Between vulnerable compliance and confident ignorance: Small employers,regulatory discovery practices and external support networks

Introduction

At the beginning of 2014, small employers (with 1–49 employees) employed 7.7 million people (Department for Business, Innovation and Skills, 2014), almost a quarter of the national workforce. ¹ Small firms were the primary source of UK employment growth from 2010 to 2013, creating 84% of jobs (Thompson, 2014) and have been particularly important in absorbing the unemployed and labour market inactive, especially disadvantaged women, young people and individuals who lack degree qualifications (Urwin and Buscha, 2012). Small firm employment performance and the barriers to growth are, therefore, of great academic, practitioner and policy interest. This article investigates the influence of one purported barrier – employment regulation.

Small firms are believed to suffer disproportionately from regulatory burdens because of resource constraints and their limited ability to withstand external shocks (Chittenden et al., 2002; Crain and Crain, 2010). Business groups and policy-makers have singled out employment law as one of the principal regulatory challenges facing small firms (e.g. Beecroft, 2011; Better Regulation Executive, 2010; British Chambers of Commerce, 2010; Confederation of British Industry, 2013; Federation of Small Businesses Scotland, 2012; Forum of Private Business, 2013; Vukovic, 2012). HM Treasury/Department for Business Innovation and Skills (2011) estimated that, as of 2009, businesses incurred a total cost of £1bn complying with employment regulation.

Policy-makers believe that the steady flow of new employment regulation in recent years has given rise to perceptions that it is costly, time-consuming and over-bureaucratic (Department for Business, Innovation and Skills, 2013a). Government has committed to reviewing employment law throughout the lifetime of the present parliament as part of a policy programme intended to reduce the impact of regulation on businesses (HM Treasury/Department for Business, Innovation and Skills, 2011). Contemporary employment law initiatives continue in the same vein as the 1979–1997 Conservative governments (Hepple, 2013), albeit within the framework of a much more concerted effort to tackle what is seen as the ‘burden’ of regulation on business. Steps have been taken to reduce the scope of individual employment rights, extend qualifying periods and limit access to effective remedies (Dickens, 2014). A number of important changes have been implemented since 2010 with the aim of limiting Employment Tribunal (ET) applications, notably an extension of the qualifying period for unfair dismissal claims from one to two years, removing 2.7 million people from protection (Dickens, 2014), the introduction of application fees and a requirement for employees considering an ET application to notify Acas ² first as part of an Early Conciliation process (Mangan, 2013). Since fees were introduced in 2013, ET applications have declined by 71% (Ministry of Justice, 2014). Even prior to this recent legislative change, the possibility of employers being taken to an ET was very low (Ewing and Hendy, 2012).

Paradoxically, policy-makers also acknowledge that the United Kingdom has one of the most lightly regulated labour markets in the Organisation for Economic Co-operation and Development (Department for Business, Innovation and Skills, 2012, 2013a), and academics argue that employment rights lack real bite (Pollert, 2007). Most academic studies have focused upon how small firms make substantive adaptations to the law (e.g. Edwards et al., 2003, 2004). This article complements, and builds on, prior research by changing the focus from employer adaptations to the prior issue of discovering regulatory obligations. Most studies implicitly assume that employers are aware of what the law requires and turn their attention to compliance. Drawing on a qualitative study of 20 small employers, the following questions are posed:

This study contributes to the literature on small firms and regulation in several ways. First, employer discovery of regulatory obligations is often profoundly shaped through social interaction with external support networks. Employers do not necessarily confront the regulatory framework as isolated individuals but, rather, through their relations with important formal or informal stakeholders that mediate the impact of the law on their business activities and performance. Second, regulatory discovery practices are influenced by their broader business contexts and, in particular, the incidence of human resource management (HRM) problems that leave employers exposed to the risk of litigation if handled badly. HRM problems are defined as those related to the general task of managing people in work organisations (Boxall et al., 2007); no particular labour management strategy, employment practices or management style is implied. Third, the burden of discovering regulation is a dynamic phenomenon, fluctuating over time, rather than a stable, permanent condition. Studies typically ignore the temporal specificity of regulatory burdens, implicitly treating them as invariant over time.

The next section discusses prior research exploring employer practices to discover their legal obligations, and the drivers and consequences of action. The analytical framework is then outlined; this connects employer experiences of HRM problems, regulatory discovery practices, employer confidence that employment practices do not leave them exposed to legal sanctions and perceptions of regulation as burdensome (or not). Subsequent sections set out the methodological approach and the study findings before concluding and drawing out the implications for our understanding of the presumed employment law burden on small firms.

