Doing Business in the UK

What Companies Need to Know About Employment Law When Setting Up Business in The United Kingdom

Any company starting a business in the UK will need to engage the services of others, including through the employment of staff. It is therefore inevitable that you will come into contact with aspects of UK employment law.

Beginning an Employment Relationship

Once you have made the decision to do business in the UK, you need to hire people to work for you. The first step is to agree the type of relationship you want it to be and then the terms people will work under.

Type of Worker

UK employment law grants differing types of protection to differing types of worker. Employees get the most protection with independent contractors and other types of worker (such as a member of a limited liability partnership) still benefiting from some more limited rights.

For the purposes of this article, we are assuming you are hiring employees but to be clear, many of the protections also apply to different working arrangements.

Statement of Terms

Under English law you need to provide an employee with written terms including: your name and theirs; the date their employment began; their job title; their place of work; their salary; their working hours; holiday entitlement and pay; sickness leave and pay; details of any pension; and their notice period (how far in advance they have to tell you that they are leaving and how much notice you have to give them of dismissal).

For an employee working for you in the UK who is not in a trade union, any other terms are optional.

 Working Time Regulations

When you specify the hours and holiday terms in your contract, you must take into account the requirements of the Working Time Regulations.

If you expect the employee to work for over 48 hours a week, you should include in their contract a clause for them to opt out of that limit.

Your employees’ holiday entitlement must be at least 5.6 weeks per year, equating to 28 days per year inclusive of public holidays or, typically, 4 weeks plus public holidays. You are free to offer more; indeed, it is market practice in many sectors to offer an additional week or two. The holiday must be paid as if it is a normal working day.

National Minimum Wage

You may need to check that the pay you offer any junior employees is not lower than the National Minimum Wage provided for in English law. You must pay all employees over the age of 21 at least £6.70 per hour.

From April 2016, the minimum wage will be replaced with a ‘living wage’ (i.e. the pay employees would need to meet the cost of living in their area). From then, you must pay staff at least £7.20 an hour. It will increase in stages and the government says it will be £9 by 2020.

Restrictive Covenants

For certain hires, you will want to prevent them walking into a job with a competitor where they can use your confidential information and take your clients and staff with them. To prevent this, you can put restrictive covenants into the employment contract.

However, if these are more restrictive than the court thinks reasonable they will be struck down in their entirety and will not be replaced with shorter or more limited restraints. Therefore, the content should vary depending on what the employee does, their seniority and what you are trying to achieve.

The Working Relationship

Parental Leave

Employees who have (or adopt) a child are entitled by law to a certain length of time off work and a certain level of pay for it.

Mothers have to take 2 weeks’ maternity leave after giving birth but can, and typically do, take up to 50 additional weeks’ leave afterwards. You need to pay mothers statutory maternity pay for up to 39 weeks; the first 6 weeks should be paid at 90% of her usual wage and £139.58 for the remainder. You are free to agree to pay more than that, and many employers do. The Government reimburses employers for most of the cost of maternity pay.

Fathers are entitled to up to two weeks’ paid paternity leave.

A new system of Shared Parental Leave is now in force. If your employee asks to take advantage of the scheme, she and her partner can share her 50 week leave period (i.e. excluding the 2 weeks’ compulsory leave) between them in whatever proportion they choose. The rules are very similar for adoptive parents, though they can share the full 52 week entitlement.

Dealing with Illness

An employee who takes time off work due to illness must be paid at least the amount specified as statutory sick pay (£88.65 per week). That said, most employers will have a sickness absence policy providing for more generous payments for a set amount of time.

If an employee is off sick for over a week, you are entitled to ask for a doctor’s note to evidence their illness. Whilst they are away, it is good practice to keep in contact with them and, if the absence is long enough, provide a return to work interview and rehabilitation.

If long-term sickness absence is posing a problem, you should go through a capability procedure and see what can be done to improve the situation. This would involve formal meetings, medical evidence and consideration of whether you can make changes to help them return to work (including changing their duties). If the employee is disabled, you have a separate duty to make reasonable adjustments.

It is conceivable that, having gone through a capability procedure, you do not feel that you can continue to employ the person. Be aware that, if they are disabled, this risks the finding of discrimination if not properly handled. Another option is to keep them ‘on the books’ without pay so that they continue to receive health insurance benefits.


UK workers are protected from being treated less favourably than others by reason of:

  • Age;
  • Disability;
  • Gender reassignment;
  • Marriage/civil partnerships;
  • Pregnancy/maternity;
  • Race (including nationality);
  • Religion/belief;
  • Sex; and
  • Sexual orientation.

Both direct and indirect discrimination are unlawful. Direct discrimination occurs when the employee is mistreated because of a protected characteristic, e.g. because they are gay. Indirect discrimination takes place when a practice is applied in a way which places people with the characteristic at a disadvantage. For example, only employing people above a certain height would discriminate against women unless it can be justified. A person might be discriminated against at any time during a working relationship – even during recruitment – so ensure that you conduct all practices and procedures in non-discriminatory ways.

