Abstract
Examines the impact of employment regulation on owner‐manager approaches to the employment relationship at the level of the individual firm. While there was no reported principled opposition to extending employment rights as suggested by a number of earlier studies, the cumulative effect of recent legislation was perceived by owner‐managers to be reducing their competitiveness by placing costly and time‐consuming demands on the smaller business. The case study companies were increasingly formalising their employment processes largely to defend their decisions against potential litigation. Despite certain acknowledged benefits, this increasing proceduralisation was held to be detrimental to the informality and flexibility viewed as essential to effective working relationships in the smaller enterprise. Continuing recruitment difficulties combined with the costs associated with expanding regulation led the majority of the case study companies to identify an investment in automation and labour‐saving equipment as a preferable long‐term option to the expansion of the workforce.