The Impact of Enterprise Size on
Employment Tribunal Incidence and Outcomes:
Evidence from Britain
George Saridakis* Sukanya Sen-Gupta** Paul Edwards** & David J. Storey*
* Centre for Small and Medium Sized Enterprises
University of Warwick
** Industrial Relations Research Unit
University of Warwick
Address for correspondence: George Saridakis,
CSME, Warwick Business School,
University of Warwick,
Coventry. CV4 7AL
Tel.: +44 (0)24 7652 2074
Fax: +44 (0)24 7652 3747
George.Saridakis@wbs.ac.uk
CSME Working Paper 89
First version: June 2006
Revised version: November 2006
1
Abstract:
Employment Tribunals are the formal means of adjudicating disputes over individual
employment rights in the UK. This paper hypothesises that because small firms favour
informality over formality that they are (1) more likely to experience employee claims
than large firms; (2) to be subject to different types of claims; (3) to be more likely to
settle prior to reaching a formal Tribunal; and (4) be more likely to lose at a Tribunal.
Data from the 2003 Survey of Employment Tribunal Applications (SETA) are used to
examine these hypotheses. They are generally supported, though in relation to the
third there was no size effect, and at Tribunal stage having and using (formal)
disciplinary procedures overrides the effect of firm size. The most likely explanation
is that day-to-day practice in small firms is not consistent with the standards of
evidence and the audit trail expected by Tribunals.
JEL Classification: J5
Key words: enterprise size, employment tribunal
Acknowledgement: We would like to thank Ben Knight and Alan Neal for useful
comments and discussions. The research was supported by the UK Department of
Trade and Industry and the Advanced Institute of Management Research.
2
1.
Introduction
Edith Penrose (1959 [1995:19]) famously argued that “differences in the
administrative structure of the very small and very large firms are so great that in
many ways it is hard to see that the two species are of the same genus”. Despite this
wide recognition, at least amongst small firm researchers, the influence of firm size on
employment relations has been inadequately theorised. To address this, we develop a
distinction initially drawn by Storey and Sykes (1996). They argue that the nature of
uncertainty differs between small and large firms. Large firms suffer primarily from
internal uncertainty, whereas small firms suffer primarily from external uncertainty.
The response of small and large firms to these different forms of uncertainty is then
reflected in the nature of employment relations.
This paper argues that, in order to confront internal uncertainty, the large firm
is required to impose formality in its relations with employees, even if this imposes an
“unhappiness cost” upon them. In small firms, however, there is no such requirement
for formality to achieve employee commitment. Indeed formality is viewed as
generally undesirable. Such theories are examined using one measure of employment
relations - cases brought before Employment Tribunals (ETs). Tribunals provide a
relevant test because the legalism and formality of their practice contrast with the
original intention that they should provide rapid and informal means to settle disputes
(Dickens et al., 1985). They thus provide a measure of how well small firms deal with
an external system that requires formality and documented procedures. Their role is to
handle cases brought by employees over individual employment rights. The great bulk
of their work used to relate to claims for unfair dismissal; this still comprises their
largest part of their work, but new responsibilities have included discrimination cases
and cases brought under the Wages Act. 1
In this paper we found that small firms experience more claims than large
ones, and are subject to particular types of claim. We found some weak evidence that
small firms are less likely to settle prior to reaching a Tribunal. However, when
reaching a Tribunal small firms are more likely to lose those cases. Our interpretation
of these results is that the formality of ETs runs against the informality of small firms.
We contend that this result has not been identified previously and that it matters for
both employers and employees. It matters for small employers who may feel they are
1
The number of registered applications peaked at over 130,000 in 2000 (Hayward et al., 2004).
3
discriminated against by the operation of ETs, if not by the legislation. It matters to
employees who may choose to avoid small firms on the grounds that they appear to be
bad employers.
The paper is organised as follows: Section 2 by reviews the theory of small
and large firms. This section develops both the Penrose analogy and the distinction
drawn by Storey and Sykes (1996) between internal and external uncertainty. Section
3 uses this theory to derive hypotheses relating to Employment Tribunal cases.
Section 4 outlines the statistical framework. Section 5 provides a brief description of
the SETA 2003 data set. The findings are presented in Section 6. The final section
offers an explanation based on the nature of small firms’ employment practices.
2.
Small and Large Firms: The Theory
External Uncertainty
Smaller firms are significantly more likely to fail than larger businesses2 , primarily
because they do not control their external environment. They lack the market power to
influence prices and they are more likely to be dependent on a single or small number
of customers 3 . Small firm success is therefore more likely to be influenced by their
skill in responding to, rather than shaping of, their marketplace. To address this
external uncertainty the small firm places more emphasis on short term survival than
the larger firm. This is reflected most clearly in its investment decisions. Small firms
favour projects which have a short, rather than a medium, term payback 4 . They favour
projects which enable them to switch in the event of unexpected changes in their
marketplace 5 . In contrast, larger firms have more market control and are more likely
to be able to absorb and adjust to changes by rescheduling their activities. They
therefore place a smaller premium on flexibility.
This clearly influences the nature of employment relations in the workplace.
Favouring short term returns means that formal training, where there is a clear front2
Hart and Oulton (1996) show that, in very broad terms, for each doubling of company size, death
rates fall by 5% for companies with up to 1,000 employees.
3
Kitson and Wilkinson (2000) report that 37% of SMEs relied on one customer for more than one
quarter of their sales. Perhaps even more strikingly, 20% of “micro” firms obtained at least half their
customers from a single source, compared with only 4% of medium-sized firms.
4
Hankinson (1984).
5
Cosh and Hughes (1994: 33) show that small companies rely more on carrying “excess” liquid assets
to meet discontinuities in investment programmes.
4
end cost and returns only in the medium term, is less likely to be undertaken in small
firms. A second reason why small firms will place less emphasis upon training is that
there is unlikely to be an internal labour market, so that trainees can ‘move onwards
and upwards’. Instead the small employer will recognise that the trained employee is
more likely to move out, thus reinforcing the unwillingness to provide training
(Storey, 1997). Such a reaction is a rational response from the small employer, in the
same way that training provision is a rational response from large employer. It reflects
the different types of uncertainty facing firms of different size.
Internal Uncertainty
In contrast, it is the internal environment in large firms which is uncertain. The
distance between the key decision makers in a large organisation and those either
implementing or responding to these decisions means the decision-takers cannot be
certain their decisions are being implemented. In a small organisation, in contrast, the
boss can see immediately if there are difficulties. To address this internal uncertainty
large firms respond by enhancing formality - a concept which is alien to the small
firm owner.
Three very different illustrations of this uncertainty are now discussed. The
first type of uncertainty is that workers are unaware of decisions that have been made.
In this respect large firms are much more likely than small firms to experience
communication problems in communicating decisions made by top managers to the
remainder of their workforce. The traditional response to this uncertainty by large
firms is to enhance formality. Greater communication formality is reflected in the
more extensive use of newsletters, or by formal meetings between managers and
workforce representatives. It is less likely to be addressed, as it would be in a small
firm, by a face to face yet informal meeting with the person making the decision
explaining, and justifying, that decision to those affected by it. Such a response is not
possible in a large firm so it has to address this communication problem through
formality.
A second dimension of internal uncertainty is that of employee commitment.
