The Impact of Enterprise Size on Employment Tribunal Incidence and Outcomes: Evidence from Britain
| Published date | 01 September 2008 |
| Author | Sukanya Sen‐Gupta,David J. Storey,Paul Edwards,George Saridakis |
| DOI | http://doi.org/10.1111/j.1467-8543.2008.00687.x |
| Date | 01 September 2008 |
The Impact of Enterprise Size on
Employment Tribunal Incidence and
Outcomes: Evidence from Britain
George Saridakis, Sukanya Sen-Gupta,
Paul Edwards and David J. Storey
Abstract
Employment Tribunals are the formal means of adjudicating disputes over
individual employment rights in the UK. This article hypothesizes that, because
small firms favour informality over formality, they are more likely (i) to
experience employee claims than large firms; (ii) to be subject to different types
of claims; (iii) to settle prior to reaching a formal Tribunal; and (iv) to lose at
a Tribunal. Data from the 2003 Survey of Employment Tribunal Applications
are used to examine these hypotheses. They are generally supported, although
in relation to the third there was no size effect. Furthermore, 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. Recognizing the benefits of infor-
mality, while also ensuring that small firms follow proper standards of proce-
dural fairness, is a policy dilemma that has yet to be resolved.
1. Introduction
Edith Penrose (1995 [1959]: 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 among small firm researchers, the
influence of firm size on employment relations has been inadequately theo-
rized. 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,
George Saridakis is at the Accounting, Finance and Banking Research Group, Loughborough
University. Sukanya Sen-Gupta is at the Human Resource Management Faculty, Cardiff
University. Paul Edwards is at the Industrial Relations Research Unit, University of Warwick.
David J. Storey is at the Centre for Small and Medium Sized Enterprises, University of Warwick.
British Journal of Industrial Relations doi: 10.1111/j.1467-8543.2008.00687.x
46:3 September 2008 0007–1080 pp. 469–499
© Blackwell Publishing Ltd/London School of Economics 2008. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
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 article argues that, in order to confront internal uncertainty, the large
firm tends towards formality in its relations with employees, even if this
imposes an ‘unhappiness cost’ upon them (see Storey et al. 2007). 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.
In this article we initially show 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 hearing. 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 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 article is organized as follows: Section 2 reviews the theory of small
and large firms. Section 2 develops both the Penrose analogy and the distinc-
tion drawn by Storey and Sykes (1996) between internal and external uncer-
tainty. Section 3 uses this theory to derive hypotheses relating to ET cases.
Section 4 outlines the statistical framework. Section 5 provides a brief
description of the Survey of Employment Tribunal Applications (SETA)
2003 dataset. 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
Storey and Sykes (1996) argue that smaller firms are significantly more likely
to fail than larger businesses1because they lack control of 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.2Small
firm success is therefore more likely to be influenced by their skill in respond-
ing to, rather than shaping of, their marketplace. To address this external
uncertainty the small firm places more emphasis on short-term survival than
470 British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2008.
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