It’s undeniable – the past few years have dealt businesses a tough hand. UK SMEs have had to manage the pressures of post-Covid trading conditions, Brexit, the invasion of Ukraine sending utilities soaring and employees in some key industries striking. Now, as inflation continues to rise and we fall into a cost-of-living crisis, the national outlook remains bleak.
The ever-changing economic and business landscape has bought about an array of new legal requirements. For business owners, it has never been more important to stay on top of the game – and even better, one step ahead. So, what should be on your radar right now? Let’s get some insights and advice from some of the South East’s top legal experts.
Britton and Time Solicitors, a modern law firm with offices in London, Mayfair and Brighton, recognises that the shift to home working, which became an integral part of operations during the pandemic, looks like it’s here to stay. In fact, McKinsey’s latest article on ‘The Great Attrition’ indicates that flexible working is now the second most important factor driving employee retention, just behind salary.
However, when it comes to staff working from home, many business owners have been left scratching their heads as to what to do. “Amongst those employers who want employees back in the office, there is a fear that they can’t legally ask staff to return after such a long period of home working, and to a certain extent this could be true,” says Paul Britton, employment solicitor at Britton Time. “Most pre-Covid employment contracts state a main working location that, for many, hasn’t reflected their true place of work for the past couple of years. Without a clearly communicated flexible working policy, companies might face difficulties if they try to compel everyone back into the office full-time too quickly, leading to, in the worst-case scenario, a trip to the Employment Tribunal.”
Paul explains that in employment law, there is a term known as the ‘doctrine of custom and practice’. Essentially, this states that if an employee does something regularly enough and for a long enough period, whatever it is that they are doing could become an implied term in their employment contract. “In reality, this means that the longer home working goes on, the stronger the argument will be that it is an implied part of an employment contract, and the more difficulty a business will face if trying to force employees back into the office. However, for most employees, as long as their contracted location of work is the office, legally they will be expected to follow reasonable requests from their employer.”
The team at Britton Time also warn business owners against the threat of strike action as some staff may come to expect a pay rise in line with inflation. “Striking isn’t a criminal offence, but strikers could be breaching their employment contracts, especially if they take part in an unlawful strike,” says Paul. “To lawfully strike, an employee either needs to be part of, or striking alongside, members of a union whose actions have been endorsed by the said union, so long as the union has complied with all the requirements expected of it when organising strike action. If these requirements aren’t met, a company can apply for an injunction to prevent the strike.”
Additionally, as of 21 July 2022, The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022 brought a huge alternative to the way businesses can handle strikes. “The amendment decriminalised businesses from employing agency workers to fill the roles of striking staff, enabling business to continue as usual,” Paul adds. “However, agency workers cannot replace years of training and experience that seasoned staff can provide, nor any training to mitigate health and safety risks in certain workplaces, which employers would be liable for if anything were to go wrong.”
SMEs continue to face challenging times following Brexit and Covid-19. With the addition of high inflation and rising interest rates, they are having to make strategic decisions to ensure they can thrive in the current environment. Firms tend to be incredibly resilient, and the team at Whitehead Monckton, which has been supporting businesses in Kent with specialist legal services since 1781, are seeing these strategic decisions in the form of recruitment, diversification, business restructuring, long-term stock purchases and investments in technology. “It is important that business owners continue to build value, and those that have survived the pressures of the past two years are now well placed to tackle the current challenges head-on,” states Daniel Tozer, head of corporate and commercial at Whitehead Monckton. “Moreover, there remains plenty of appetite from buyers in the market –particularly in the form of private equity – and many owner-managers of SME businesses are able to use the opportunity to de-risk, reconsider and perhaps accelerate retirement plans.”
Whitehead Monckton has been helping businesses build value in various ways, including re-organisations, reviewing contracts, ensuring their terms and conditions are in order and assisting with growth and exit plans. “We are currently working with some fantastic businesses in the process of selling and, on the flip side, continue to assist buyers, having recently assisted a long-standing acquisitive insurance broking client make three successful acquisitions adding more than £20 million of gross written premium to its business,” says Daniel.