Prior research on how small employers discover regulatory obligations

Studies of small firms and regulation typically focus on how employers experience, comply with or adapt to the law (Arrowsmith et al., 2003; Carter et al., 2009; Department for Business, Innovation and Skills, 2013b; Druker et al., 2005; Edwards et al., 2003, 2004; Federation of Small Businesses Scotland, 2012; Forum of Private Business, 2013; Grimshaw and Carroll, 2006; Riley and Bondibene, 2013). Researchers have paid relatively little attention to the question of how small business owners discover regulation, both in general and specifically relating to employment law. Few studies have sought to provide empirical data on regulatory discovery practices.

Those studies that do investigate how small employers discover regulation suggest that small firms use a variety of external intermediaries to acquire employment law-related information and advice (Atkinson et al., 2014; Blackburn and Hart, 2003; Hann, 2012; Harris, 2000; Jarvis and Rigby, 2012). External sources of support include professional service providers (solicitors, consultants, accountants, insurance companies), business and trade associations, government bodies (Acas, the direct.gov website, Business Link ³ and Citizens Advice Bureaux) and also informal networks (family and friends) offering advice freely. Studies identify ‘business friends’ as important sources of advice, particularly in very small firms (Bennett and Robson, 1999), generating high levels of satisfaction (Ramsden and Bennett, 2005), although little is known about their role in enabling small employers to discover employment law obligations specifically. Employees themselves are often unaware of their employment rights, particularly those in small workplaces (Fevre et al., 2009).

Several influences on employer motivations to seek external support to discover their legal obligations might be hypothesised. These include limited managerial capacity and awareness of employment rights, recruitment practices and access to affordable, effective support. Small firms typically possess limited internal HRM or legal capability (Atkinson and Curtis, 2004; Earnshaw et al., 2000; Holliday, 1995; Pratten and Lovatt, 2005). In a survey of 9700 small business owners, Pleasance and Balmer (2013) found that only 3% of micro-employers (up to 9 employees) and 7% of small employers (10–49 employees) employ a qualified, or suitably trained, HRM professional. In addition, only 2% of small and medium-sized enterprise (SME) employers had retainer agreements for HRM/employment services and 9% for legal services. Information/advice-seeking is positively associated with business size (BMG Research and Galli, 2013), and the larger the business, the more likely it is to have retainer agreements (Pleasance and Balmer, 2013). This suggests that small employers face a regulatory knowledge deficit if they rely solely on their internal capability.

Survey data suggest support-seeking with regard to HRM/employment law issues is an infrequent event for small employers. BMG Research and Galli (2013) note that 3% of SME employers sought information or advice on HRM issues in the past year and 7% sought information or advice on employment law/redundancies. Yet, only 1% of SME employers used a solicitor or lawyer to resolve queries during this period, suggesting that small employers frequently use sources other than legal professionals. In 2012, 8 % of SME employers used the Internet as a source of information on employment law/redundancies in the previous year (Department for Business, Innovation and Skills, 2013b).

Limited employer awareness of regulation can be a source of uncertainty and anxiety. It is suggested that small business owners operate in a state of ‘vulnerable compliance’, uncertain whether they are compliant with their legal obligations (Petts et al., 1999). ⁴ Employer awareness of employment law varies across firms (Arrowsmith et al., 2003) and specific regulations (Blackburn and Hart, 2003). ⁵ Uncertainty emanates from the volume, complexity and rate of regulatory change (Better Regulation Executive, 2010): in 2014, 59% of UK businesses reported finding information about which regulations apply to the business as a burden, while 68% reported keeping up to date with new employment regulation as burdensome (Jigsaw Research, 2014). Allinson et al. (2013) note that many micro-employers are unaware of the entitlements employment law affords them in making redundancy, sick pay or maternity pay decisions. Blackburn and Hart (2002) found that only one-fifth of the 1,071 SME employers they studied felt confident or very confident of their knowledge of individual employment rights. A later study, conversely, found that 61 per cent of employers (mostly SMEs) reported being very or fairly informed about the employment laws that affect (IFF Research 2012). Such divergent levels of employer response might indicate an increase in awareness/confidence in legal knowledge over time. Or, alternatively, the data might suggest that employer awareness and confidence vary markedly with specific contingencies such as recruitment, dismissal and redundancy events and their capacity to handle them in a legally compliant manner.

