Awareness of a new law on employment disputes, which comes into force this week, is worryingly low according to the Federation of Small Businesses (FSB).

The Employment Act 2002 (Dispute Resolution) Regulations 2004 comes into effect on 1 October 2004 and will introduce a new three-step procedure will have to be followed in the event of a dismissal, disciplinary action or grievance in the workplace.

But the FSB said that a lack of an awareness about the regulations meant that many of the UK's 1.2 million employers were unawae of its implications.

The procedures mean that employers will be prevented from speaking to someone as a first step and instead will have to “put the reasons for the disciplinary action or dismissal in writing, in broad terms to the employee” and arrange a “face-to-face meeting.” As a result the procedure will be formalised at a much earlier stage risking early conflict.

Employment Lawyer Murray Fairclough said: “The rules represent the most significant piece of employment legislation in the last decade, affecting the way in which almost all employee dismissals and grievances are handled in the workplace.

“Unwary employers could easily find themselves falling foul of the rules. They don’t just apply to conduct and capability dismissals but also to redundancies, long-term incapacity dismissals, expiry of fixed term contracts and retirements. In addition they apply from day one and so still need to be followed when dismissing an unsuitable probationer.

“If the employer fails to follow the procedure, the dismissal becomes automatically unfair, and any additional compensation can be increased by up to 50%. ”

* The new three-step procedure that can be summarised as : step one - put it in writing; step two - meet and discuss; step three - appeal. For more information go to theDTI website.