Sean Fleming is no fan of today’s employment legislation. The founder of Reading-based PR firm Clarity once had to make one of his employees redundant, a situation complicated by the fact that she was a long-standing friend and colleague.

Fleming says that to protect his business from a possible legal challenge, he had to follow statutory procedures to the letter – a process that ended up alienating the employee and damaging the morale of the whole team.

‘She didn’t understand why I couldn’t be straight with her,’ he relates. ‘It was blindingly obvious there wasn’t another role in the company that would suit her, but I still had to go through a laborious consultation process, with dates in diaries and letters to invite her to meetings that had to be sent to her home address even though she was sitting ten feet away from my desk.’

Such hassles may be deeply dispiriting, but many growing businesses fear a crippling financial blow if a dismissal is deemed to be unfair at an employment tribunal. That could cost an employer up to £70,000, or a theoretically unlimited amount if discrimination is involved.

‘I don’t want to come across as the Victor Meldrew of the small business world,’ says Fleming. ‘I think it’s great that legislation exists to stop workers being treated appallingly. But there has to be a bit more balance.’

The fear of getting a dismissal wrong

The fear of getting a dismissal wrong and facing vast legal costs can be paralysing, according to Ian Mather, a partner at law firm Eversheds.

‘The prospect of getting rid of someone scares businesses a lot,’ he says. ‘It is easy to fall into thinking it’s too hard, and blame employment legislation, but part of the problem is a lack of skill and willingness to deal with the issue on the part of employers. Unfortunately, they then end up with employees who are a drag on the business.’< Mather concedes that the introduction of statutory disciplinary and grievance procedures in 2006 has made matters worse. He calls it a classic example of unintended consequences, as laws meant to help people settle grievances outside a tribunal have led to a massive rise in the number of grievances being raised. But Mather’s central message to businesses is cheering. ‘Usually, the solution to problems turns out to be much easier than people think,’ he says, adding that likely levels of compensation can be estimated and deals struck with departing staff that do not damage the company. In one case Mather took on recently, a troublesome employee had been retained because the company's directors believed it was too hard to get rid of her. Mather pointed out that she was unlikely to be granted more than £14,000 at an employment tribunal, and a deal was eventually settled for £8,000. ‘The directors had completely misunderstood the level of risk,’ comments Mather.

Learn the rules of employment legislation

Not all business owners see employment legislation as a threat. Julie Purves is the founder and MD of B2M, a developer of software for commercial mobile devices. She believes that legislation merely reflects the kind of procedures good companies should already be following.

‘Dismissing someone should never be a sudden surprise,’ she says. ‘The requirement to go through various stages of discussion with people is no more than what should be happening anyway.

‘If you haven’t anticipated a problem, you will find yourself having to take hasty action, and that’s when it gets difficult.’

According to Purves, one problem growing businesses should always anticipate is that the people recruited to drive the company in its early stages may not have the skills to manage its growth into a larger operation. It may then become necessary to replace them.

‘If you get to the stage where your organisation has outgrown a particular individual, you need to begin structured discussions about what is expected of them and their options,’ she counsels.

The reason for dismissal will naturally affect your battle plan. Kevin Meagher, MD of security software specialist Intamac, once employed a senior executive whom he caught lying to him. Meagher then investigated the man’s CV and found that it was almost entirely fabricated.

‘When you can point to black-and-white examples of dishonesty then the act of dismissing someone is simple,’ he says. ‘The trouble is that 95 per cent of the time it’s never that clear-cut.’

Grey areas

Eversheds’ Mather says that even when the complaint against someone is merely that they are insufferable to work with, there may be legitimate ways to let them go.

‘One listed company I worked with wanted to get rid of their chief executive, because there had been a breakdown of the trust and confidence between him and the other directors,’ he relates. ‘We had an independent person in to do a report, interviewed the other board members including the non-executive directors, brokers and nomads, and concluded that although he might be the nicest guy in the world, people couldn’t work with him.’

Whatever your reason for letting someone go, how you handle it is vital. You are not going to make the outgoing employee feel good about it, but you can at least minimise damage to your business, argues Ceri Roderick, a business psychologist for consultancy firm Pearn Kandola.

‘The risks with this process are, at one end of the scale, that the decision is not communicated with enough context, and you do not follow your own procedures,’ he says. ‘At the other end, the danger is that you fudge the message and don’t give it enough clarity.’

According to Roderick, a lack of clarity can make the employee’s feelings of shock and denial last longer, with a consequent ‘ripple effect’ on the rest of the team.

‘People’s peers will typically be supportive, and say things like “you didn’t deserve this” or “this is very unfair”. That’s why it’s crucial to have followed a clear procedure before [the dismissal], with no suggestion of any unfairness or lack of integrity.’

Also see: How to avoid unfair dismissal claims for more legal advice on dismissing employees.