Left wing governments often resort to protection of their labour forces. This is generally necessitated by political rather than economic imperatives. This leads to rigidity in the labour markets and has a number of negative consequences.
SMEs are generally unable to pay top prices for their staff members, and by default feed from the bottom of the labour barrel. They cannot offer perks such as pensions, medical etc. Therefore when it becomes too difficult to acquire, retrench or fire staff, they simply keep it tight. They try and reduce staff before the new legislation comes in. They tailor everything to existing revenue streams. They simply do not have any of the assets necessary to handle the situation. They do not have money for legal employees, or legal advice. They cannot pay minimum salaries.
Rigid labour markets have a negative impact on economic and job growth. SMEs are equally affected by this situation. As they close ranks in order to reduce staff, so they reduce their ability to grow their businesses. Everyone is a loser, including SMEs.
SMEs generally lack the resilience or the bank balance to survive these heavy handed government interventions. This is often counter productive to other government intentions.