Ideally, all sizes of firm seek to ensure that workers, at all levels, comprehend the
significance of their own actions. But, for example, whilst workers in all sizes of firm
accept that absenteeism causes problems for co-workers, workers in small firms are
5
much more likely to understand the impact this may have upon the viability of the
whole enterprise. Similarly, middle managers in large organisations, partly because
there are so many of them, may feel that their personal contribution to the overall
success of the business is difficult to identify. “People no longer know everyone else
and . . . there is a need to develop formal procedures and practices” (Cully et al.,
1999: 273). This, in turn, may reduce the commitment and effort of that individual.
The owner-manager of a small firm, however, is much more likely to be able to link
clearly their personal contribution to either the downside consequences of financial
loss or even bankruptcy or the upside gains in wealth. To address this uncertainty,
larger firms again respond by seeking to raise formality. Team spirit, which is more
likely to occur naturally in small firms, is promoted by formal communication
channels and in seeking to standardise, rather than to tailor the managementworkforce relationships to local circumstances.
A third uncertainty is in managing diversity. In small firms diversity is more
likely to be managed by the decision taker having an informed understanding of the
specific circumstances of the specific worker. In the large firm this same diversity is
managed by formality and the central theme is to ensure that individuals are treated
fairly. This is interpreted as meaning that no individual is seen to be advantageously
or disadvantageously treated, compared with the comparable co-workers. Parity and
fairness are synonyms in large firms. To achieve this, the HRM function is
administered by professionals who seek to ensure to ensure delivery of equality and
fairness though formality.
Because the small firm is more likely to fail than the large firm, and because
the larger firm is more likely to utilise formal procedures, it is either explicitly or
implicitly asserted that formality is desirable, even among small firms. One example
of this is that the Workplace Employment Relations Surveys (WERS), even in 2004,
examined only formal training in enterprises. Since the ratio of formal to informal
training is clearly lower in small than large firms (Kitching and Blackburn, 2002),
omitting informal training implies that small firms either “don’t train” or “fail to
engage in good practice” (Hoque, 2003). However a key finding from WERS 2004 is
that workers in smaller firms are considerably more likely to report higher levels of
job satisfaction and happiness with virtually all aspects of their work environment
than workers in larger firms (Forth et al., 2006). In short, formality therefore appears
to be associated with dissatisfaction and, if a happy workforce is a productive
6
workforce, then it suggests there are negative returns associated with increasing
formality.
3.
Employment Tribunals and Hypothesis Derivation
The above theories can be tested against evidence from cases brought to ETs.
Previous research on ETs has been of two kinds. Case studies have examined their
operations and links with firms’ disciplinary practices (Earnshaw et al., 1998). Some
quantitative studies have used surveys, notably the 1998 WERS (Knight and Latreille,
2000a); such surveys are strong on identifying what sorts of firm are likely to have an
ET case but the number of such cases is small (4 per cent of the WERS sample
reported an unfair dismissal claim going to an ET) and thus data on the characteristics
of firms with cases are limited. A small number of studies have used the series of
SETA which are deployed here, but have not specifically addressed the issue of firm
size (Knight and Latreille, 2000b).
The existing evidence on the effect of size on the incidence of Tribunal cases
is limited. Most studies find that a disproportionately large number of employment
Tribunal claims, particularly those related to unfair dismissal cases, are brought
against small firms (Earnshaw et al., 1998; Atkinson and Curtis, 2004). WERS 1998,
however, identified only a small difference between what it identified as small
businesses and larger organisations (Cully et al., 1999). Furthermore, existing
explanations of a size relationship are mixed and unsatisfactory. Perhaps the most
common industrial relations argument is that small firms tend to be bad employers;
the “Bleak House” or “autocracy” image is well-established (see Scase, 2003, for a
review). Yet the overall evidence from WERS is that indices of worker satisfaction
tend to be high in small organisations (Forth et al., 2006). An alternative argument
might say that small firm workers bring ET cases against small firms because they
expect to win them against an amateur employer. But this would be to attribute far
more knowledge about ETs than workers are likely to possess, and it ignores the
substantial risks and personal costs that bringing cases typically entails (Aston et al.,
2006).
Such explanations entail a long chain of reasoning, for ET cases are, as we
show below, unusual, and they reflect particular circumstances, notably the
breakdown of an employment relationship and a desire to seek redress. They are
7
unlikely to reflect directly the underlying features of firms. The most parsimonious
argument is that small firms will favour informality and will tend to lack formal
procedures that could deal with an issue prior to its development into a case. That is,
informality may in general permit the resolution of disagreements by face-to-face
means. But where such means fail there is a gap, and there are weak structures to
handle disagreements that develop into more substantial disputes. This is the
downside of informality. Thus:
H1: Smaller enterprises are more likely than larger enterprises to have Tribunal
cases brought against them.
The evidence to date is provided by Hayward et al. (2004). Using the SETA
data they find the highest rate of ET cases among firms in the 50-249 size band, with
smaller firms having ET cases in about the same proportion as their share of all
employees. Other studies, such as those by Burgess et al. (2001) and Knight and
Latreille (2000a) used size of workplace rather than of the whole organisation as their
measure, thus neglecting firm size comparisons. Existing research also focuses
primarily on unfair dismissal cases (e.g., Dickens et al., 1984). It is therefore unclear
whether small firms are more likely to have other types of cases brought against them,
such as redundancy, sex discrimination and breach of contract (Burgess et al., 2001).
Since small firms are more likely to pay low wages and to have informal
arrangements for the setting of pay (Cully et al., 1999; Gilman et al., 2002; Rainnie,
1989), we hypothesise that:
H2: Small firms are likely to have a higher incidence of wage related and
breach of contract cases than large firms.
Of the Tribunal claims made, only a small proportion ultimately result in a
hearing (Knight and Latrielle, 2000a; Burgess et al., 2001). Instead they are
dismissed, withdrawn, or settled privately or though intervention by the Advisory,
Conciliation and Arbitration Service (ACAS). Cost considerations and expectations
relating to case outcome influence whether or not a case reaches a Tribunal. It is
widely argued that small firms are more likely to settle out of court in order to reduce
legal expenses (Atkinson and Curtis, 2004). A study with the closest parallels with the
present one used the 1992 SETA data to investigate at what stage Tribunal cases are
8
resolved (Knight and Latreille, 2000b). It found that settlement before the Tribunal
stage was more likely in companies between 100 and 10,000 employees than in
companies with less 100 employees. The reason suggested was that the cost of
agreeing is high in small and in very large firms. The study did not look more closely
at size effects or at other issues. We therefore hypothesise that:
H3: Cases against small firms are least likely to end up at Tribunals.
In addition, to win a case if it does get to a Tribunal, the business owner has to
demonstrate that he or she has complied fully with the requirements of the law. To do
this requires, as a minimum, some knowledge of the law. This is more likely to be
found amongst human resource professionals who staff medium to large size firms,
rather than the ‘jack of all trades’ who own and manage small firms. WERS 1998
found that personnel professionals were much rarer in small stand-alone workplaces
than in similarly sized workplaces owned by larger organisations (Cully et al., 1999).
A second requirement for a successful outcome is for the business owner to be able to
show, through accurate record keeping, that all procedures required by the law are
fully complied with. Arrowsmith et al. (2003) and Bacon and Hoque (2005) show that
record keeping is likely to be much more informal in small than in larger enterprises.
It also seems more likely that an individual small firm will be appearing for the first
time, and so may be less expert in presenting a case. For all these reasons, we might
expect small firms to be more likely to lose cases than larger firms. Previous studies
such as those by Tremlett and Banerji (1994) and Wilkinson (1998) confirm such
arguments, though without detailed empirical testing of the kind reported below.