Edwards (2012) distinguishes four types of small firm with regard to their engagement with the law, from ‘modernising firms’ seeking to formalise employment relationships through the informal, flexible approaches of ‘owner-managed firms’ and ‘niche and family businesses’ to non-compliant ‘sweatshops’. Recognising the diversity of small employer approaches to the law is useful, but little attention is given to precisely how employers discover their legal obligations. Where small firm employees are family members, friends or simply ignorant of their rights, there may be few pressures on employers to discover their legal obligations because they perceive the risk of litigation for non-compliance to be low. Small employers frequently hire known quantities (Carroll et al., 1999) – people already known to the employer or to employees – using personal and word-of-mouth networks (Harris, 2002; Holliday, 1995; Kitching, 1994), in part to limit HRM problems or to evade regulatory obligations (Ram et al., 2007). A recent survey of 1000 microbusiness owners suggests that 41% would hire family members and friends before anyone else (Dellot, 2014). Employer use of informal recruitment channels might be seen as a proxy indicator for high-trust employment relations, which might limit an employer’s need to discover their legal obligations or to ensure compliant HRM practices. Employment relationships, built on prior social networks, insulate the employer from the law, to some degree, with both parties preferring to handle HRM issues informally rather than by resorting to formal procedure or the law (Edwards et al., 2004; Moule, 1998), although such preferences are shaped by business size (Atkinson et al., 2014; Marlow et al., 2010).

There is, therefore, a gap in the literature in relation to how small business owners discover their legal obligations as employers, their precise motivations for seeking to discover them, the circumstances encouraging discovery and the consequences of discovery. Business and market circumstances might be expected to influence discovery by supplying good reasons (or not) for employers to take action to discover their obligations. Prior research has under-theorised these discovery processes and, in particular, the role of external support networks. The next section develops an analytical framework to examine the linkages between discovery practices, business and market context, and outcomes of support-seeking in terms of employer confidence.

Theorising regulatory discovery practices

Employment regulation refers to state-authorised and state-enforced minimum standards, assigning legal rights and duties to employers and employees (and their representative organisations). In general, employees in the United Kingdom enforce their statutory rights through the ET system; there is no general body with overall responsibility for inspecting employers and enforcing rights (Morris, 2012). Employment law affects employers by requiring them to take action to discover and interpret legal rules and to adapt HRM practices in line with legal requirements – or expose themselves to the risk of legal sanctions for non-compliance. The concept of discovery encompasses a number of related activities: how employers find out a law exists, how they come to recognise it applies to them and how they interpret, fallibly, what activities it mandates or prohibits. The term is intended to include practices related to checking, confirming and elaborating what employers believe they already know; it does not assume employers start from a position of a complete absence of knowledge. Employers vary in awareness and knowledge of legal obligations.

Employer action to discover their legal obligations is as much an effect of regulation as are the substantive adaptations taken to comply. Such discovery processes comprise part of the administrative burden of regulation, defined in terms of the costs and constraints employers incur independently of substantive adjustments (Kitching et al., 2013). ⁶ Employers might perceive discovering regulation as a more resource-intensive or anxiety-laden task than taking action to comply once responsibilities have been discovered. Employers might discover their legal obligations by reading statutes or other legal instruments themselves or, more likely, by consulting intermediaries. Some may, of course, choose to ignore obligations and take no action to discover them.

There is no necessary connection between the existence of a particular regulation, employer awareness of legal obligations, actual HRM practices and employer confidence that practices are compliant. Employers may not know that a particular regulation exists or that it applies to them (Allinson et al. 2013); they may or may not interpret it correctly or be confident that practices are compliant. Employers potentially vary from a state of vulnerable compliance, a time-bound condition of uncertainty and anxiety, where, owing to limited awareness and understanding of the law, they are uncertain whether practices are, or are not, compliant (Petts et al., 1999), through to high levels of confidence – though not certainty – that practices are robust to legal challenge. Such perceptions are independent of the level of regulation. Paradoxically, employers might perceive deregulation to impose a burden because of the need to discover new legal requirements (Peck et al., 2012). Between vulnerable compliance and high levels of confidence, a range of intermediate positions are possible where employers are aware their knowledge of employment law is incomplete yet which does not impede their capacity to manage the business because they believe legal sanctions are unlikely – these positions might be characterised in terms of varying degrees of confident ignorance. Ignorance refers to the absence of employer certainty that HRM practices are immune to legal challenge; it does not mean employers possess no legal knowledge at all. Employers may believe their knowledge is adequate but lack certainty. Uncertainty can never be eliminated until HRM practices are pronounced upon in legal proceedings.

