First the good news – compared with many other European countries, UK employment law is notably employer-friendly.
However, US businesses starting up in the UK should be aware that there are some points that might surprise them.
This article should also be useful for other businesses starting up or expanding in the UK, although the focus is on key differences when compared with the US.
When starting to employ people, expanding or contracting, you should take the following points into account:
1. Mandatory UK employment laws apply generally to EVERYONE working in the UK.
So, regardless of their nationality, US and other nationals working for you in the UK (whatever their legal immigration status in the UK) will almost certainly have UK employment law rights.
Some of these rights depend on length of service, but others are applicable from the get-go.
You can use contracts of employment based on the laws of a US state. However, this will not prevent the mandatory UK employment laws from applying.
2. Employees in the UK have a right to a written statement of the basic terms of their employment.
If you do not provide one, a UK Employment Tribunal can decide what those terms are, and can award compensation to be paid by your business to employees.
3. Rights to holidays and other leave are more generous in the UK than the US.
The minimum holiday entitlement for a full time person is 28 days. This includes public holidays and can include days (or half days) when you as the employer decide that you will close, for example between Christmas and New Year, or half day closing on some days.
Rights to other forms of leave, such as maternity, paternity, parental and adoption leave are also more generous than is typical in the US.
4. Minimum periods of notice of termination apply in the UK.
Employment ‘at will' is not generally permissible in the UK (unless you are the Queen – and as far as I am aware, Her Majesty is not a regular reader of Find the Edge).
The minimum period of notice is basically one week for every year of service, up to a cap of 12 weeks’ notice.
You can, however, include a payment lieu of notice clause in the contract.
This enables you to terminate the employment immediately if you wish, by paying compensation for the pay and benefits that would have been provided in the notice period.
You can also include a ‘garden leave' clause, which enables you to require an employee not to attend work during the notice period, and not to work for anyone else (including competitors).
If you do not specify a notice period in the contract of employment or statement of terms, the UK Court and Tribunals will decide what a ‘reasonable' notice period would be.
This will be at least at the minimum level stated above, but could be substantially more, depending on the seniority of the employee and what is usual in the relevant sector.
5. Employees in the UK have protection against unfair dismissal
This protection applies even if you comply with the contractual terms relating to termination of employment and the minimum notice period. It is in addition to a raft of discrimination-related rights.
To avoid liability for unfair dismissal, the dismissal must be for one of the ‘fair' reasons specified in the legislation, such as misconduct, lack of ability or redundancy.
You must also act ‘fairly' in treating that reason as justifying dismissal. Other than in extreme cases, this may require giving a series of formal warnings before dismissing, or allowing an under-performing employee a formal opportunity to improve.
6. Collective consultation rules apply to mass redundancies and business transfers.
Where there is a proposal to make 20 or more employees redundant within a 90-day period, there is a requirement to inform and consult with recognised trade unions or (where there is no recognised trade union) with elected employee representatives.
You should allow at least 30 days for the consultation before any notices of termination are issued.
Where the proposal is to make 100 or more employees redundant, the period to be allowed is at least 45 days.
Similar rules apply where a business transfer is proposed (but not a transfer of shares). In relation to business transfers, there are no set minimum periods for consultation.
7. Employment contracts and liabilities transfer automatically in a business transfer.
Where a business transfers from one employer to another, the contracts of employment of the employees engaged in the business, together with practically all associated liabilities (even those liabilities accrued before the transfer) pass across automatically to the acquiring business.
Where possible, the acquiring business should always carry out due diligence and seek suitable indemnities from the disposing business.
Business transfers can happen unexpectedly, so beware!
For example, taking on a new business services contract from a client could result in the contracts of employment (and associated liabilities) of a dedicated team employed by the outgoing contractor transferring to your business.
There are other differences, but I hope to have covered the main ones above. I also hope you will not let any of the above put you off starting up or expanding in the UK!
Most issues can be dealt with smoothly and effectively by ensuring that the relationships are properly recorded, and that you have suitable processes for dealing proactively with any problems that arise.