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Bringing the family business community together

Employing Family Members In The Family Business

26th July 2016 Paul Andrews

Employing family members should be no different to employing non-family but there are some areas to avoid when employing family members in the family firm to reduce the risk of conflicts later on.

In some respects employing the family is no different from employing persons outside the family. For example, family members who are employed in the business have exactly the same statutory employment rights as any other employees. 
 
However, because of the central role which the family plays in a family business, there can be potential difficulties associated with the employment of family members. 
 
A small family business may be able to get away with adopting a very informal approach to the employment of family members. However, as the family and the business grow, it is increasingly likely that any one or more of the following scenarios will cause difficulties, tensions, conflict and or resentment within the business:
  • family members are unsure as to what they need to do to be eligible for employment in the business

  • family members are employed in positions for which they do not have the requisite experience or qualifications

  • they are paid more generously or provided with more benefits than their non-family colleagues

  • there is no clear distinction between the duties and responsibilities of two different family members 

  • contracts of employment are issued to non-family employees, but not family employees

  • there are no clear reporting lines between family employees or between family and non-family employees

  • the remuneration of family employees is determined by, and/or the appraisal of their performance is conducted by, a member of their immediate family

  • family employees are given no feedback on how they are performing

  • they feel that they have no clear career path. 
Potential problems of this nature can be avoided by considering the following: 
  1. Agree a set of criteria for determining who should be employed in the business. Those criteria can then be communicated to the next generation or, perhaps, set out in any family charter which might be adopted by the family . The criteria might include a requirement for a minimum period of prior experience with another business or minimum qualifications for certain positions within the busines

  2. Consider a rule that family members are employed on merit and that their remuneration is no more generous than that of equivalent non-family employees. Again, rules such as this might be set out in any family charter. 

  3. Where possible, involve non-family directors in approving the recruitment of family employees (or subsequent appointments to the Board), deciding the remuneration of family employees and appraising the performance of family employees. This will help to guard against accusations of nepotism and hopefully ensure a meritocracy prevails.

  4. Consider assigning a non-family director or manager to mentor each family employee and to assist in putting together a career plan. 

  5. Make sure that contracts of employment are issued to all family employees, as well as non-family employees. 
Apart from the fact that every employer has a statutory obligation to provide its employees with certain information about their employment, there are other reasons why it is important for family members, as well as non-family employees, to be provided with contracts: 
  • the failure to provide contracts to family employees will mean that non-family employees who do have contracts will be bound by restrictions which are not, but should be, equally applicable to family employees. This could cause resentment amongst non-family employees

  • it is important that each family member has a clear job description and reporting line, so that there is no doubt as to what is expected from that employee

  • there is always a possibility that employment of a family member in the family business may not be for life. The family employee may decide to leave the business and perhaps even join a competitor or start a competing business. In these circumstances it is important that the business is adequately protected by appropriate restrictive covenants, clauses relating to confidentiality or clauses clarifying the ownership of intellectual property rights. 
Treating family in the same way as non-family, when it comes to employment in the family business, will guard against the possibility of tension or conflict. It will help to ensure that family members command the respect of non-family colleagues and it will help the Board to measure more accurately the performance of the family as employees and, subsequently, directors. 
 

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