The cost most business owners focus on first
The most visible cost of an unfair dismissal claim is the financial outcome.
This may include:
- settlement payments
- legal advice
- representation costs
In isolation, many claims appear “manageable”.
Some settle for relatively modest amounts.
This is where many business owners underestimate the true impact.
The costs that don’t show up on an invoice
The biggest cost of an unfair dismissal claim is almost always time and distraction.
Common hidden costs include:
- hours spent preparing responses and timelines
- repeated calls with advisers
- managers reliving decisions and conversations
- founders being pulled back into people issues
- delayed business decisions due to uncertainty
For small and growing businesses, these costs hit harder because leadership bandwidth is already stretched.
Why unfair dismissal claims feel so draining
Unfair dismissal claims force businesses to operate backwards.
Instead of focusing on what’s next, employers are required to:
- reconstruct decisions made months earlier
- justify conversations that were informal at the time
- explain why action wasn’t taken sooner
- defend decisions emotionally rather than operationally
Even when a claim is defensible, the process is rarely energising.
This is why many business owners say the experience is more exhausting than expected.
Why claims cost more as businesses grow
At under 100 employees, unfair dismissal claims tend to escalate faster.
This is because:
- managers were involved rather than founders
- documentation is inconsistent
- processes are partially formed
- multiple people recall events differently
What feels clear internally can look fragmented externally.
That fragmentation increases negotiation pressure and settlement risk.
The “cheap claim” myth
Some unfair dismissal claims are resolved quickly and cheaply.
Many are not.
Costs increase when:
- positions harden early
- communication is reactive
- documentation is created after the fact
- emotions drive strategy
A claim that could have settled early often drags on when businesses feel compelled to defend decisions emotionally rather than strategically.
Settlement pressure and why it matters
Even defensible claims create settlement pressure.
This pressure comes from:
- time spent away from the business
- uncertainty about outcomes
- fear of precedent
- desire to “make it go away”
Settlement decisions are rarely about guilt.
They are about energy and opportunity cost.
This is why unfair dismissal claims often resolve in conciliation, not hearings.
The impact on managers and teams
The cost of a claim is not contained to leadership.
Managers involved often experience:
- anxiety about decision-making
- reluctance to address performance issues
- loss of confidence in handling people matters
Teams may experience:
- lowered standards
- hesitation to raise issues
- inconsistent management behaviour
This creates a ripple effect that outlasts the claim itself.
When unfair dismissal claims become especially expensive
Certain scenarios drive cost up quickly.
These include:
- multiple managers being involved
- inconsistent explanations over time
- poor documentation
- termination following complaints or leave
- unclear performance expectations
In these situations, even small claims can become prolonged and stressful.
The opportunity cost most businesses miss
While dealing with a claim, businesses often delay:
- hiring decisions
- restructures
- performance action
- strategic projects
This hesitation has a cost.
Momentum slows, standards slip, and leaders stay stuck in defensive mode.
That opportunity cost rarely gets counted, but it’s real.
How businesses reduce the cost before claims arise
The cheapest unfair dismissal claim is the one that never happens.
Cost is reduced when:
- performance issues are addressed early
- expectations are documented clearly
- decisions are made calmly, not reactively
- managers are supported before termination
- advice is sought before positions harden
Most cost is created before a claim is lodged.
Where HR support makes the biggest difference
For growing businesses, HR support reduces cost by:
- preventing avoidable claims
- shortening resolution timelines
- removing emotion from strategy
- helping businesses choose battles wisely
This is where ad hoc HR advice often pays for itself many times over.
FAQs
Before you terminate
Unfair dismissal claims rarely start with bad intent.
They usually start with delay, frustration and unclear process.
If you’re unsure whether a termination would stand up to scrutiny, that uncertainty is often the cue to pause and get advice before acting.
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