NORTH-EAST businesses may have to make substantial payouts of compensation to employees following the implementation of the Human Rights Act on October 1 2000, unless they make the necessary preparations.

The Human Rights Act is designed to offer all people within the UK fundamental rights and freedom, said business advisers Grant Thornton. Breach of the act could mean that employers will face more industrial tribunals.

Managers should now be aware that carrying out video surveillance or monitoring employee e-mails and telephone calls without their knowledge or consent could infringe upon employees' privacy, leading to possible constructive dismissal claims.

"Whilst the protection of fundamental rights and freedom of the individual should be welcomed, it is likely to lead to practical burdens on companies," said Jayne Gooch, national head of personnel management service, at Grant Thornton.

Evidence obtained against employees in contravention of their rights under the act may be rejected by Tribunals. An example could be private investigators hired to carry out surveillance of employees on long-term sickness absence, should companies believe the absence is not genuine.

And the prevention of discrimination may be extended to individuals not currently covered in domestic law such as homosexuals. Taken to its extreme, it could include discrimination against smokers, or non-smokers.

Ms Gooch continued: "The effects could be onerous for small businesses with fewer resources to incorporate necessary amendments and to combat those employees who attempt to abuse the system.

"Employers should start making practical steps, for example notifying employees that their e-mails will be monitored. Equally employees should be informed that e-mails could be used as evidence in any disciplinary hearing. In addition Equal Opportunities policies may have to be reviewed to ensure that they are comprehensive enough.

"We recommend that all employers examine their personnel policies and procedures, from recruitment right through to dismissal practices to ensure they do not breach any part of the Act.