Therefore, it can be hypothesised that:
H4: Small firms that go to Tribunal have a higher likelihood of losing a case
than large firms.
Nevertheless the question remains as to whether size is in fact a proxy for the
presence or absence of procedures. Some studies find that the presence of formal
procedures exerts no influence on whether unfair dismissal claims are brought to an
ET (Knight and Latreille, 2000a). Earnshaw et al. (1998) pointed out that such
mechanisms were frequently put in place following a claim. However, there was a
general consensus that the presence of formal procedures increased the likelihood of a
9
judgement’s being passed in favour of the employer. A strongly emergent theme is
that it is the implementation rather than the existence of formal procedures that is the
crucial factor in determining whether a firm will be the subject of an employment
Tribunal claim (Earnshaw et al., 1998). Scott et al. (1989) argued that formal
procedures, if followed, could be highly beneficial to the small firm, leading to a
lower incidence of cases and a greater chance of winning at an ET.
4.
The Statistical Framework
This section identifies the procedures used for testing the (H2)-(H4). Multinomial
logistic regression is used to assess the factors associated with the type of jurisdiction
(H2). There are four types of jurisdiction and the labelling of the type is arbitrary in
the sense that the outcomes are not “ordered”. The dependent variable and the model
are given as follows:
⎧1 Unfair dismissal
⎪2 Breach of contract
⎪
Yi = ⎨
⎪3 Wages act
⎪⎩4 Others (base category)
Pr (Y i) =
e
4
β ′ jxi
∑e
, j = 1,..,4
(1)
(2)
β ′hx i
h =1
where j denotes the j + 1 possible unordered choices with characteristics x i and
where β 4 is normalised at zero. The coefficients in this model are difficult to interpret
and therefore, marginal effects are calculated (see Greene, 2000). The effect of
dichotomous variables represents a discrete change from zero to one.
The probability of the discrete event of a case going to an ET (H3) as well as
an employer losing the case (H4) is more appropriately modelled as a probit
relationship. For example, we assume that employees have an underlying propensity
to bring a case, denoted by the response variable d *i . This unobserved propensity is
defined by the regression relationship:
10
d i* = β ′x i + μ i
(3)
where x i is a vector of covariates, β is the corresponding vector of parameters to be
estimated and μ i is a normally distributed error term which is independent of x i and
has mean zero and variance one. The latent variable d *i drives the observed
outcome, d i through the measurement equation:
⎧1 if d *i > 0
d i= ⎨
*
⎩0 if d i ≤ 0
(4)
Estimation of model (3) is straightforward and provides us with direct measures of the
effect of various explanatory variables on the likelihood of bringing the case to ET.
5.
Data
Our analysis is based upon a large, UK, nationally-representative sample of ET
cases. 6 The 2003 SETA is the most recent survey, in a series of four ET surveys
conducted by the Department of Trade and Industry. It captures a random selection of
ET cases that were completed between March 2002 and March 2003, obtaining a
response rate of 66%. The survey consists of an applicant and an employer survey and
the fieldwork was conducted by the Department of Trade and Industry (DTI) between
October 2003 and January 2004. The survey captures responses from 2,281 employers
and 2,236 applicants involved in ET cases. All the variables that are used for analysis
in this paper are based on the employer questionnaire and descried in Table A1 in
Appendix. The data set has a high degree of representativeness thereby contributing to
the generalisability of results (Hayward et al., 2004). Moreover, our data are
appropriate for testing the key hypotheses identified earlier because they contain
information on a large number of ET cases and where they were settled.
6
However, to examine H1 we also use the Small Business Survey (SBS) and ET Statistics data. The
latter includes all enterprises registered for VAT in England and Wales in 2003 and is the basis for
official estimates of enterprise numbers in the UK. We are aware that this is not a perfect measure of
enterprise numbers since only business with annual sales of £58,000 are required to be registered and
there are also some exempt sectors, but this is the best available.
11
Sample analysis
SETA 2003 identifies four main types of jurisdiction cases: unfair dismissal, wages
act, breach of contract and others. The last group include, for example, redundancy
payments and sex discrimination cases. Table 1 shows the type of jurisdictions by
enterprise size. Our measure of enterprise size is consistent with standard definitions
that treat firms with up to 249 employees as SMEs and further distinguishes those
with fewer than 50 as “small”; within the SETA data, it is not possible to separate out
“micro” (0-9 employees) firms. The most striking result is that, of the total cases
brought by employees in small enterprises, about 27% are wage related compared
with only 22% and 17% for medium and large size enterprise. Similarly, small
firms have a higher incidence of breach of contract cases than medium and large
firms. A large proportion of cases brought against large and medium sized firms are
for unfair dismissal.
Figure A1 in the Appendix is a “flow chart” of case outcomes. On the left
hand side we show that virtually 82% of cases are never hearing by a Tribunal and
“drop out” for a variety of reasons shown in the chart. For example, about 15% of the
cases were withdrawn without receiving any money or anything else such as an
apology or reference. We suspect that this category represents mainly inexperienced
applicants. The bulk, just under two thirds, was settled through conciliation by the
formal ACAS. A small proportion was dismissed from the Employment Tribunal
Service (ETS). Table 2 then shows how these outcomes vary according to firm size. It
shows that large firms are less likely to proceed to a Tribunal than small and medium
sized firms, thus confirming the earlier findings of Knight and Latreille (2000b).
Table 1: Association between enterprise size and type of jurisdiction
(n=2,251; weighted estimates %)
Type of jurisdiction:
Enterprise size
Less than 49
50-249
250+
Observations
Unfair
Dismissal
38.26
41.95
45.64
1,089
Breach of
Contract
Wages
Act
Others
% within enterprise size
16.59
27.47
17.68
13.57
22.17
22.31
11.95
16.84
25.56
278
453
431
Total
912
467
872
2,251
Note: We test the hypotheses that the proportions are equal between and within groups. The
Wald test rejects the null hypothesis in both cases.
12
Table 2: Outcomes of all jurisdictions by enterprise size (n=2,198; weighted estimates %)
Outcomes:
Small (less than 49)
All
Each
claims
stage
Medium (50-249)
All
Each
claims
stage
Large (250+)
All
Each
claims
stage
Case not Heard
Withdrawn
Settled Privately
Settled through ACAS
Dismissed by ETS
13.90
18.09
43.94
4.59
18.01
23.42
56.90
1.67
14.97
15.72
44.64
3.63
19.49
20.48
58.13
1.90
16.43
16.64
46.40
4.66
20.28
20.54
57.27
1.91
Subtotal
80.52
100
78.96
100
84.13
100
Case Heard by Tribunal
Dismissed at Hearing
Claimant Lost
Claimant Win
1.29
7.69
10.50
20.13
33.77
46.10
1.46
10.81
8.77
15.64
46.58
37.78
1.55
10.40
3.92
24.57
54.76
20.67
Subtotal
19.48
100
21.04
100
15.87
100
Total
100
100
100
Notes: Statistically significant differences between the two stages of resolution were found when small or medium
sized enterprises were compared with large sized enterprises.
6.
Results
H1: Smaller enterprises are more likely than larger enterprises to have Tribunal cases
brought against them.
