Common SME Mistakes That Lead to Tribunal Claims, Settlement Payouts, and Reputational Damage
Employment tribunal claims are more common than most business owners realise. And the majority of claims that result in settlements or awards don't involve dramatic wrongdoing — they involve process failures, documentation gaps, and avoidable mistakes that have accumulated over time.
Here are the most common mistakes I see in small and growing businesses — and what to do about them before they become expensive.
Mistake 1: The Undocumented Conversation
Someone's performance isn't great. You have a word. They seem to understand. Nothing changes. You have another word. Still nothing. Eventually you reach a point of formal action — but when you look back, there's no record of any of it.
This is the single most common pattern I see. Informal conversations are valuable — but they need to be followed up in writing. Even a brief email saying 'following our conversation today, I wanted to confirm...' creates a paper trail that can make the difference between a defensible process and an indefensible one.
The fix: build the habit of confirming significant conversations in writing. It doesn't need to be formal or lengthy. It just needs to exist.
Mistake 2: The Probation Period That Wasn't Really a Probation Period
Many employment contracts include a standard probationary clause. Far fewer businesses actually use the probation period as an active management tool.
If someone joins, their probation passes without any formal review, and they're then confirmed in post — and then eighteen months later you're trying to manage a performance issue — the fact that they 'passed probation' can actually work against you. It implies the performance was acceptable.
The fix: treat probation as a genuine process. Set objectives. Review them formally at the midpoint and at the end. Document the outcome. And if someone isn't meeting the standard during probation, deal with it then — not later.
Mistake 3: Inconsistent Treatment of Similar Situations
Tribunals look very carefully at how similar situations have been handled. If one employee was dismissed for something that another employee received a warning for, you need to be able to explain why — and 'I liked one of them more' isn't going to cut it.
Inconsistency is particularly dangerous in relation to protected characteristics. If employees who share a protected characteristic (age, race, gender, disability, for example) are consistently treated differently from others — even unintentionally — that's direct evidence in a discrimination claim.
The fix: keep a basic record of how significant HR decisions have been made, and sense-check your approach against previous similar situations before you act.
Mistake 4: Skipping or Rushing the Disciplinary Process
The ACAS Code of Practice on disciplinary and grievance procedures sets out a clear minimum standard. It's not complicated — investigation, letter, meeting, decision, right of appeal. But the number of employers who skip steps, rush the process, or fail to give proper notice of meetings is remarkable.
A tribunal doesn't need to find that a dismissal was unfair in principle. If the process was flawed, the compensation can be uplifted by up to 25% on top of the basic award. Getting the process wrong when the outcome might have been defensible is an expensive mistake.
The fix: whenever you're facing a disciplinary situation, pause and get the process right before you act. The cost of a couple of hours of HR advice at the outset is a fraction of the cost of getting it wrong.
Mistake 5: Dismissing Without a Fair Reason
There are five potentially fair reasons for dismissal: capability, conduct, redundancy, statutory illegality, and some other substantial reason. Dismissing someone outside of these categories — however genuine your frustration — is automatically unfair.
The businesses most at risk here are those dealing with relationship breakdown, culture clashes, or a general sense that someone 'isn't the right fit.' These are real issues, but they need to be managed through a proper process — not a dismissal that can't be justified.
The fix: before you dismiss anyone, be clear on which fair reason you're relying on, and whether you can demonstrate it. If you can't, take advice before you act.
Mistake 6: Handling Redundancy Without Proper Process
Redundancy is one of the most misunderstood areas of employment law. Many employers treat it as a way to end an employment relationship that isn't working — rather than a specific process for when a role is genuinely no longer needed.
The most common mistakes: failing to consult properly, not applying a fair and objective selection process where multiple people could be affected, not considering suitable alternative roles, and not calculating statutory redundancy pay correctly.
The fix: whenever redundancy is on the table, treat it as a formal process from day one. Individual consultations, written communications, clear selection criteria if relevant, and correct payments. The cost of getting this right is always less than the cost of getting it wrong.
The Bigger Picture
None of these mistakes require bad intent. They happen because small businesses are busy, HR gets deprioritised, and people management is genuinely hard — particularly when you're also responsible for everything else.
The Employment Rights Act raises the stakes on all of these areas. The businesses that navigate the next two to three years well will be those that invest in getting their people practices right before they have a problem — not in response to one.
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Need help with this?
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We work with growing businesses across West Sussex and beyond, providing practical, straightforward HR support that fits your size and budget.
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