Employing Family Members

With two-thirds of UK businesses being family-owned and with family businesses employing 12.2 million people in the UK, family businesses form an important part of the UK economy. Some of the largest businesses in the UK are family-owned and many of these have been established for generations. It is often the case that these large family-owned businesses start off life as small, one-person start-ups but through hard work and good decision-making, they grow into large companies employing thousands of people. It is not uncommon for the reigns of the business to be passed down successive generations and for family members to be employed in various parts of the business.

DO I NEED TO GIVE A FAMILY MEMBER AN EMPLOYMENT CONTRACT?

The law states that if someone is going to be employed for more than one month, a written statement containing certain information about their employment must be given to them no later than two months after the commencement of their employment. The law does not distinguish between non-family and family employees so the written statement should be provided to a family member who works in the business. Employers often provide the written statement via an employment contract or letter of engagement.

There is an extensive list of information that must be given to an employee in the written statement (in a single document) and the following are some examples: the names of the employer and employee, the date when the employment began, the salary or the method of calculating it, the job title and the place of work. Other information, such as information about the company’s disciplinary and grievance procedures, sick pay or pension scheme, may be given in another reasonably accessible document, such as a staff handbook.

MY DAUGTHER HAS JUST JOINED AND IS GOING TO MANAGE ONE OF OUR DEPARTMENTS. ARE THERE ANY POTENTIAL EMPLOYMENT ISSUES?

Yes. If there is already a Head of Department, you must ensure that you do not just demote or reassign that employee arbitrarily. This will be a breach of contract and the existing Head of Department could potentially resign and claim they were constructively dismissed. You should bear in mind the implied duty of mutual trust and confidence which is in all contracts of employment. In addition, the same rules in relation to discriminatory behaviour apply to family businesses as with any other employer i.e. you cannot treat an employee less favourably because of a protected characteristic, so you should ensure that any treatment is not because of a protected characteristic.

As well as legal issues, you should bear in mind that from an employment relations perspective, it might not be good for morale if employees have been working hard for years to get into certain positions with the company and then a family member joins and automatically gets an important role.

MY BROTHER IS NOT PERFORMING AND I WANT TO SACK HIM. WHAT DO I DO?

You must have a fair reason for dismissal if you want to dismiss someone with more than two years’ service. You should follow a performance management process and give your brother the opportunity to improve. It would be useful to refer your brother to KPIs or provide some evidence of his underperformance. As part of any disciplinary or capability hearings that you have, someone should conduct a thorough investigation before the hearing and then provide that information to your brother. You should give your brother the opportunity to respond to the allegations put to him.

Even if your brother has been employed for less than two years and doesn’t have the right to claim for ordinary unfair dismissal, it is prudent to follow a fair process and to document everything to mitigate against the risk that your brother might claim that the decision to dismiss was unlawful because it was, for example, discriminatory or because he made a protected disclosure to the company, both of which are claims that don’t require two years’ qualifying service.

CAN I STOP A FAMILY MEMBER FROM LEAVING AND COMPETING WITH ME?

A well-drafted contract of employment will take into account your personal circumstances. If you want to stop an employee from competing against you or poaching clients, it is important to include restrictive covenants in their contract of employment which aim to protect the legitimate interests of the company. There are different types of restrictive covenants, for example, non-solicitation, non-poaching, non-dealing and non-compete. The restrictive covenants must be reasonable and for a limited amount of time and their duration will vary according to the circumstances.

An enforceable restrictive covenant can stop a family member from poaching your employees or prevent them from contacting your customers if they set up a new business or join a competitor. If the family member breaches a restrictive covenant, you could go to court to obtain an injunction to try to stop them.

If you would like further advice about employing family members or if you work for a family business and need advice, please contact Shiv Raja at s.raja@rfblegal.co.uk.

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