The 2003 SETA by itself does not allow us to examine whether smaller enterprises
are more likely than larger enterprises to have Tribunal cases brought against them
(H1). However, we attempt to examine this hypothesis by making use of data form
the SBS and ET Statistics. Figure 1 below shows that in the UK in 2003, 4,097,097
enterprises employed a total of 24,337,000 employees. About 30% of these
enterprises have salaried employees and company directors while the remainders are
sole proprietorship or partnerships. The latter, however, comprises only 1.4% of the
total employees. The 2003 ET Statistics annual report identifies 98,617 cases
registered from March 2002-2003, some of which are multiple applications. We are
informed the numbers of multiple applications are tiny but we cannot adjust for them.
Since the ET statistics and SETA provide information on the number of cases
registered, rather than the number of employees registering the cases, this requires
13
two assumptions to be made: first, the cases are registered by waged or salaried
employees and company directors. This is a valid assumption since the SETA shows
that vast majority of the cases are registered by regular employees. Second, we
assume each employee registers one case. In practice this is not always the case and
therefore, we make a distinction between cases that are brought against an enterprise
with and without prior ET experience.
Figure 1 shows that of the 97,039 enterprises having cases brought by regular
employees, just half of them have no prior experience of ETs. Based on these
assumptions, the likelihood of a case being brought against an enterprise in any one
year is one in fifty. Most of the cases (82%) were brought against private sector
enterprises with private sector employees being twice as likely to register a Tribunal
cases compared with public sector employees. More interestingly, of all the cases
brought by regular employees working in the private sector, about 42% were against
small enterprises, and 21% were against medium enterprises. Our findings therefore
support H1. More specifically, we found that the probability of a case being brought
by a SME firm employee is almost twice as higher as for a large firm employee. This
is in line with previous findings reported by Hayward et al. (2004).
H2: Small firms are likely to have a higher incidence of wage related and breach of
contract cases than large firms.
To examine the effect of enterprise size on type of jurisdiction (H2) a multinomial
logistic regression is estimated. Table 3 shows the marginal effects estimates of each
type of jurisdiction, and the predicted probabilities of each alternative is given at the
bottom of the Table. We begin in Column (I) by including only the enterprise size as
an explanatory variable. We then, in Column (II), examine whether these findings
vary when other variables are included in the equation. These other variables are
controls such as sector and type of firm, but also variables that reflect the
characteristics of the individual bringing the case - age, gender, pay, hours of work.
Finally specific characteristics of the firm are included such as whether it has a
Human Resources Department (HRD) and whether it provided written documentation
- which can be taken as an index of formality.
14
Figure 1. The 2003 SETA Pipeline *
Enterprises and Employees from
SBS: 4,097,095 and 24,337,000
Enterprise with Employees:
1,226,915
Enterprise without Employees:
2,870,180
Employees: 24,000,000
Employees: 337,000
2003 SETA brought and
disposed: 142,336
Cases brought from ET Statistics: 2000/03: 341,252 and 2002/03: 98,617
Cases brought by regular employees from SETA: 97,039
Cases brought once from SETA: 48,520
Likelihood of case registered first time: 0.2%
Cases disposed 2000/03 from ET
Statistics: 95,554
Likelihood of case disposed in 1 year from
SETA: 94%
SETA sample: 2,281
Regular employees’ cases: 2,245
Private: 1,870
Regular employees cases: 1,840 [920]
Employees: 17,695,000
Business No: 1,115,210
Likelihood of case brought: 0.01%
[0.005%]
Likelihood disposed in 1 year: 96%
Small
Regular employees
cases: 777 [389]
Employees: 6,056,000
Business No: 1,123,260
Likelihood: 0.013%
[0.006%]
Likelihood disposed in 1
year: 98%
Public: 265
Regular employees cases: 261 [131]
Employees: 4,799,000
Business No: 3,925
Likelihood of case brought: 0.005%
[0.003%]
Likelihood in disposed in 1 year: 88%
Medium
Regular employees
cases: 393 [197]
Employees: 2,598,000
Business No: 25,875
Likelihood: 0.015%
[0.007%]
Likelihood disposed in
1 year: 96%
*
Large
Regular employee
cases: 649 [325]
Employees: 9,041,000
Business No: 6,075
Likelihood: 0.007%
[0.004%]
Likelihood disposed in
1 year: 93%
The figures in the square brackets refer to those regular employee cases brought against firms that
have no prior employment tribunal experience.
15
We examine first the relationship between enterprise size and type of
jurisdiction. Column (I) confirms that small and medium size enterprises are less
likely to have cases related to unfair dismissal and sex discrimination (compared
with large enterprises). In contrast, being small means the enterprise increases its
probability of having wages and breach of contract related cases brought against them.
We then investigate whether the estimation results in column (I) change when we
control for industry, type of sector, employee characteristics, workforce composition,
employment status, tenure, working time, pay levels, procedural controls and
membership of a trade union or staff association. The results are given in column (II).
With the exception of unfair dismissal and Wages Act cases, the coefficient of the
enterprise size variable remains statistically significant even after the introduction of
the new variables.
The new variables themselves, of course, provide valuable additional insights
into the factors influencing the nature of cases brought. The characteristics of the
individual bringing the case also appears to strongly influence the nature of the case.
For example, Unfair Dismissal cases are more likely to be brought by older, male
workers employed on a full time basis. Such individuals have generally worked at the
firm for a number of years in a supervisory role, but are not well paid. This contrasts
starkly with Wage cases which are more likely to be brought by male, temporary
workers who have worked for the business only a short period of time. Amongst the
‘other’ cases - where discrimination is a major issue - those most likely to bring such
cases are relatively well paid females who have been with the business for only a
short period of time. Finally it is very interesting that none of the “policy” variables
are significant, other than trade union membership which reduces the likelihood of an
unfair dismissal case being brought. 7
7
We also found strong evidence that the outcome categories of the models have the property of
independence of irrelevant alternatives (IIA) by performing the Hausman specification test for both.
Under the IIA assumption, we would expect no systematic change in the coefficients if we excluded
one of the outcomes from the model. The test values suggest that the assumption of independence of
the various alternatives is satisfied for all omitted categories. Omitted category 1: χ2=-15.08; Omitted
category 2: χ2=0.81; Omitted category 3: χ2=1.14. In the case where the χ2 is negative, we interpret this
as a strong evidence that we cannot reject the null hypothesis of no systematic differences in
coefficients.
16
Outcomes:
Specification:
Variable
Number of employees (250+)
Less than 49
50-249
Firm type (private)
Public
Other
Sector (other service)
Manufacturing
Construction
Wholesale and retail
Hotels and restaurants
Transport and communication
Finance
Refused to respond
Age of employee (45+)
Under 25
25 to 44
Sex of employee (male)
Female
Employment status (full-time)
Part-time
Contract
Managerial duties (no managerial)
Manager
Supervisor
Years of work (less than 1)
1-3
4-7
8+
Table 3: Multinomoal logit estimates for the type of jurisdiction
Unfair dismissal
Breach of contract
Wages act
I
II
I
II
I
II
ME Std. err. ME Std. err. ME Std. err. ME Std. err. ME Std. err. ME Std. err.
-0.093** 0.025
-0.058* 0.030
-0.042
-0.032
0.038
0.036
0.047**
0.024
0.018
0.023
0.062**
0.019
0.024
0.025
0.114**
0.068**
0.022
0.028
0.035
0.029
Others
I
ME
Std. err.
ME
II
Std. err.
