways Small Businesses Commonly Get Sued by Employees

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Any business can face legal action from a former employee, but for small businesses, these legal processes can be much more damaging.

Indeed, not only can being taken to an employment tribunal have a detrimental effect on your company’s finances, but it can also severely impact your company’s reputation in the long run. This is why you need to safeguard your business against claims from former or current employees.

To do this, you must be aware of the main reasons why business owners get taken to employment tribunals by employees. Once you know about the most common issues leading to employment tribunal hearings, you can take the necessary steps to minimise or eliminate these problems within your business.

The Most Common Reasons for Legal Action

Employees commonly make compensation claims against small businesses for one of the following reasons. Although these compensation claims happen frequently, they can usually be avoided (or at least fought successfully) if you understand employment laws in the UK and don’t engage in any unlawful behaviour.

Here are the five main ways small business owners get taken to employment tribunals by employees:

1) Wage Disputes 

Disputes over pay are a very common cause of compensation claims against small businesses. For example, not paying at least minimum wage or making unlawful deductions from an employee’s salary could land your business in hot water.

Wage disputes can become more likely if an employee is working overtime and feels like they are not being adequately compensated. In the UK, employers are not required to pay for overtime, but the wage that the employee receives for the total hours of work must not fall below the national minimum wage.

To avoid disputes related to pay and overtime, you must properly document all hours worked by requiring that employees ‘clock in’ on an online system or use time tracking software to track their hours. If your company does offer higher wages for overtime, then using an overtime calculator will help you avoid any costly mistakes.

2) Violating Other Employment Laws

Laws about wages aren’t the only employment laws you have to watch out for. For instance, you must ensure that you don’t overwork your employees. Not only will this leave you open to potential legal action, but it will also be detrimental to your employees’ physical and mental health.

UK employment laws stipulate that an employee must not work more than 48 hours per week on average. An employee can agree to work longer hours if they put it in writing, but usually, you’ll be breaching the law if you consistently make your employees work longer than this.

Your employees are also entitled to periods of rest during and between shifts. Anyone working for more than six hours within a day must have a break (paid or unpaid) lasting at least 20 minutes, and they must have at least 11 hours of rest between working days. Each week, an employee needs to have a 24-hour period where they don’t work.

Finally, your employees are entitled to 5.6 weeks of paid leave each year, which amounts to 28 days for full-time employees. By violating any of these employment laws, you’re opening your business up to potential compensation claims and, in the worst-case scenario, financial ruin.

3) Discrimination

According to the Equality Act 2010, it is illegal to discriminate against anyone based on nine protected characteristics. These include:

  • Age
  • Disability
  • Sex
  • Sexual orientation
  • Gender reassignment
  • Being married or in a civil partnership
  • Being pregnant or on maternity leave
  • Race
  • Religion

If an employee thinks they are being treated differently or discriminated against based on any of these characteristics, then they could make a claim for compensation.

This also applies to the hiring process. You must not base your hiring decisions on any of the protected characteristics, which is why it’s illegal to ask certain questions during a job interview. For example, you can’t ask someone about their marital status, religion or whether they have/plan to have children.

If a candidate thinks they’ve not been offered a position due to discrimination, they can take you to an employment tribunal. A fired employee may do the same if they believe discrimination influenced their dismissal.

4) Harassment

An employee can make a claim to an employment tribunal if they’ve been harassed or bullied in the workplace and not enough was done to solve the issue.

This is why you must have a clear process in place to help employees report problems at work. Once an employee reports an issue, you can discuss it with them and ask them how they would like things to be handled. They may simply want you to talk to another employee, or they may want to make a formal complaint.

With a formal complaint, the allegation must be fully investigated. You may need to separate the employees involved while you conduct the investigation if the allegation is serious. Ultimately, you may have to take disciplinary action against an employee, so you must have a formal disciplinary procedure in place.

To try to reduce the likelihood of misconduct in the workplace, you should write an employee handbook that discusses what is and isn’t acceptable behaviour. All employees should familiarise themselves with these guidelines and the company’s disciplinary procedures.

5) Workplace Injuries

Health and safety regulations are vital for any business. Although workplace injuries may be more likely in jobs involving manual labour, even office workers can face hazards at work.

If an employee is injured at work due to the business’s negligence or unsafe conditions, they’ll have grounds to make a personal injury claim. Your business could also be in a precarious position if you don’t make employees aware of potential safety hazards in the workplace.

Your employees have the right to refuse to work in unsafe conditions and to be involved in identifying and assessing hazards. If you deny these rights or fire an employee in retaliation, they’re likely to have a successful case against you.

To minimise the likelihood of workplace injuries, you could offer health and safety training during the onboarding process to make all employees aware of how they can avoid hazards and long-term health issues. This could be as simple as teaching your employees how to adjust their office equipment to reduce back and neck strain.

How to Avoid Being Taken to an Employment Tribunal

Now that you know about the reasons why business owners get taken to employment tribunals by employees, how can you ensure this doesn’t happen to you?

Firstly, you should document everything. Small businesses can sometimes rely on spoken agreements and informal conversations with employees, but this could open you up to potential claims and lawsuits if a dispute arises. Documenting all important discussions (and especially anything related to disciplinary procedures) will give you all the evidence you need if you end up at an employment tribunal hearing.

Regarding your disciplinary procedures, you should always have a clear process in place if you need to dismiss an employee. If you can prove that an employee was given a fair number of warnings and the opportunity to improve their performance or behaviour, this means you can show that the dismissal was fair and not influenced by discrimination or any other illegal practices.

Finally, you could take out business insurance to protect your small business from certain legal costs. Some types of business insurance are compulsory, such as employers’ liability insurance. This insurance will help you cover legal fees and compensation if an employee is injured or becomes ill due to their work.

Final Thoughts

Small businesses can face financial ruin if a former employee makes an employment tribunal claim. Whether the case relates to wage disputes, employment law violations, harassment, workplace injuries, or discrimination, the result is the same: sky-high legal fees and a damaged reputation.

If you run a small business, you need to make sure you’re aware of UK employment laws and your responsibilities as an employer. By adhering to these laws, putting clear disciplinary and safety procedures in place, and documenting all important conversations, you can minimise your chances of being taken to an employment tribunal as much as possible.