He adds: “My current advice to SME owners is to ensure there is a strong management team in place so the business can run in your absence. We’ve all had an intense and stressful past couple of years and business owners need support while running the business, the ability to take a break and, most importantly, an exit strategy. Buyers want to know the business can continue without the current owners and if you solve this problem in advance, you are building value and facilitating your future exit from the business.”
Tunbridge Wells-based Thompson Snell & Passmore prides itself on offering practical legal advice, combined with expert business insight, to help clients adapt and thrive in the face of change. “While it is encouraging to see activity and growth in the South East SME landscape, we would urge all businesses to ensure that they take appropriate legal and financial advice as early as possible,” says CEO Sarah Henwood. “This is especially true with a potential recession around the corner. The advice applies to all types of activity, whether it concerns a commercial property transaction, a commercial agreement, an employment issue or any kind of dispute.”
From a corporate point of view, Sarah explains that there are still plenty of investors with money to spend. However, continued economic disturbances may well lead to a reduction in multiples or valuations in those businesses that are being acquired. Moreover, from the commercial side, supply chain issues are continuing to impact businesses, especially in terms of shipping and storage. This has led to delays and also additional costs for organisations to absorb. “Businesses should be extra vigilant in terms of drawing up and checking all supplier agreements to help guard against these issues as much as possible.”
The team at Thompson Snell & Passmore are also increasingly advising clients on a wide range of environmental, social and governance (ESG) related matters. “More and more, investment criteria for M&A activity now includes an ESG assessment of the target and many investors are actively seeking companies that have a focus on ESG,” continues Sarah. “From a banking and finance perspective, many loans now have a sustainability aspect. In addition, increased focus on ESG is also impacting clients in the commercial property space as they look to meet new sustainability targets.”
Outset was founded in 2002. Over the past 20 years, the firm has grown to deliver a range of legal (employment, corporate, commercial and commercial property law), HR, consultancy and safety services. “We’ve always wanted to challenge the ‘stuffiness’ of the industry – the traditional, outdated methods of delivery, hourly billing models and rigid internal structures,” says Chloe Pereira, Outset’s director of people services. “We believe the modern business needs a more flexible, human approach and a partner that genuinely wants to add value, take their problems away and help them move their organisation forward. That has been our ethos since day one.”
Recruitment and retention are currently major challenges for a lot of businesses. Outset believes that SMEs should focus on the steps they can take to support their workforce and increase employee engagement. “If staff are working from home, managers are less likely to spot issues as they aren’t seeing their team day to day,” says Chloe. “There can be a conflict between wanting to provide balance and employee satisfaction, but also restore company culture and build strong employee engagement.”
She goes on to explain: “It’s unlikely that pay rises will be matching the current levels of inflation but there are other ways businesses can support employees, for example, by keeping open and frequent lines of communication, acknowledging the challenges people may be facing with the cost-of-living crisis and providing access to information and resources to help individuals.”
Chloe and the team add that employers should look to get ahead of potential stumbling blocks. The recent Harpur Trust Supreme Court decision about holiday entitlement and pay calculations for part-year workers is a good example of this. “Employers who use the 12.07% method to calculate holiday entitlement and/or pay could be exposing themselves to claims, so now is the time to understand the implications of the decision, conduct an audit and determine whether any changes are needed.”
Outset is frequently advising SMEs on issues like sickness absence management and discrimination allegations. The firm has also been working with clients on approaches to hybrid working policies and flexible working requests, as well as how to manage and resolve conflict in the workplace. On the employment law front, the team urge businesses to invest the time and resources in getting the right documents and procedures in place from the outset, and then make sure the right support is in place to keep these current and to actively support and manage your most important asset – your people.
Countless SMEs in the South East, like the rest of the country, feel like they are currently on something of a roller coaster. Despite this, many have had a good 12 months in terms of turnover and profits. However, some challenges make it much harder to predict the future, particularly in relation to recruitment and supply chain issues. This is the view of Chris Brightling, head of corporate and commercial at Girlings Solicitors.
