Employment legislation is a minefield. There is a constant stream of consultations, proposals and new legislation for small businesses to keep up with. The consequence of missing new laws, or misinterpreting them, can be hugely detrimental with non-compliance creating major problems with employees.

2013 is no different, with a number of legislative changes due to come into effect. Most of these changes are designed to help small businesses, but understanding the changes is certainly the first step. As implementation dates fast approach, here are the top legal changes for SMEs in 2013:

Employee shareholder contracts introduction

Employee contracts will enter a new era from April. A new kind of contract will be available, intended specifically for the benefit of SMEs and the flexibility they often require from their workforce.

‘Employee shareholder’ contracts will give employees a financial stake in the company they work for, with tax free shares as part of the benefit. The remuneration expected from these shares would be in exchange for standard benefits such as rights to redundancy pay, to request training, and to claim unfair dismissal.

The new contracts will be voluntary from both the employer and employee perspectives. They bring greater flexibility for both parties and protect businesses with uncertain staffing needs that are fearful of unfair dismissal claims or large redundancy payouts.

Small companies may be wary of putting together such contracts and shares must be demonstrably of the value that they claim. Help will be available, however, through government guidance and law firms offering template contracts that can be checked for a nominal sum. Ultimately, small businesses will benefit from the introduction, and implementation cost can be kept to a minimum.

Employment tribunal fee introduction

To protect small businesses from opportunistic employees seeking compensation, the government will introduce tribunal fees, payable by the claimant. The unrelenting campaign of the Federation of Small Businesses for this measure has emerged victorious with implementation likely in summer 2013.

The typical cost of an employment tribunal is currently around £6,900 and it is also a time intensive process. With the threat of court action hanging over, weak claims are often settled immediately out of court, rather than being resisted.

Introducing tribunal fees of up to £250 to issue a claim, and up to £950 for the claim to be heard, will deter speculative claims from disgruntled employees. The fee will be means tested, meaning low income workers will not be prejudiced. This is billed as an essential rebalancing of the employment tribunal system, allowing equal access to justice for both owner and manager of a small business and their employees.

Compensatory award cap

The uncertainty of employment law requirements can often make small businesses more vulnerable to claims for unfair dismissal. Our evolutionary legal system means that laws can be misinterpreted, laying open the possibility of breaching the rights of employees during the dismissal process, which leads to claims of unfair dismissal.

Compensation claims for unfair dismissal will now be capped. Claims such as this can be very financially detrimental to SMEs and can take a good deal of time to address. Under the rules set to come into force in summer 2013, the award will be capped at the lower of a set amount (currently £74,200), or a year’s gross pay, whichever is lower.

Pre-termination negotiations become inadmissible

2013 is a big year for unfair dismissal amendments with a change to evidence that can be presented in support of a claim also being made. Currently pre-termination negotiations, offers made with a view to agreeing termination terms where there is no existing dispute, can be presented in support of a claimant. From the summer, evidence of discussions had in an attempt to negotiate a settlement in a standard unfair dismissal claim will no longer be admissible. However, this will only apply to normal unfair dismissal claims, not other claims, for example discrimination.

The intended effect for small businesses is to remove the fear of discussions about dismissing a colleague being used against them in an employment tribunal. This is meant to enable a much more open atmosphere which can be vital to the success of a small business. However, it is very limited in scope and will require careful thought about the employee’s potential claims before it is relied upon.

TUPE

In addition to amends on the cards for this year, changes to TUPE (the Transfer of Undertakings (Protection of Employment) Regulations) are currently being considered by government. The biggest amendment under consideration is to change the way in which TUPE applies to service provision changes, meaning companies will find it easier to ditch outsourcers when ownership changes.

This means businesses that outsource many of their functions, such as IT, accounts and recruitment, will become much more attractive to potential investors and buyers. If a company that can help with these functions invests in a small business, or merges with one, outsourcers will be less likely to be bound to the company.

If this proposal is adopted it will allay the fears of small business owners that tied-in outsourcers could be seen as excess baggage when they look to sell out.

So, whilst 2013 is a complex year for small businesses on the legal front, the changes are intended to improve the way in which employment laws affect this size of business.