0.028 -0.069** 0.019 -0.054** 0.027
0.029 -0.034 0.021 -0.016 0.025
-
-
0.012
-0.020
0.045
0.059
-
-
-0.021
-0.021
0.025
0.030
-
-
-0.013 0.033
-0.069** 0.034
-
-
0.023
0.110**
0.033
0.052
-
-
0.065*
-0.091*
0.086*
-0.032
-0.034
0.092
-0.028
0.039
0.054
0.045
0.062
0.049
0.057
0.046
-
-
-0.006
-0.034
-0.023
-0.013
-0.029
0.005
-0.007
0.023
0.026
0.024
0.033
0.025
0.035
0.027
-
-
-0.068**
0.078*
-0.040
0.036
-0.020
-0.032
0.030
0.025
0.044
0.029
0.048
0.032
0.039
0.037
-
-
0.009
0.046
-0.022
0.009
0.084*
-0.065*
0.004
0.030
0.047
0.033
0.048
0.044
0.036
0.034
-
-
-0.020
-0.052*
0.047
0.029
-
-
-0.001
0.010
0.028
0.018
-
-
-0.028
0.019
0.030
0.022
-
-
0.049
0.024
0.040
0.022
-
-
-0.068** 0.029
-
-
-0.037** 0.017
-
-
-0.041** 0.021
-
-
0.146**
0.024
-
-
-0.232** 0.095
-0.195** 0.092
-
-
-0.015
-0.050
0.059
0.039
-
-
0.101
0.079
-
-
0.087
0.096
0.089
0.083
-
-
0.050
0.102**
0.039
0.039
-
-
0.043
-0.022
0.027
0.024
-
-
-0.058** 0.026
-0.055** 0.027
-
-
-0.035
-0.025
0.027
0.028
-
-
0.280**
0.317**
0.289**
0.029
0.033
0.036
-
-
-0.071** 0.016
-0.102** 0.013
-0.080** 0.016
-
-
-0.159** 0.019
-0.163** 0.016
-0.180** 0.017
-
-
17
0.161
0.149*
-0.049** 0.022
-0.052** 0.026
-0.029 0.029
Outcomes:
Specification:
Variable
Hours per week (50+)
1-15
16-29
30-39
40-49
Gross pay (25,000+)
Under 10,000
10,000-14,999
15,000-19,000
20,000-24,999
Refused to respond
Human resources department (no HRD)
Human resources department
Procedures (no procedures)
Disciplinary and grievance procedures
Written communication (no written comm.)
Written communication
Trade union membership (no membership)
Trade union membership
Predicted Probability
Observations
Notes:
*Significant at the 10% level
**Significant at the 5% level
Unfair dismissal
I
II
ME Std. err. ME Std. err.
Table 3 (continued)
Breach of contract
I
II
ME Std. err. ME Std. err.
Wages act
I
ME
Std. err.
Others
II
ME Std. err.
I
ME
Std. err.
ME
II
Std. err.
-
-
0.167
0.153
0.131**
0.102*
0.118
0.114
0.055
0.054
-
-
-0.019
0.004
-0.056*
-0.031
0.068
0.076
0.030
0.028
-
-
-0.148**
-0.115**
-0.096**
-0.076**
0.026
0.041
0.034
0.032
-
-
-0.001
-0.042
0.020
0.004
0.092
0.073
0.044
0.043
-
-
0.115**
0.062
0.090**
0.145**
-0.007
0.051
0.040
0.040
0.044
0.064
-
-
-0.012
-0.0703**
-0.050**
-0.051**
-0.045*
0.027
0.019
0.019
0.019
0.027
-
-
0.005
0.026
0.007
-0.058*
0.050
0.038
0.031
0.032
0.030
0.052
-
-
-0.108**
-0.018
-0.048*
-0.036
0.002
0.026
0.028
0.027
0.031
0.044
-
-
-0.023
0.032
-
-
0.021
0.018
-
-
-0.022
0.023
-
-
0.024
0.024
-
-
0.033
0.040
-
-
0.014
0.021
-
-
-0.001
0.027
-
-
-0.046
0.034
-
-
0.005
0.026
-
-
0.025
0.016
-
-
-0.013
0.019
-
-
-0.017
0.020
-0.050* 0.027
0.521
1,857
-
-
0.015
0.017
0.117
1,857
-
-
0.018
0.020
0.179
1,857
-
-
0.016
0.021
0.183
1,857
-
0.492
1,997
0.122
1,997
18
0.196
1,997
0.190
1,997
H3: Cases against small firms are least likely to end up at Tribunals.
As we saw earlier in Table 2 a number of outcomes are possible. Some reach a
Tribunal and our key interest is to determine whether enterprise size has an influence
upon the decision of the Tribunal, when account is taken of all of the other variables
included in Table 3. However four out of every five cases never reach a Tribunal.
They may be withdrawn; some are dismissed from the ETS and some are privately
settled. Others are settled through ACAS. Knight and Latreille (2000b) defined three
stages of resolution: the first stage includes cases which were resolved at the
conciliation stage; the second stage consists of cases which were resolved at the preTribunal stage; and the final stage comprises cases proceed to a Full Tribunal Hearing
(FTH). In practice, the first two stages are difficult to be established accurately within
our data set. Therefore, we constructed a dichotomous variable taking value “1” if an
ET claim is resolved at the Tribunal. Alternatively it takes the value “0” if the case is
not fully heard at Tribunal 8 . We then estimated Eq. (3) as a probit model. Probit
estimates (reported as marginal effects) of the probability of bringing a case to ET are
given in Table 4.
The results are consistent across models (I-III and V) suggesting that
enterprise size does not affect the likelihood of going to a FTH. 9 In model (IV) we
include interactions between enterprise size and human resources department. Only
the interaction between medium size enterprises and having no human resources
department was found to increase the probability of a case reaching a Tribunal when
compared to large size enterprises with human resources department. We tested the
hypothesis that the coefficients of the interaction terms are jointly zero and found that
we cannot reject it at a significance level below 20%. In short, there was no size effect
on settling at the pre-Tribunal stage. As for medium-sized firms, it must be recalled
that Knight and Latreille (2000b) found that settling early was most likely among
8
Cases that were dismissed at hearing are also included into this category. However, they represent less
than 4% of the case outcomes.
9
We test that the coefficients of enterprise size are jointly zero in models (I-III). The results suggest
that the null hypothesis of zero coefficients cannot be rejected (χ2=0.29, χ2=1.64, χ2=1.07 and χ2=1.35
respectively). For completeness we also examine the factors that are associated with each alternative.
The results are not presented here but they are available upon request. Focusing on our variables of
interest, we find no evidence that enterprise size affects the probability of ACAS settled, privately
settled and withdrawn. However, there is some evidence that medium size enterprises decrease the
likelihood of having cases dismissed.
19
firms in the size range of 100 to 10,000,
but we find no evidence that more
conventionally defined medium-sized (50-249 employees) firms displayed this
tendency. However, this may be also explained due to a different methodological
approach that adopted by Knight and Latreille (2000b).
Furthermore, we find enterprises in manufacturing are less likely to have cases
that progress to a full Tribunal distance. Amongst the personal characteristics of those
bringing the case we find that those aged less than 25 have a lower probability of
taking a case than workers aged 45 and over. Similarly, employees who work less
than 50 hours per week are less likely to drop out of the pipeline. We find little effect
of type of jurisdiction on progress to the Tribunal, other than cases dealing with
breach of contract, were more likely to proceed.