Employer confidence is largely a function of the HRM challenges faced and the perceived capacity to resolve them without recourse to law. Interaction with employees shapes employer definitions of specific events as problems. Recruitment, dismissal and redundancy situations increase the risk of employer contact with the legal system, generating uncertainty and anxiety. Where employers experience few HRM problems, perceive the risk of legal sanctions to be low and believe they can access affordable solutions effectively and promptly if difficulties arise, employers might be confident that practices are robust to legal challenge, and hence not consider the task of discovering employment obligations to be a burden. Conversely, where employers perceive HRM problems to be frequent or complex, the risk of legal penalties high or support inaccessible, confidence is likely to be low.

Links between employer perceptions, confidence, action and the wider business and market context are dynamic. Employer confidence is likely to vary temporally, waxing and waning with contingent circumstances, rather than being a stable state. Because circumstances change, employer perceptions of HRM problems and associated regulatory burdens also vary. Changing employer perceptions of HRM challenges bring with them the potential to undermine employer confidence that current practices are immune to future legal entanglements. Employer adjustments to working practices during and immediately after recession (the period during which fieldwork was undertaken) might be particularly prone to generate problems, for instance, compulsory redundancies, pay pauses and cuts, work reorganisations and recruitment freezes (Van Wanrooy et al., 2013). Survey data, however, implicitly portray HRM problems as stable and are unable to capture the complexity of specific events unfolding over time in ways which employers come to define as problems. These changing perceptions, and levels of confidence, motivate employers to take action to discover (check, confirm, elaborate) what their legal obligations are, contributing to the perception of employment law as a burden at particular times.

Employer capacities to discover their legal obligations may be influenced heavily by interactions with external support networks. As most small employers lack significant internal managerial capacity, they may seek external support in order to deal with such problems, where resources permit. Formal sources may be used where professional advice is required and alternative means of discovering regulatory requirements are unavailable. Informal sources such as family and friends might be preferred where they are believed to offer a low-cost, high-quality solution to the task of regulatory discovery. The use of both types of source is intended to increase employer confidence that HRM practices are compliant and to reduce perceptions of discovering regulation as a burden.

Methodological approach

To address the research questions, a qualitative research design was adopted. Qualitative strategies are well suited to capturing dynamic social processes, linking the temporally specific character of HRM problems, employer responses and the consequences of action for employer confidence that HRM practices are compliant and legal sanctions unlikely. Survey approaches, in contrast, do not adequately capture the processual, temporally variable character of employer perceptions and actions. Such data implicitly depict social objects in static terms and risk misrepresenting them as fixed and unvarying, rather than as dynamic and undergoing transformation over time.

The employer sample was constructed using a professional agency working to size and sector specifications: to recruit firms with up to 49 non-owning employees operating in manufacturing, construction, and personal and business services sectors (Table 1). ⁷ The achieved sample comprised 13 micro-firms (up to 9 employees) and 7 small firms (10–49 employees). Sector and size variation was built into the sample in order to increase the possibility of finding diversity of employer experience and response. Most enterprises were well established, some surviving up to 30 years, suggesting that the findings are not related solely to employer inexperience or business age; 16 firms were more than 3 years old at the time of interview. Employers were not filtered to meet sampling quotas with regard to the experience of particular HRM problems or litigation, or the perception of employment law as a burden. Data were obtained from employers/managers in face-to-face interviews using a semi-structured topic guide intended to elicit detailed accounts of the following:

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Table 1.

Sample business characteristics.

Employer	Date founded	Business activity	Workforce size
1	2010	Clothing designer/manufacturer	2
2	2007	Training, coaching consultancy services	2
3	2002	Building maintenance and electrical services	4
4	2004	Property maintenance services	4
5	2009	Legal consultancy	4
6	ca 2007	Financial services	6
7	1999	Management consultancy	6
8	2007	Information technology and telephony services	6
9	ca 1982	Manufacturer, window-blinds	7
10	2008	Cosmetic products wholesaler	8
11	2000	Kitchen worktop supplier	8
12	2002	Confectionary and giftware wholesaler	8
13	2010	Assembly and distribution of confectionary products	9
14	1999	Information technology, telecoms and data management services	10
15	2007	Radio and TV promotion services	11
16	2006	Training services	13
17	2005	Recruitment agency	13
18	2004	Online publisher	13
19	2011	Website design	15
20	2003	Construction	19

Workforce size includes working proprietors and self-employed workers reported to be part of the regular workforce. Case 20 workforce size data exclude 40 temporary agency staff working at the firm at the time of interview; the business employed 19 permanent employees.