An equality and diversity policy will help prevent workplace discrimination.

If you are found to have dismissed an employee for a discriminatory reason, the dismissal will be automatically unfair and you may be liable for uncapped damages.

Whistle Blowing

UK employment law provides protection to employees who raise certain kinds of concerns with, amongst others, their employers. The employee will be protected as a whistle blower if the concerns are made: (a) ‘in the public interest’ (essentially, not just for their own gain); and (b) about a criminal offense, breach of legal obligations, miscarriages of justice, health and safety dangers; environmental damage, or a cover-up of any of those things.

During employment, whistle blowers are protected from all maltreatment from demotion, threats, suspension, loss of pay to numerous other things. Even if you do not subject the employee to this treatment, you may be liable if another person you employ does. It is therefore worthwhile to have clear policies on whistle blowing and misconduct.

Aside from being protected from maltreatment during employment, whistle blowers cannot be dismissed from their job for having blown the whistle. To do so is considered an ‘automatically unfair dismissal’ with uncapped damages.

Terminating an Employee

Notice of Dismissal

Unless the employee has done something very seriously wrong, you will need to give an employee notice of termination of employment. The length of the period must be stated in the contract and it cannot be less than the statutory minimum. The statutory minimum is one week per full year of employment up to a maximum of 12 weeks (unless they have been there under 2 years, in which case the minimum is a week after the first month). The statutory minimum notice an employee is required to give is one week.

Market practice is for contracts to have reciprocal notice periods of statutory minimum or a month for junior staff, three months for middle management and professional staff and six months to a year for the most senior executives.

You can pay employees in lieu of notice so that they leave immediately, or ask that they stay home during their notice period (‘garden leave’), though it is legally safer if the contract gives you the right.

Unfair Dismissal

Any employee you employ for over 2 years will gain unfair dismissal rights. This means that if you dismiss them, they can sue and the onus is on you to show the dismissal was fair.

There are 5 reasons for dismissal which are accepted in statute as being potentially fair: (i) conduct; (ii) capability; (iii) redundancy; (iv) where the employee working for you would be contrary to the law (e.g. employing a driver who has lost their licence); and (v) some other substantial reason. The three most commonly used are redundancy, conduct and capability.

Even where you can establish one of those reasons you still need to show that you have acted reasonably in all the circumstances of the case.

In practice, this means that if you suspect that the employee has committed misconduct, you must investigate the circumstances properly before deciding to dismiss. Always give the employee the chance to explain. You should have a disciplinary procedure in place and follow it in every case. If you suspend the employee, keep the suspension under review and ensure that it is no longer than necessary.

Where capability is the problem, consider putting the employee on a performance improvement programme (a ‘PIP’). A PIP is a good way to ensure that the employee knows what the problem is and is given the opportunity to improve. In some cases, it is appropriate for you to offer training or support to help the employee address the issue. If no progress is made (and there is no good reason for that), you may be entitled to dismiss.

If the tribunal decides that you dismissed an employee unfairly, you will be ordered to pay compensation to the employee comprising a ‘basic award’ reflecting age, length of service and salary (with a cap of £14,250) and compensation amounting to the lower of a year’s pay and £78,335. The limit does not apply, however, if the tribunal finds that you dismissed for the employee for certain reasons (including discrimination and whistleblowing).

Employment Tribunals

Employment Tribunals are the forum in which most disputes relating to employment relationships are resolved. In comparison to courts, they are relatively informal and are designed to be accessible to employees who do not have legal representation.

Individuals must pay a fee to commence a claim. Once the case is issued, set stages will take place before the trial. Those steps include disclosure of documents and exchange of witness statements; the Tribunal will usually give directions on each stage at a preliminary hearing.

Trials will be heard either by an employment judge sitting alone, or by a panel. A panel will include the judge and two lay members, one of whom will usually have a pro-employee background (often through trade union work) and the other pro-employer (such as in human resources). They will hear evidence and submissions and pass judgment.

The usual rule is that parties in the Employment Tribunal meet their own costs, though the Tribunal has discretion to order otherwise against a party who has acted unreasonably.


All stages of an employment relationship are in some way regulated by UK law. The importance of a well-drafted contract and coherent policies cannot be underestimated. Effective management of the relationship should help to avoid the need to consider dismissal but, if it comes to that, employers should be aware of the steps that need to be taken to avoid liability and seek advice before concluding any termination.

Gareth Brahams

Gareth Brahams

Email: [email protected]
Tel: +44 (0) 20 3828 0350

Gareth Brahams has over 20 years' experience in employment law advising employees and employers on all aspects of employment disputes and how to avoid them.

Before becoming a founding partner of BDBF, Gareth was a partner in the employment team at Lewis Silkin for eight years.


About Gareth Brahams

Email: [email protected]
Tel: +44 (0) 20 3828 0350
Gareth Brahams has over 20 years' experience in employment law advising employees and employers on all aspects of employment disputes and how to avoid them. Before becoming a founding partner of BDBF, Gareth was a partner in the employment team at Lewis Silkin for eight years.