Family Businesses: Potential Employment Issues and Nepotism

An insight into the types of employment issues faced by family businesses.


James Rowland

Commercial Director James leads Account Management, Sales and Marketing at Neathouse Partners.


18 December 2020


17 July 2024
3 min read

Family businesses form a large section of private enterprises and contribute significantly to the UK economy.

While the strong shared values and loyalty associated with family businesses are important factors to their success, the informality of employment relationships can cause issues, which we discuss below.

Benefits of a family businesses

Generally, family businesses has a strong and tightknit leadership, who have a clear vision of sustainable development so that the business can be kept in the family for generations.

There is often a greater emphasis placed on long-term goals, with both employees and directors committed to the success of the business.

Employment issues associated with family businesses


Family businesses often adopt an informal approach to employment and fail to apply formal processes when employing family members.

It may even seem excessive and inappropriate to issue a family member with an employment contract.

However, all employees (regardless of any personal or family relationship with the employer) are legally entitled to a ‘written statement of employment particulars’ on the commencement of their employment.

This statement must contain important employment terms such as the employer’s name, start date of employment, pay, hours of work etc.

Generally, this can be issued as either an employment contract or a letter of engagement.

It is essential that family businesses comply with this requirement, as failure to do so can create legal issues and make matters worse if problems arise further down the line.

Differential treatment 

There are no legal issues with family members being treated differently to other employees, as UK employment law only protects against discrimination that is based on a ‘protected characteristic’, which family relationship is not.

However, suggestions of favouritism and potentially nepotism can cause practical problems for a family business.

It may create a high staff turnover and demotivate non-family employees if they are led to believe that their hard work and dedication will not result in promotion, due to the prioritisation of family members.

There is potential for non-family employees to bring claims of breach of contract and unfair constructive dismissal if the business states that promotions will be based solely on merit, but in fact, family relationships are an important consideration.

This is because this may amount to a breach of the implied duty of trust and confidence, which applies to all employment relationships.

Difficulties may also arise if a family member engages in misconduct in their work, as other family members may not want to follow a formal disciplinary process or may seek to protect them.

Family businesses can avoid such problems by being open and transparent about how recruitment, promotion and disciplinary decisions are made, including how this applies to family members.

Relationship breakdown 

Tensions in personal and family relationships inevitably have a negative impact on employment relationships in family businesses.

When relationships break down, for example, through divorce, family members may bring employment claims, such as unfair constructive dismissal, against the family business.

This is particularly problematic when employment law formalities have not been followed, as family members are entitled to the same rights as any other employee and the tribunal will not make exceptions in this regard.

The Chemcem case

The Chemcem case (Chemcem Scotland Ltd v Ure) is a recent case concerning the impact of family breakdown on an employment relationship.

The employee’s father was a majority shareholder in the company, and their relationship had broken down after he divorced her mother and formed a new relationship with a colleague.

The company made the employee’s maternity leave extremely difficult by varying her maternity pay without warning, placing her on another company’s payroll and misleading her as to the conditions of her maternity leave.

As a result of this hostility, the employee did not return to work and instead brought a claim of constructive unfair dismissal.

The Employment Appeal Tribunal upheld her claim, as the employer had breached the implied duty of mutual trust and confidence through its hostility towards her continued employment.

The father had hoped and perhaps expected the employee not to return to work, as she would be required to supervise his new partner.

Therefore, the employee’s failure to return to work was sufficient for her claim to succeed; she did not need to communicate with the employer.

This case demonstrates how personal issues can transform into employment law issues in family businesses, when the personal-professional divide is blurred.

Therefore, it is important for employers in family businesses to maintain professional employment relationships with family members to avoid legal consequences in the event that relationships break down.

Employment tips for family businesses

  • Set out standard procedures for employment issues that will be applied to all employees to avoid special treatment towards family members.
  • Try to prevent direct management between family members to avoid bias.
  •  Do not let personal and family issues enter the workplace – keep employment relationships professional.

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