To capture change over time, respondents were invited to recall significant HRM events, for example, recruitment, disciplinary, dismissal or redundancy situations, and to explain how they unfolded over time. Employers were asked to elaborate their responses, the influence of the law on decision-making and the consequences of action taken. Such accounts provide a causal narrative linking employer perceptions and actions, support provider responses and the outcomes of interaction. This is very different to cross-tabulating survey responses at a point in time in order to infer causal relationships between variables. Qualitative data linking action to context and consequences provide firmer grounds for making causal claims. Respondents were asked to discuss HRM practices before answering questions about employment law, partly to provide a context for such questions, but also to avoid encouraging unfavourable responses to regulation early in the interview before a picture of employment practice could be formed. All interviews were fully transcribed and each transcript cleaned during the process of listening to the audio recordings. Interviews varied in duration from 29 to 76 minutes (mean average, 59 minutes).

Data were analysed using the conceptual tools provided by the framework set out above, linking employer perceptions and actions to the wider business and market context and to the consequences of support-seeking. Interview materials were interpreted from the standpoint of, first, identifying any HRM challenges employers had experienced, particularly those with important legal implications; second, to explore how employers had sought to manage these challenges, particularly with regard to support-seeking and, third, to consider the consequences for employers in terms of enabling them to adapt HRM practices with confidence. HRM challenges should be understood in terms of tasks employers needed to perform rather than as necessarily being serious, costly or complex problems to resolve; many challenges were routine and posed employers no major difficulty. Particular attention was paid to employer interactions with external support networks, as all sample employers reported the value of such sources.

It is recognised that the study is limited by the exclusive focus on employers. Incorporating data from past and present employees, job-seekers and support providers would provide valuable insights relevant to explaining the links between HRM challenges, employment practices and the role of external support networks. But, as the principal concern of the study is with processes of regulatory discovery – with how, when and why employers seek to discover their legal obligations to employees – it is argued that the research design enables important empirical insights to be gleaned regarding social processes few prior studies have sought to illuminate. The presence of employees and external support networks is felt in employer accounts of the challenges experienced and their responses.

The next two sections present the study findings. The first discusses employer discovery practices; the second explores the drivers and consequences of such processes. Together, the empirical sections convey the important role played by external support networks in addressing the limited, although temporally variable, burden of discovering employment regulation.

Regulatory discovery practices and external support networks

Prior research suggests small employers, and particularly micro-firms, lack a developed division of managerial labour and do not employ HRM specialists. The present sample confirms this view. None of the sample employed a qualified HRM or legal specialist; most felt it to be unnecessary at the current scale of operations. Responsibility for managing HRM issues fell to employers or senior managers, both typically without specialist knowledge or training; some firms employed a non-specialist employee with designated responsibility for HRM administration (3 employers: 6, 17, 20). There was little evidence of effective HRM formalisation. Some employers had written staff handbooks but they played little role in day-to-day relations; this finding accords with previous studies (e.g. Holliday, 1995; Marlow et al., 2010; Ram, 1994).

Respondents reported varying levels of regulatory awareness and confidence. Four reported reasonably high levels of knowledge of employment law. Two had studied employment law as part of a university degree (Employers 14, 20); another was a member of the Chartered Institute of Personnel and Development, a professional association (Employer 16) and a fourth claimed considerable knowledge acquired from working in large organisations (Employer 18). Prior learning was less important as a source of specific employment law knowledge than it was in providing a general framing of the legal issues surrounding employment. This increased employer confidence that relevant information and advice could be accessed when needed. Yet, even these four relatively well-informed respondents also reported consulting external sources in particular situations, recognising the limits of their knowledge and their vulnerability at particular times. But knowledge deficits did not necessarily translate into a perception of regulation as a general burden even among the less informed because employers accepted their responsibility to discover their legal obligations and to abide by them:

… it’s very much down to me, as the employer, to go out and seek that information to be an employer adhering to employment law 100 per cent. (Employer 19: website designer, 15 employees)

