Introduction: The Employment Law Landscape in the UK
Employees based in the UK have a number of mandatory legal protections. Some of these may feel intuitive and obvious to founders, whilst others may take some getting used to.
There is no way to exclude the majority of the mandatory legal rights given to employees in the UK (other than on termination of employment where there is a waiver of claims), but the risks can be mitigated by taking legal advice, getting the right procedures in place and having well drafted employment agreements.
Despite the mandatory legal protections that are in place, the UK’s labour market is often perceived as being one of the least regulated of the major European nations. Our startup clients employ employees in the UK very successfully, and we also see many established overseas businesses employing their very first European employees in the UK.
The importance of well drafted employment agreements
Well drafted UK employment agreements are typically 15-30 pages (much longer than their US counterparts!). They typically serve to protect employers more than they protect employees, and they also provide a helpful record of the terms agreed between the employer and the employee, which can help prevent future disputes.
Well drafted employment agreements should allow for termination on notice (three months is a typical notice period for senior employees, or sometimes even six months for founders). Probation periods at the start of employment (during which the notice period is shorter – typically one or two weeks) are highly recommended. That being said, it is important to be aware of mandatory unfair dismissal rights (on which more below) when dismissing any employee on notice.
Post termination restrictions, such as a non-compete clause, are very common in the UK and are recommended for all senior employees. Employers do not have to pay salaries during the period of such restrictions, but they will only ever be enforceable if they are reasonable in scope and duration given the employee’s seniority and role and the nature of the business. Care in drafting post termination restrictions is imperative.
Well drafted employment agreements (and equally contractor agreements) should also contain robust provisions protecting the employer in respect of the misuse of its confidential information and the ownership of any IP created.
Contractor/ freelancer or employee?
In common with many other jurisdictions there is an important distinction between individuals who are genuinely engaged as third party contractors and those who are engaged as employees.
Getting the contractor / employee distinction wrong and misclassifying someone can have significant negative implications. The principal risks are twofold. First there is a tax risk (because income tax may not have been paid as it should have been), and second there is a risk of individuals claiming that they have employment rights (such as the right to paid holiday, maternity pay, or the right not to be unfairly dismissed) which may not have been accounted for over a long period of time.
It is often easy to see that someone is a genuine contractor (say if they really do run their own business, provide their own materials and take their own economic risk when pricing).
Equally it is often easy to spot an employee (say if someone is full-time, has a job title and earns a fixed annual salary).
In other cases though it can be more difficult (say if an individual works for a number of clients and only works on a ‘per project’ basis – but they are heavily integrated into the business, receive a fixed monthly income and in reality take little of their own economic risk). Legal advice should be sought where it is unclear how an individual should be classified.
Protection from ‘Unfair Dismissal’
The most significant mandatory protection given to UK employees is that of the right not to be ‘unfairly dismissed’. An ‘unfair’ dismissal is one in which the employer dismisses without a potentially “fair” reason and a “fair” process. Potentially “fair” reasons include redundancy, performance and misconduct. ‘Unfair’ dismissals can entitle employees to significant compensation.
At present employees only obtain this right once they have been employed for one year and 51 weeks. Under changes outlined by the current Labour government, from 2027 (exact date TBC), employees will obtain this right or at least a version of this right from day one of their employment(!). Effective performance management and the use of probationary periods will be essential when this change comes into effect.
Additional rights, and accelerated unfair dismissal rights, are given to ‘whistleblowers’ who suffer dismissal or detriment in retaliation for having blown the whistle on any wrongdoing or potential wrongdoing within a business. Senior managers should be trained in how to spot potential whistleblowing activity and how to respond to it.
Protection from Discrimination
Various forms of discrimination are prohibited in the UK.
Discrimination protection applies not only to employees but also to job applicants. The forms of discrimination that we most commonly see are: (a) direct discrimination, (b) indirect discrimination, (c) harassment and (d) victimisation. Discrimination protection applies in respect of ‘protected characteristics’. These include age, sex, disability, race, maternity, religion and sexual orientation. There is also a duty on employers to make ‘reasonable adjustments’ where an employee has a disability.
We recommend all businesses employing staff in the UK, as a minimum, put in place some form of anti-discrimination or equal opportunities policy. This can act as an important reference point not only for employees, but also for managers who may be unfamiliar with UK employment laws.
Final thoughts
Employing a large number of people is always going to have its challenges, no matter what the legal landscape looks like. All those challenges are surmountable and at some point in every startup’s journey, growth will be essential. This is true both in terms of the number of people you employ but also in terms of mindset. Remember that even in the age of AI, no business will scale effectively without recruiting well and managing employees well. And, remember, no founder will get everything they do in respect of every new hire right the first time.
Get good employment contracts in place, seek advice where necessary and treat your employees with the right mix of mix empathy, encouragement and effective performance management and you should be able to keep employment issues to a minimum and get the most out of your employees – with whom you’ll be able to share the many wins you have down the line.
