Managing staff performance while avoiding tribunal claims

New rules for retirement demand a review of capability and performance-management processes, says Roger Tynan, partner in the employment department of Maclay Murray & Spens LLP.

The end of the default retirement age (DRA) has led to the realisation among a growing number of employers that significant improvements will be required in the management of performance and capability issues, if unfair dismissal, age and disability discrimination claims are to be avoided.

The coalition Government’s response to its consultation on resolving workplace disputes, published in November, includes plans for “protected conversations” that “would allow employers and employees to have open and frank conversations with each other about any employment issue without the existence of a formal dispute”. These conversations are likely to include those with staff about capability or retirement, which could not be used as evidence in any future employment tribunal.

Historically, the DRA offered a useful get-out clause for employers whose performance-management systems were less than robust. However, as many employers now opt to operate without a retirement age, increasing reliance will need to be placed on capability as a potentially fair reason for dismissal.

Discrimination claims present a further significant risk. With the prospect of uncapped compensation awards, employers could be left exposed where capability is managed incorrectly or used as an excuse to mask other reasons for dismissal.

Tackling poor performance

Whatever the reasons for poor performance, employers must have a means of tackling it. Where processes are carefully thought through and drafted, they are more likely to identify deterioration in performance before it becomes a real issue. This will enable an employer to take the appropriate steps to bring about the required performance improvements.






quotemarksAs many employers now opt to operate without a retirement age, increasing reliance will need to be placed on capability as a potentially fair reason for dismissal.”


Capability is potentially a fair reason for dismissal. However, to avoid potential unfair dismissal claims an employer must not only get the procedure correct but also be able to show that capability is the actual reason for the dismissal. There is long-standing case law addressing these issues, with cases from the 1970s and 1980s setting the standards that are still required of an employer.

When contemplating a capability dismissal, it is important to get to the bottom of the issue. In particular, does the individual know what is required of them and are they simply ignoring instructions? This may mean that the matter is one of conduct, rather than capability, and should be treated as such. The question is whether the employee “can’t” do the job or “won’t” do the job.

If it is clear that it is a capability situation, there are two questions a tribunal will expect an employer to be able to answer. First, did they honestly believe the employee was incompetent or unsuitable for the job? Second, were the grounds for that belief reasonable?

In answering these questions, employers will need to be able to point to objective evidence. This will first of all help to ensure the fairness of any action taken, in the eyes of the employee, which could make it less likely that the decision will be challenged and viewed as discriminatory. Also, and of equal importance, this evidence will be required to back up the assertions as to lack of capability.

When considering whether or not the grounds for belief in an individual’s incompetence are reasonable, an employer will need to satisfy the tribunal that the requirements of the job were reasonable. The tribunal will take into account all of the surrounding circumstances. This could include, for example, in a sales environment: whe­ther or not the sales targets were realistic; the reasons for the employee not attaining the targets; how other colleagues fared; and the employee’s length of service.

The Acas “Code of practice on disciplinary and grievance procedures” states that: “Disciplinary situations include misconduct and/or poor performance. If employers have a separate capability procedure they may prefer to address performance issues under this procedure. If so, however, the basic principles of fairness set out in this code should still be followed, albeit that they may need to be adapted.”

The code should always be borne in mind when dismissing an employee. However, switching from a capability procedure to a disciplinary procedure, without good reason, may be unwise.

Quality control

It is essential that a system of informal and formal warnings is used to bring individuals up to the required performance standards. This assumes there are explicit standards and that these have been communicated to employees. There are many ways in which standards can be communicated, for example: induction training; employee handbook; supervision; individual job descriptions; or the performance-appraisal system.






quotemarksIt is essential that a system of informal and formal warnings is used to bring individuals up to the required performance standards.”


If introducing a performance-management regime for the first time, an employer should aim to pilot it first with a view to implementing this at the start of a financial or staff-reporting year. This will allow sufficient time for training and communication in advance. It is not a good idea for anyone involved to wait until there is a problem before commencing discussions about performance. Nor should it simply be an annual event. Performance should be managed through regular discussions, which do not just focus on the negatives but also consider achievements, successes and career plans and aspirations. Training needs to be given to line managers on what is expected of them in operating a performance-management procedure.

It is important to develop a system that creates a feeling among employees that appraisals are done for them (and by them, through 360-degree appraisals), not something done to them.

Additionally, appraisal data must not just be stored, it must be used. Keep in mind that data-protection principles require that employees have the right to know what information is held and what this will be used for. This should, therefore, be made clear when a performance-management process is being rolled out.

Finally, a performance-management process must not conflict with other decisions or actions. An employer may have difficulty defending an unfair dismissal claim on the grounds of capability if they have recently awarded an employee a pay rise based on performance, or by claiming capability as a reason for dismissal while providing a glowing reference for the employee to another employer.

The DRA offered employers and employees a tangible marker for career and resource planning. In an era without such milestones, employers must ensure that they can rely on objective measures to assess their employees’ capabilities to do their job, whatever their ages. Without a coherent approach to this challenge, employers could face lengthy tribunals and the prospect of unlimited compensation awards.

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