The EL risk to growing SMEs

Most employment law risk is largely theoretical for micro businesses.

In very small businesses there is usually a strong psycho/social contract between owner and staff.

Relationships are personal. Problems are resolved informally. Employees often lack awareness of legal rights, access to representation, or the financial and emotional appetite to litigate against someone they know personally.

That changes as businesses grow.

Once an organisation reaches roughly 15 plus employees/workers, the equation can shift quite quickly.

At that point the business is no longer operating purely on personal relationships, but it often has not yet developed the structures, systems, management capability, or governance maturity of a larger employer.

As size increases, there is a greater statistical likelihood of one or more individuals, who want to try their legal luck, entering the workforce. Management structures become layered. Informal communication starts to fail. Founders who previously managed everyone directly now rely on supervisors and managers with varying levels of competence.

At the same time, many SMEs at this stage cannot justify a full-time HR function or regular employment law support.

The Employment Rights Act 2025 extends trade union access rights to employers with 21 or more workers. That's in the danger zone I have described.

When those provisions come into force, they will potentially open the door to union organising at precisely the point where many SMEs are least equipped to manage it: without established industrial relations frameworks, without experienced HR support, and often without any prior exposure to collective employment relations.

For many growing businesses, that represents a significant and underappreciated shift in employment relations exposure.

Sexual harassment claims, which are and will become an increasing legal danger, are also becoming more commercially viable to pursue, particularly following the proactive duty to prevent sexual harassment and the increasing overlap with whistleblowing detriment and victimisation allegations.

Add to that the emergence of AI-driven claimant support services and legal tech platforms which reduce the friction, complexity, and cost of bringing claims.

Many claims which were previously uneconomic or too procedurally difficult to pursue may now become both financially worthwhile and easier to bring.

The businesses most exposed are often not large corporates.

They are growing SMEs sitting in that intermediate stage between “small informal business” and “professionally structured employer.”

The solution is probably not a full in-house HR department for most of them.

But there are a range of defensive tactics available. These include part time HR support, insurance cover and better systems and training.

Or, just don't grow your business.

A surprising number of SMEs still think employment law risk begins when they become “large.”

That's wrong thinking and possibly very expensive thinking