We highlighted above the emphasis that has been placed on proper procedures
for the handling of discipline and dismissal, and the effective use of these procedures.
SETA has valuable data on the existence and use of procedures, including questions
on whether a procedure was followed and whether some kind of meeting was held
with an applicant prior to the lodging of a claim. Overall, under half (46 per cent) of
employers stated that there was a procedure which had been followed, while 37 per
cent could identify some kind of meeting (Edwards, 2005). 10 If small firms rarely
have procedures, or implement them weakly, this may affect their chances of
dropping out of the pipeline. We found, in fact, that small and large firms, if they had
procedures, were equally likely to implement them. As for procedures themselves,
Table 4 has some mixed results. The presence of procedures had no effect on settling
at pre-Tribunal stage. But a telephone discussion without a following meeting
increased the chance of taking the case to a Tribunal, as did the following of
procedures where they existed. This is consistent with the results of Knight and
Latreille (2000b). The substantive conclusion is that firms of whatever size that take
discipline cases through their procedures are the least likely to drop the case before it
goes all the way to a Tribunal.
10
Estimates by applicants were notably lower.
20
Specification:
Variable
Number of employees (250+)
Less than 49
50-249
Firm type (private)
Public
Other
Sector (other service)
Manufacturing
Construction
Wholesale and Retail
Hotels and restaurants
Transport and communication
Finance
Refused to respond
Age of employee (45+)
Under 25
25 to 44
Sex of employee (male)
Female
Employment status (full-time)
Part-time
Contract
Managerial duties (no managerial)
Manager
Supervisor
Years of work (less than 1)
1-3
4-7
8+
Hours per week (50+)
1-15
16-29
30-39
40-49
Table 4: Probit estimates (1: Bring the case to the court; 0: otherwise)
I
II
III
ME
ME
ME
Std. err.
Std. err.
Std. err.
V
IV
ME
Std. err.
ME
Std. err.
0.026
0.032
0.020
0.024
0.018
0.029
0.020
0.025
0.015
0.027
0.027
0.027
-
-
0.027
0.029
0.029
0.027
-
-
-0.018
0.071*
0.028
0.043
-0.019
0.077*
0.030
0.046
-0.020
0.079*
0.030
0.046
-0.021
0.077*
0.030
0.047
-
-
-0.043*
-0.023
-0.014
-0.009
-0.015
-0.046
-0.068**
0.023
0.032
0.029
0.039
0.030
0.034
0.025
-0.043*
-0.034
-0.015
-0.009
-0.030
-0.051
-0.061**
0.024
0.033
0.030
0.041
0.030
0.034
0.026
-0.042*
-0.037
-0.014
-0.013
-0.032
-0.051
-0.062**
0.024
0.032
0.030
0.040
0.030
0.034
0.026
-0.045*
-0.034
-0.016
-0.015
-0.033
-0.054
-0.066**
0.024
0.033
0.030
0.041
0.030
0.033
0.026
-
-
-
-
-0.078**
-0.015
0.025
0.020
-0.078**
-0.015
0.025
0.020
-0.078**
-0.013
0.026
0.020
-
-
-
-
0.010
0.021
0.009
0.021
0.005
0.021
-
-
-
-
-0.047
0.023
0.061
0.066
-0.043
0.025
0.062
0.066
-0.045
0.051
0.062
0.073
-
-
-
-
-0.014
0.004
0.026
0.027
-0.016
0.004
0.026
0.027
-0.011
0.010
0.026
0.028
-
-
-
-
0.027
0.034
0.016
0.023
0.033
0.032
0.025
0.028
0.012
0.023
0.032
0.032
0.034
0.050
0.030
0.024
0.034
0.034
-
-
-
-
-0.054
-0.025
-0.105**
-0.087**
0.066
0.073
0.033
0.031
-0.058
-0.027
-0.104**
-0.086**
0.065
0.073
0.033
0.031
-0.038
-0.019
-0.101**
-0.087**
0.073
0.076
0.033
0.031
21
I
Specification:
Variable
Under 10,000
10,000-14,999
15,000-19,000
20,000-24,999
Refused to respond
Human resources department (no HRD)
Human resources department
Interaction between HRD and size (250+ with HRD)
Less than 49 with HRD
Less than 49 with no HRD
50-249 with HRD
50-249 with no HRD
250+ with no HRD
Formal meetings (no discussion)
Telephone but no meeting
Visual and meeting
Visual and no meeting
Procedures (no procedures)
Disciplinary and grievance procedures
Procedures (no procedures)
Procedures but do not know if they followed
Procedures and they followed
Procedures but they do not followed
Written communication (no written communication.)
Written communication
Trade union membership (no membership)
Trade union membership
Type of Jurisdiction (others)
Unfair dismissal
Breach of contract
Wages act
Past tribunal experience (no experience)
Employer has past experience
Log likelihood
? 2 (degrees of freedom)
Predicted Probability
Observations
Notes:
*Significant at the 10% level
**Significant at the 5% level
ME
-
Table 4 (continued)
II
ME
Std. err.
Std. err.
-
III
V
IV
ME
-0.017
-0.015
0.003
-0.035
0.043
Std. err.
0.034
0.027
0.028
0.029
0.047
ME
-0.017
-0.015
0.004
-0.036
0.040
Std. err.
0.034
0.027
0.028
0.029
0.047
ME
-0.018
-0.021
0.002
-0.036
0.037
Std. err.
0.034
0.027
0.028
0.029
0.047
-
-
-
-
-0.022
0.022
-
-
-0.026
0.023
-
-
-
-
-
-
0.010
0.029
-0.002
0.070**
-0.058
0.034
0.025
0.030
0.038
0.044
-
-
-
-
-
-
-
-
-
-
0.062*
-0.023
-0.025
0.039
0.021
0.033
-
-
-
-
-0.002
0.027
-0.002
0.027
-
-
-
-
-
-
-
-
-
-
0.001
0.056*
-0.003
0.043
0.032
0.036
-
-
-
-
0.009
0.018
0.009
0.018
0.005
0.019
-
-
-
-
0.024
0.019
0.025
0.019
0.025
0.019
-
-
-
-
0.016
0.058*
-0.027
0.025
0.038
0.028
0.015
0.054
-0.029
0.025
0.037
0.028
0.011
0.060*
-0.036
0.025
0.038
0.028
-
-
-
-
-
-
-
-916.277
2.49(2)
0.172
1,997
-882.107
14.58 (11)
0.168
1,948
22
-825.955
51.71(37)
0.165
1,857
-824.015
55.59(39)
0.164
1,857
0.008
0.021
-799.931
72.17(43)
0.162
1,815
H4: Small firms that go to Tribunal have a higher likelihood of losing a case than
large firms.
For the cases that reach a FTH there are two outcomes. First, “the applicant is
successful at hearing”, meaning the employer loses the case. Second, “the applicant is
unsuccessful at hearing” meaning the employer wins the case. Constructing the case
outcome variable taking the value “1” when the employer loses a case and the value
“0” when the employer wins the case, we examine the determinants associated with a
Tribunal judgment.
Table 5 reports the marginal effects of the probit estimates. Specifications I
and II clearly show that small enterprises are more likely to lose, but that medium
sized enterprises and large enterprises do not differ. However, the conclusions drawn
from model I and II are less robust when we control for employee and firm
characteristics (columns III and IV). The coefficients of enterprise size for both
models III and IV were found to be individually and jointly (χ2=0.88 and χ2=1.05,
respectively) statistically insignificant. Particularly notable is the effect of the measure
of having procedures and following them: firms doing this were much less likely to
lose than were others. Simply having procedures, however, had no effect.