Chris explains: “The labour squeeze means filling vacancies is hard and applicants are looking for higher salaries. And then there’s the effect of remote and flexible working. The pull of London-based jobs with higher salaries – something we have always had to deal with in this region – now extends even wider and is an even greater challenge. Concerning commercial contract issues, supply chain delays resulting from port or travel disruption are not only real but very visible to those based in Kent. Road hauliers continue to encounter problems and this, inevitably, has had a knock-on effect on local businesses.”
The cornerstone of Girlings’ Legal 500 ranked commercial law team is to ensure clients are prepared in both a legal and commercial sense. “Our team take time to understand a company’s commercial objectives – whether it is a startup, established business or multi-national company,” says Chris. “We guide businesses on the legal and commercial issues that arise at every stage of life and provide pragmatic advice on the most suitable structures and arrangements.”
Girlings’ corporate team advised Adelard LLP on the sale of its business earlier in 2022. The transaction between NCC Group Plc is the latest in a long line of recent successful corporate transactions for the team across the South East. “We regularly advise on a wide range of business contracts,” says Chris. “This can range from basic level terms of business – something that all businesses should have – to supply chain contracts and distribution and franchise agreements.”
The current political and economic uncertainty isn’t positive for businesses of any size, but the pandemic has demonstrated that SMEs in the South East are tenacious, adaptable and innovative, making them well-placed to manage the inevitable challenges ahead. To stay ahead of the curve – and protected – firms must ensure they are covering all the bases legally.
Founded in 1952, Cripps, based in Tunbridge Wells, is one of Kent’s most established full-service law firms. Over the past year, the team have supported a wide range of businesses by advising them on various legal matters. One example of this is Cripps’ work with Modulous, a technology-driven producer of modular homes, which is on an ambitious growth journey. With input from the construction team, Cripps’ commercial contracts and IP experts helped to structure Modulous’ commercial contracts with customers and suppliers. The firm’s corporate and finance specialists have also supported Modulous in securing debt and equity financing (with some of it coming from PE). “We enjoy taking an open approach when it comes to assisting on a project,” explains James Beatton, partner and head of corporate at Cripps. “Innovation and new technologies disrupt sectors and help them to evolve, which in turn, needs advisers to think differently.”
The team also acted for innovative clean hydrogen producer HiiROC on its Series B funding round. In total, £26 million was invested as equity on completion of the round. The funding will be used to continue the commercialisation of HiiROC’s technology, which converts biomethane, flare gas or natural gas into clean hydrogen and carbon black through an innovative electrolysis using thermal plasma, and take it to market.
Coping with the cost-of-living crisis
As we head into autumn, the cost-of-living crisis will bring its challenges. Aside from the potential drop in trade, as customers curb their spending, Kent-based solicitors Clarkson Wright & Jakes expects businesses to see an effect on staff wellbeing and productivity.
The team advise employers to look at new ways of supporting staff – outside of purely financial options – to maintain engagement and productivity. “For example, a strong employee assistance programme (EAP), whilst not direct financial assistance, may help by providing support with things like debt management, stress and mental health,” points out Laura Claridge, a senior lawyer in Clarkson Wright & Jakes’ employment department.
Laura adds that recruitment and retention challenges continue, and as ever, businesses are having to adapt to retain talent. Employers are addressing this by upskilling existing staff and reviewing benefits. “Candidates are giving more weight to work-life balance or flexibility, and job adverts that mention these have higher hit rates,” she says. “One effect of the cost-of-living crisis may be that we see employee priorities shift away from this trend to be more salary-focused, and more may be prepared to sit tight in their current role.”
According to Ben Madden, partner and head of our Wright & Jakes’ corporate and commercial department, in the commercial sphere, there has been a significant upswing in insolvencies. He explains: “We are working with insolvency practitioners and accountants to support businesses affected by these issues, both in advising boards and individuals, and also in working to turn businesses around and navigate the economic landscape. Apart from those businesses unfortunately affected by declining or constrained trade, we continue to support the large number of businesses that continue to operate and grow.”