Employer understandings of regulatory duties and employee rights were profoundly shaped through face-to-face, telephone and online interaction with external support networks. All 20 respondents reported having consulted external sources in order to discover their regulatory obligations in order to solve specific HRM problems. Respondents drew on a diverse group of support providers to access the expertise needed to provide employment contract templates; write employment contracts, formal policies and staff handbooks; advise on contract terms and formal policies; respond to employer requests for information and advice on HRM matters; and, crucially, provide reassurance that HRM practices were robust to legal challenge. Despite varying degrees of initial ignorance of legal obligations and an infrequent, but often keenly-felt, sense of vulnerability, the availability of external support enhanced employer confidence that problems could be resolved should they arise:

As a small employer, if we didn’t have the retainer with the solicitors and the access to their resources, I don’t really know how me, as a supposed HR person, would actually keep abreast of everything. If you have an HR Manager you would expect them to be qualified through the Institute of Personnel and stuff, so they would have CPD ⁸ on a regular basis. But as a small employer, I am not qualified as a HR person. (Employer 6: financial services, 6 employees)

Adopting the formal/informal distinction used by researchers to categorise support providers (e.g. Watson, 2012) is of little help interpreting the data in this study. External advisers often straddle this binary divide. Respondents consulted family members and friends who were also legal or HRM professionals (13 employers: 2, 3, 4, 5, 9, 10, 11, 12, 14, 15, 16, 18, 19), employers or business owners (3 employers: 1, 5, 13) or Job Centre Plus employees (Employer 8). Employers relied heavily on knowledgeable family and friends for support on the rare occasions when problems occurred. The use of such sources mirrors the reliance of many small employers on family and friends to provide a readily accessible pool of labour. These external, though familiar, advisers combine the benefits of high-quality advice expected of professional support providers, with the benefits of freely provided guidance, trusted to be offered in the recipient’s best interests, at the precise times required, supplied by informal sources:

There’s a friend of ours. She’s a solicitor and she knows how you can and cannot word things, whether it’s worded correctly or not and we’ve generally had her … cast her eye over, making sure it’s legal – legal documents and what have you. And one time she said ‘No, you’re going to have to change this, you’re going to have to change that’. And she sort of more or less rewrote it for us. I mean, I thought, well, great, you know, because at least then it’s legal. (Employer 3: building maintenance and electrical services, 4 employees)

Employers also used formal sources not founded on prior social relationship to access information and advice. Sources include professional providers, such as solicitors, consultants and accountants (7 employers: 1, 6, 8, 9, 10, 13, 17), business and trade associations, including Chambers of Commerce, the Federation of Small Businesses, the Recruitment and Employment Confederation and the Chartered Institute of Personnel and Development (7 employers: 3, 4, 5, 7, 11, 18, 19) and government sources such as Acas, the direct.gov website, Business Link and Job Centre Plus (10 employers: 8, 9, 11, 13, 14, 15, 16, 18, 19, 20). These sources supplied useful information and advice on both a paid basis and freely via the Internet or by telephone.

Respondents reported frequent use of the Internet to find employment contract templates and information on employer obligations and employee rights (17 employers: all except 6, 7, 17). Internet sources were generally found to be adequate for employer information requirements, but user expectations that official portals should provide clarity and certainty relevant to their specific needs and circumstances were sometimes frustrated. Employers reported following up government website searches with a call to a telephone helpline to make sense of what they had read or to discover what they had been unable to find online. Respondents claimed helpline advisers were reluctant to confirm the suitability of advice for their particular requirements, instead recommending callers seek further specialist advice. Respondents often contacted family and friends to confirm, supplement or qualify online sources, particularly government websites, because information could not be found or was difficult to interpret:

I might have looked at some government websites at some point, but to be honest I find them hard so I’d rather talk it through with somebody. I just find them so wordy and really hard. I would just rather speak to somebody and that’s where my lawyer friend or my HR friend would probably help. (Employer 2: training, coaching consultancy services, 2 employees)

Access to expert support networks is a major influence on whether employers are able to discover and interpret their regulatory obligations with confidence and, consequently, whether they consider discovering employment regulation a burden. Easy access to trusted advisers was the primary bulwark of employer confidence, enabling them to act despite initial ignorance, reducing the burden of regulatory discovery. The circumstances influencing employers to discover their regulatory obligations are now discussed.