We also considered whether there is anything distinctive about small firms that
also have HR departments. In column (V) we estimate the model by inserting
interactions between enterprise size and human resources department. The results
from this model suggest that small size enterprises with human resources departments,
and medium size enterprises with no human resources department, are more likely to
have a judgment against them compared with large size enterprises with human
resources department. This may be because small firms with HR departments are
prone to take un-winnable cases to Tribunals, or that Tribunals expect more
procedural rectitude from such firms than they find. Alternatively, it may be that HR
departments “import” greater formality on small firm employee relations and this
alienates employees who favour informality (Storey et al., 2007). As for mediumsized firms, they have reached a size where they may need some bureaucracy, and in
its absence they seem likely to lose.
23
Table 5: Probit estimates (1: Case lost by employer ; 0: otherwise)
I
Specification:
Variable
Number of employees (250+)
Less than 49
50-249
Firm type (private)
Public
Other
Sector (other service)
Manufacturing
Construction
Wholesale and Retail
Hotels and restaurants
Transport and communication
Finance
Refused to respond
Age of employee (45+)
Under 25
25 to 44
Sex of employee (male)
Female
Employment status (full-time)
Part-time
Contract
Managerial duties (no managerial)
Manager
Supervisor
Years of work (less than 1)
1-3
4-7
8+
Hours per week (50+)
1-15
16-29
30-39
40-49
II
III
IV
1
V
VI
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
0.203**
0.094
0.061
0.073
0.178**
0.066
0.064
0.077
0.068
-0.007
0.096
0.093
0.097
0.022
0.104
0.099
-
-
-
-
-
-
-0.067
0.095
0.094
0.107
0.103
0.175
0.114
0.120
0.070
0.214*
0.121
0.118
0.111
0.188
0.114
0.119
0.132*
0.216
0.126
0.131
-
-
0.015
0.282**
-0.051
0.105
0.129
0.226*
0.015
0.083
0.101
0.095
0.126
0.100
0.125
0.111
-0.039
0.187
0.008
-0.052
0.084
0.235
-0.034
0.094
0.130
0.112
0.143
0.114
0.139
0.121
-0.064
0.149
-0.008
-0.137
0.089
0.251*
-0.083
0.095
0.139
0.115
0.143
0.119
0.139
0.125
-0.037
0.191
0.006
-0.069
0.064
0.246*
-0.023
0.094
0.131
0.113
0.142
0.116
0.138
0.123
-0.034
0.213
0.019
-0.058
0.038
0.265*
-0.014
0.093
0.142
0.119
0.136
0.123
0.152
0.120
-
-
-
-
0.015
-0.129*
0.129
0.069
0.045
-0.109
0.135
0.072
0.029
-0.117**
0.130
0.070
0.028
-0.113
0.126
0.071
-
-
-
-
-0.136*
0.074
-0.150*
0.076
-0.138**
0.074
-0.125*
0.075
-
-
-
-
0.255
0.426*
0.273
0.147
0.208
0.417*
0.292
0.154
0.248
0.389*
0.278
0.172
0.233
0.360*
0.312
0.200
-
-
-
-
0.054
0.048
0.096
0.096
0.067
0.072
0.100
0.099
0.067
0.052
0.097
0.096
0.074
0.049
0.102
0.100
-
-
-
-
0.063
-0.081
-0.319**
0.078
0.100
0.084
0.078
-0.047
-0.288**
0.082
0.106
0.092
0.082
-0.063
-0.307**
0.080
0.103
0.087
0.081
-0.039
-0.296**
0.078
0.103
0.082
-
-
-
-
-0.303
-0.265
0.053
-0.086
0.200
0.238
0.115
0.108
-0.288
-0.228
0.091
-0.027
0.205
0.259
0.117
0.114
-0.274
-0.263
0.051
-0.095
0.221
0.242
0.116
0.110
-0.224
-0.241
0.013
-0.132
0.190
0.195
0.114
0.104
24
Table 5 (continued)
Specification:
Variable
Gross pay (25,000+)
Under 10,000
10,000-14,999
15,000-19,000
20,000-24,999
Refused to respond
Human resources department (no HRD)
Human resources department
Interaction betwwen HRD and size (250+ with HRD)
Less than 49 with HRD
Less than 49 with no HRD
50-249 with HRD
50-249 with no HRD
250+ with no HRD
Formal meetings (no discussion)
Telephone but no meeting
Visual and meeting
Visual and no meeting
Procedures (no procedures)
Disciplinary and grievance procedures
Procedures (no procedures)
Procedures but do not know if they followed
Procedures and they followed
Procedures but they do not followed
Written communication (no written comm.)
Written communication
Trade union membership (no membership)
Trade union membership
Past tribunal experience (no experience)
Employer has past experience
Type of Jurisdiction (others)
Unfair dismissal
Breach of contract
Wages act
Log likelihood
2
χ (degrees of freedom)
Predicted Probability
Observations
I
III
II
1
V
IV
VI
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
ME
Std. err.
-
-
-
-
-0.149
-0.012
-0.088
0.055
-0.079
0.111
0.095
0.092
0.126
0.138
-0.081
0.029
-0.063
0.099
-0.074
0.121
0.099
0.097
0.128
0.144
-0.149
-0.008
-0.085
0.044
-0.063
0.112
0.096
0.093
0.128
0.140
-0.148
0.007
-0.083
0.053
-0.088
0.106
0.099
0.088
0.129
0.125
-
-
-
-
-0.103
0.079
-0.071
0.083
-
-
-
-
-
-
-
-
-
-
-
-
0.213*
0.137
-0.090
0.175*
0.235
0.115
0.089
0.109
0.102
0.202
0.249*
0.149
-0.091
0.132
0.254
0.130
0.094
0.111
0.122
0.230
-
-
-
-
-
-
0.227**
-0.040
-0.054
0.104
0.080
0.137
-
-
-
-
-
-
-
-
-0.137
0.097
-
-
-0.163
0.097
-0.114
0.112
-
-
-
-
-
-
-0.229
-0.250**
-0.069
0.140
0.122
0.135
-
-
-
-
-
-
-
-
-0.086
0.065
-0.098
0.068
-0.086
0.065
-0.084
0.066
-
-
-
-
-0.061
0.065
-0.057
0.067
-0.060
0.065
-0.058
0.066
-
-
-
-
-
-
0.012
0.076
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-231.343
10.83(2)
0.449
-217.112
23.31(11)
0.454
-187.705
64.53(34)
0.450
-177.205
78.39(40)
0.440
-185.426
69.09(36)
0.450
344
332
319
314
319
Notes:
1
Heckman probit model with selection. The reported figures are the ME given the dependent variable being observed.
*Significant at the 10% level
**Significant at the 5% level
25
0.040
0.051
-0.009
0.068
0.172*
0.098
-1047.041
18.89(36)
0.434
1,616 (censored)
319 (unsensored)
Finally we also estimate a model using a Heckman probit model with selection
taking account of the fact that we observe whether the case lost by employer only if
the case goes to a Tribunal. 11 The results presented in column VI, however, support
findings reported in column (V).
7.
