Keeping it in the family – employment law challenges for family owned businesses

Published on
3 min read

Family owned businesses (FOBs) employ millions of employees in the UK. Some of those businesses are significant, sophisticated employers in size and often in terms importance in a local economy. Others are micro-employers where the workforce is entirely a family affair.

In this case you can make an argument that the employment challenges FOBs face are no different than any privately owned business, be it a household (or local) name or a start-up venture. However, there are certain challenges that are unique to FOBs, those being as follows:

Where the family is actively involved in the leadership of the business

This can make recruiting at the senior level more difficult if it affects the genuine opportunities for career progression. Likewise if the best talent is routinely passed over in favour of promoting less able or experienced family members, this can cause resentment and retention issues – and in some cases, potential grounds for constructive dismissal.

It also follows that it is important to give thought to reward, as it may not follow that traditional incentives, like shares based awards, can be offered outside of the family, limiting incentives to less attractive, cash based rewards. It can take time to ensure incentives align executive reward with a level of success that matches the family’s aspirations, values and approach to cost and risk.

It can be harder to deal with disputes involving or between family members

For example, asking a non-family member to investigate allegations of serious misconduct involving the youngest son or daughter of the owner, may look and feel a fundamentally different challenge and, if the outcomes more lenient, set a difficult precedent when dealing with similar misconduct involving non-family members. Further, I have dealt with difficult cases over the years where one family member is looking to remove another, often due to a breakdown or break-up of the family relationship or where one party has failed to set the right example or behaviour in the way they performed their job in the family business. Seldom is this eventuality covered in the employment documents.

Members of staff can become privy to information about the family and their private life that is sensitive

It is, however, surprising how few contracts of FOBs include a requirement to keep this information confidential. On business sales of FOBs, you often find many members of the family employed and in receipt of a salary whose role in the business is unclear and seemingly non-existent.

To avoid unnerving buyers, the relationship between the business and the family members should be clear and properly documented in the year or so leading up to a sale

Much like any employer, the answer to each of the above challenges lies in establishing policies and documentation relevant to the business. For example, workplace disputes between or involving family members can be expected. As such, the governance of the business and relevant polices, such as disciplinary and grievance, need to address these.

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