It is not in the interest of small company's to treat their workforce badly in fact if you treat them well then you will get more out of them. However if they employ ten people and one ends up being useless then that is 10% of the workforce and no employer can operate with 10% of their employees being unproductive apart from your local council. You need to address the issue quickly but to do so will invariably result in a time consuming and expensive tribunal - if you turnover £1m and it costs you £50,000 that is 5% of turnover and a lot of your time sorting it out. Employment law is a complicated tightrope that can hit small company's a lot harder than bigger ones. The point that you are missing is that nobody wants to take on bad people but why not remove the risk from doing so.