Conclusions
This paper has examined one dimension of HRM in small firms - experience of the
ET system. It hypothesised that enterprise size might be expected to play a significant
role in both the incidence of cases being brought and the way in which they were
resolved. The analysis provides evidence that enterprise size matters. We find that
SMEs were more likely to have cases brought against them than larger firms, but that
among SMEs it was medium sized firms that were marginally more likely to be taken
to a Tribunal. We also find that small firms were more likely to have cases related to
breach of contract and less likely to have “other” - discrimination-based - cases
brought against them. However, enterprise size did not influence whether the case
reached a Full Tribunal Hearing. However, and most importantly, once the case
reached court, small firms were more likely to lose than medium sized firm who, in
turn, were more likely to lose than large firms.
The econometric analysis inevitably muddied the waters somewhat. It was
clear that the characteristics of the workers themselves, as well as those of the firm,
influenced strongly the nature of the case brought and its outcome. In particular, the
pure firm size variable was no longer significant in influencing Tribunal outcome,
although when interacted with presence of an HR department it reappeared.
Ultimately it does seem that, if the case reaches court , the smaller firms are more
likely to lose, certainly in comparison with a large firm with an HR Department. What
is less clear is the extent to which formality and procedure influence these outcomes.
It is striking that our measures of these - written communications, grievance
procedures - rarely appear as significant in any of the equations. Possessing
procedures does not make firms more likely to settle prior to the Tribunal stage. The
key exception is that following written disciplinary procedures is more likely to be
11
The selection equation includes dummies for the type of jurisdiction.
26
associated with a successful outcome at a Tribunal. Moreover, in the relevant
specification (IV in Table 5) the size variable was not significant. In other words,
procedures make a difference, and being small in itself does not make a firm likely to
lose a case. Overall, therefore, informality influences the number and character of
cases faced by small firms, but once cases are “in the system” this characteristic of
firms has a weaker influence.
This result confirms the many arguments about the importance of following
procedures when cases reach Tribunals. In contrast, a verbal agreement may be hard
to spell out in legal terms. This position contrasts notably with that in the USA, where
the doctrine of employment at will continues to hold sway. It is true that in some
states this has been qualified if a written statement of terms and conditions exists. The
inference drawn by Katz and Kochan (2002) is that US employers seeking to avoid
the involvement of the courts should eschew formal written statements and rely on
employment-at-will. The opposite is the case in Britain: not only are written
statements of employment terms required, but further informality is likely to cut
across the expectations of ETs.
On the basis of Earnshaw et al.’s (1998) work, our own case study work
within small firms, and informal discussions with legal experts, we can offer the
following thoughts on why very small firms tend to lose at the Tribunal hearing. One
argument could be that small firm cases are more difficult than the large firm cases. In
fact, the big and complex cases of principle tend to involve large firms and, as we
have seen, size of firm does not affect the likelihood of settling before the Tribunal
stage. A better argument is that “procedures” mean one thing in a small firm and
another in the legalistic environment of a Tribunal. We have, for example, studied one
firm with about 30 employees. It is in many ways an innovative firm and a good
employer. It used to have no personnel manager but claimed to have proper
procedures in place. It subsequently appointed a personnel specialist, who reported
that the procedures were in fact out of date and lacked proper audit trails. Had this
firm ended at a Tribunal, therefore, its procedures might well have been found
wanting.
Our results in Table 5 show that the small firms are more likely to lose
(compared to large firms) even if they have an HR department. It could also be that
the presence of an HR department does not mean that the firm implements the policies
that exist: it is the application rather than the presence of procedures that makes the
27
difference between winning or losing a case. Our results show that firms that have
procedures and follow them are more likely to win than those firms that do not have
any procedures (Columns V and VI of Table 5). A study of Tribunal experience and
disciplinary practice in 33 small firms by Earnshaw et al. (1998) and other studies of a
similar kind (Edwards et al., 2004), underline the fact that formality may not run very
deep and that small firms’ perception of formality differs from that of the Tribunals.
Therefore, even if small firms may have formal procedures in place, they may not
implement the procedures and are therefore more likely to lose a case at the Tribunal
hearing.
In short, before they reach a Tribunal, small firms do not differ much from
large ones as is evident from our results which show that firm size does not influence
the likelihood of going to a FTH (Table 4). But, once there, they are likely to find that
their interpretation of procedural propriety differs from that of the Tribunal, and that
what is reasonable in their own terms, for example having the same manager dismiss a
worker and hear an appeal, may not stand up to scrutiny. Informality means that small
firms are unlikely to have procedures, and, despite over 30 years of unfair dismissal
legislation, proceduralisation has not advanced very far (Earnshaw et al., 1998). But if
they really do follow procedures, they are not disadvantaged at the ET stage.
Recognising the benefits of informality while also ensuring that small firms follow
proper standards of procedural fairness is a policy dilemma that has yet to be resolved.
Our research highlights the need for further investigation of what it in fact it
means to “follow” procedures. For example to what extent do line managers actually
follow HR best practice or is there merely lip service being paid to the issue? It would
also be interesting to see whether there is an association between firm size and
procedural rectitude. For purposes of generalisability there is a need for developing a
standardised measure for determining procedural rectitude, particularly since
perceptions of procedural application vary between firms and ETs. Furthermore,
future research may benefit from distinguishing between small and medium firms
rather than classifying small and medium firms into one category, particularly since
the results for outcome at the employment Tribunals is different for the small,
medium and large firms. Finally, a longitudinal study may be well suited for
investigating the before and after effects of introducing procedures in order to explain
how procedures influence the case outcome at a Tribunal hearing.
28
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Variable
Number of employees (250+)
Less than 49
50-249
Firm type (private)
Public
Other
Sector (other service)
Manufacturing
Construction
Wholesale and Retail
Hotels and restaurants
Transport and communication
Finance
Refused to respond
Age of employee (45+)
Under 25
25 to 44
Sex of employee (male)
Female
Employment status (full-time)
Part-time
Contract
Managerial duties (no managerial)
Manager
Supervisor
Years of work (less than 1)
1-3
4-7
8+
Table A1: Description of Main Covariates (n=1,857)
Sample % Variable
Hours per week (50+)
41.95
1-15
21.76
16-29
30-39
10.61
40-49
5.60
Gross pay (25,000+)
Under 10,000
21.92
10,000-14,999
8.24
15,000-19,000
11.58
20,000-24,999
5.12
Refused to respond
9.80
Human resources department (no HRD)
5.60
Human resources department
10.61
Procedures (no procedures)
Disciplinary and grievance procedures
12.06
Written communication (no written comm.)
54.98
Written communication
Trade union membership (no membership)
35.92
Trade union membership
Type of Jurisdiction (others)
8.67
Unfair dismissal
2.85
Breach of contract
Wages act
14.70
Past tribunal experience (no experience)
12.17
Employer has past experience
39.31
14.54
16.59
32
Sample %
3.23
6.41
43.78
39.42
15.78
27.09
20.09
11.74
5.39
55.52
85.03
55.47
34.57
49.87
12.01
20.14
50.40
Figure A1: Outcomes of all jurisdictions
Cases
Against Employer
N=2,198
Case not Heard
Case Heard by
Tribunal
18.44%
81.56%
Withdrawn
15.08%
Settled
Privately
17.05%
Settled
ACAS
45.02%
Dismissed
by ETS
4.41%
Full Tribunal
Hearing
17.02%
Claimant
Lost
9.37%
33
Dismissed at
Hearing
1.42%
Claimant
Win
7.65%