Business circumstances and the temporal specificity of the burden of regulatory discovery

Employer decisions to discover their regulatory obligations are contingent upon business circumstances. For much of the time, employment law hardly seemed to impinge at all on day-to-day HRM practice in the sample businesses. Employer HRM/legal information and advice needs were largely a consequence of critical events, particularly recruitment, dismissal or redundancy situations that exposed them to the risk of litigation if handled badly. It is at the point where employers perceive themselves to be on the brink of an HRM decision with the potential to become a serious legal problem that employment law becomes a salient concern. Until such times employers were largely unconcerned with the law and perceived no need to take action to discover their obligations. Employers were content to continue with existing practices in a condition of confident ignorance until circumstances were perceived as about to change imminently. Prompted by a critical trigger, employers responded. This view is consistent with prior studies suggesting small employers adopt a reactive stance towards managing employees (Marlow et al., 2010; Ram, 1994) and prefer to avoid contact with the law (Harris et al., 2012). As such reactive stances were widespread among the sample, several sources are used to illustrate:

I think it’s a case of ‘until it happens, let’s not worry about it’ – which I guess is a bad position to be in. Oh well! Until somebody sues me, I’m not going to worry about it. (Employer 19: website designer, 15 employees)

I don’t look regularly. I have to admit that. And the recruitment [website], ⁹ I haven’t looked on for ages. I’ll do it when I’ve got a need. So if I’m going to recruit somebody, I’ll look on it to make sure that nothing’s changed, that they haven’t come out with any other good ideas that I haven’t got. (Employer 16: training services, 13 employees)

I don’t have any sort of … a lot of formal paperwork in place really for disciplinaries or things like this, or warnings. You can knock something up and I can find out what I need to as and when. (Employer 4: property maintenance services, 4 employees)

Perceptions of the burden of discovering regulation are closely connected to the experience of HRM problems. Employers were particularly exercised by disciplinary/dismissal and redundancy issues reporting dismissal (arising from perceived unsatisfactory performance, absence, unauthorised use of company vehicles, theft and drunkenness) (10 employers: 4, 6, 8, 11, 12, 13, 14, 15, 19, 20) and redundancy decisions (3 employers: 6, 11, 20). Limited legal knowledge meant employers were often unsure whether HRM practices were safe from legal challenge, increasing uncertainty and anxiety, related principally to the threat of being taken to an ET and the attendant risk of financial sanctions. None of the sample reported actual examples of legal disputes, which no doubt bolstered employer confidence in customary practices.

Serious HRM problems such as dismissal and redundancy were infrequent occurrences and only raised the possibility of litigation at very particular times. This limited incidence of HRM problems is underpinned by a number of factors, particularly workforce size and composition, and labour market conditions. Small businesses, by definition, employ only a few people and offer a limited potential for HRM problems, although where problems do occur, the impact on the firm can be severe. More important was the role played by recruitment practices. Employers primarily used informal channels – personal contacts and word-of-mouth – to construct a workforce, a point emphasised by others (Carroll et al., 1999; Kitching, 1994; Ram et al., 2007). Such prior personal relationships might be considered a proxy for high-trust employment relationships. Hiring personal friends, former colleagues and those known to employees furnished a workforce expected to be cooperative and reliable:

I know that you can be tied up in legalese for letting people go, but because we’ve … known them, or they are known to us, so we have almost always got quite a known quantity. (Employer 8: Information technology and telephony services, 6 employees)

It’s very sort of informal arrangements between some friends who happen to work for my business. (Employer 5: legal consultancy, 4 employees)

If I were needing or wishing to expand, and the employees became employees rather than acquaintances or friends, then I would have a policy of recruitment if staff became 10, 15 or 20 because you couldn’t control them. You just couldn’t control them. (Employer 9: manufacturer of window-blinds, 6 employees)

Informal recruitment practices cannot guarantee cooperative employment relationships, but employers felt able to rely on personal controls to regulate employee behaviour, reducing the need to formalise HRM practice or to obtain professional advice in order to ensure practices were compliant. Even where formal policies existed, employers did not always rely on them, again a finding consistent with prior research (Ram, 1994; Moore and Read, 2006):

[The business] was always set up on a very informal, friendly basis, so, although we have contracts, they’re not kept up to date … So there’s very little in the ways of sort of procedures. If we have any grievances or any problems or anything, it’s very casual. (Employer 10: cosmetic products wholesaler, 8 employees)

Where informal networks did not supply high-quality staff in sufficient numbers, employers used more formal channels such as social networking websites (Facebook, Twitter), newspapers and agencies – although often with limited success. Only two employers relied primarily on formal recruitment practices: Employer 20, the largest in the sample and, curiously, Employer 1, the smallest in the sample with a single non-owning employee, as a consequence of being unable to recruit informally. Employer 1, a womenswear designer/manufacturer, was arguably the most concerned about employment regulation. This is primarily explicable in terms of the employer’s limited HRM/legal knowledge and having to recruit her most recent employee from the open market rather than from existing social contacts. The new employee was hired with an explicit probation period despite the unfair dismissal qualifying period having been extended to two years from April 2012, a couple of months prior to interview:

I thought I’ll set this three month sort of period because I don’t really want to go down the nightmare of it’s not working out, trying to get rid of someone and it all coming back in my face. (Employer 1: clothing designer/manufacturer, 2 employees)

At the time of the study, UK unemployment was around 2.5 million people, a marked rise since the 2010 general election (Office for National Statistics, 2012). Most employers had experienced declining or stable employment in the previous 2 years (except the three firms founded since 2010). These were not the most propitious times for employees to contest employer decisions. Employers were aware of difficult labour market conditions and employee vulnerability to job loss.

Summarising, business circumstances influenced employer decisions to seek support to discover their legal obligations. The temporally variable experience of critical HRM problems, and the accessibility of effective external support, meant employers did not generally perceive discovering employment law to be a burden. Most of the time, respondents operated in a condition of confident ignorance, anticipating no immediate threat of legal action and therefore perceiving no need for information or advice. Only where HRM problems were perceived to be imminent did employers take action to discover regulatory requirements.

Conclusion and implications

Drawing on qualitative interview data from 20 UK small employers, this study has investigated how, under what circumstances and with what consequences small employers take action to discover their regulatory obligations to employees. This article has sought to complement and build on existing research by switching the focus from substantive adaptations to employment law to the prior issue of discovering regulation. The links between perceived HRM problems, regulatory discovery practices and consequences of support-seeking in terms of employer confidence have been explored. Discovery was not widely regarded as burdensome because of limited experience of HRM problems and readily available access to trusted external support networks, particularly family and friends knowledgeable in HRM/legal matters. To conclude, contributions to the literature are summarised and the implications for our overall understanding of the employment law ‘burden’ on small employers are considered.

Three contributions to the literature on small firms and regulation are proposed. First, external support networks play a – or perhaps the – pivotal role in shaping employer understandings of legal obligations to employees. Regulation only generates effects on small businesses through the exercise of employer and stakeholder agency. External support providers are important stakeholders, mediating the influence of regulation on small employers by providing information and advice that constructs their image of the law. Drawing on trusted external support permits employers to transform a condition of vulnerable compliance to one of enhanced levels of confidence, enabling them to manage enterprises effectively despite incomplete knowledge of employment law.

Second, employer perceptions of the burden of regulatory discovery are influenced by business context. In particular, the incidence of HRM challenges related to the tasks of recruiting, disciplining and dismissing staff might leave employers exposed to the risk of litigation if handled badly. For this employer sample, the task of regulatory discovery posed no major difficulties and was, therefore, not defined as a general burden. Several reasons might be proffered as explanation. Employers had experienced few HRM problems and no cases of litigation. Employers relied heavily on informal recruitment channels. While this cannot guarantee conflict-free working relationships, it draws on, and reinforces, some degree of trust between employer and employee. High unemployment and difficult trading conditions no doubt weakened the capacity and resolve of employees to challenge employer decisions, further limiting the possibility of legal action.

Third, regulatory burdens are dynamic phenomena, varying over time, rather than permanent conditions. The effects of employment law on employers are context-dependent, varying with HRM contingencies – events that occur at particular times – and with the means available to manage them effectively. Consequently, employers differ, temporally, in their confidence that employment practices do not leave them exposed to legal sanctions. Such a conception of regulatory burdens has methodological implications for researchers. Cross-sectional surveys providing a snapshot of employer views at a point in time are unlikely to capture the temporal variability of regulatory burdens and, consequently, misrepresent them as either a stable presence or a stable absence. Qualitative studies can provide deeper insights into the processual character of regulatory burdens, linking employer discovery of employment regulation to the wider business and market context, and the availability of external support.

Future research might develop the argument presented here by investigating the influence of employees and external support providers directly. Employee data might facilitate a deeper understanding of the variety of circumstances that encourage employers to define particular HRM events as problems that prompt action to find out what their regulatory obligations are. Support providers might describe the quality and quantity of information and advice supplied to particular kinds of employer and explain how and why they act as they do. Studies of employers lacking access to high-quality external support might investigate whether they are more likely to operate in a condition of vulnerable compliance and perceive discovering regulatory requirements to be a burden. Such analyses would permit elaboration and refinement of the analytical framework proposed here.