Capability issues: something to fear?

30 APRIL 2012

In tough financial times employers can ill afford to have employees on their payroll who are incompetent, underachieving or just lazy.  At the same time, employers often take the view that they can ill afford to take the risk of leaving themselves open to potentially costly tribunal proceedings by taking action against those employees, including possibly dismissing them.

The fear felt by employers is hardly surprising when one looks at the figures.  There are approximately 400,000 dismissals per year across the UK[1] and, during the year 2010-2011, those dismissals resulted in 47,900 claims of unfair dismissal being presented to an Employment Tribunal.  Over half of those claims were either successful or were settled (either privately or through ACAS).  The average award from the cases was a little under £9,000[2] and, according to the Coalition Government, the average cost of defending such proceedings is in the region of £4,000[3].

However, the question must be asked: “Is there really a need to fear taking action against an employee who is letting himself and his employer down by not performing to the required standard?”  In short, the answer is no.  However, there are a number of important issues which employers very often overlook when taking action.  It is not that it is not possible to take action but that so many employers don’t go about it in the right manner.

Section 98 of the Employment Rights Act 1996 makes it abundantly clear that it is perfectly possible to fairly dismiss an employee for a reason related to his capability.  It is also clear that, in that context, capability includes the employee’s capability assessed by reference to his skill and/or aptitude.  In general terms, an employer needs to do three things:

  • Identify the aspects of the job at which the employee is not performing adequately.  This will almost certainly require an employer to be able to identify the manner in and extent to which the employee is failing to meet the employer’s expectations and should ordinarily be capable of proof by reference to objective evidence.  It is also desirable for the employer to be able to show that a) the employee knew the standards expected of him, b) the standards are achievable and c) others have been performing at a time when the particular employee has not;

  • Tell the employee of the dissatisfaction and that dismissal may result if there is no improvement.  Any complaint that an employee is not performing must be brought to the attention of the employee over a period of time even where the employee is in a position to monitor his own performance.  There are some exceptions to the need to provide an employee with fair warning but the starting point must be that it is safer to warn than not to; and

  • Give the employee a reasonable opportunity to improve.  What is reasonable will depend on all of the circumstances in any particular case but, in general terms, an employer should look at the nature of the job and the length of time that he can reasonably tolerate underperformance.  He should also take into account any other factors which may hinder the employee’s performance (e.g. lack of resources or a poor financial climate affecting the business generally).  A prudent employer may wish to explore reducing the required standard of performance to give the employee every opportunity to improve before taking the final step of dismissing him.

An employer who complies with those three basic requirements and is able to show that he has done so, and has followed a fair procedure (which means, as a minimum, following the ACAS Code of Practice 1: Disciplinary and Grievance Procedures) should not fear taking decisive action (including dismissal) against an underperforming employee. 

Nevertheless, the fear of dealing with the underperforming employee is a concern that employers have raised with the Government.  The Government takes the view that the fear is such that it may even be preventing employers from taking on staff in the first place.  Therefore, in a bid to help ease the concerns of employers, the Government has been making considerable noises about the need for employers to feel comfortable and confident when taking action against an underperforming employee.  So far, a number of suggestions have been mooted:

  • Scrapping the concept of unfair dismissal altogether and replacing it with a system of “compensated no fault dismissals”.  This was one of the main recommendations of the much-maligned Beecroft Report in October 2011.  It is now highly unlikely to be pursued as an idea save that it is still being actively considered for so-called “micro-companies” i.e. those with less than 10 employees;

  • “Protected conversations”.  This idea appears to have the support of senior Government figures, including the Prime Minister and his deputy.  Little detail is known of the idea at present but it appears that it would provide employers and employees with the ability to sit down to discuss issues of performance (or other issues) without fear that those conversations will be used in any subsequent tribunal proceedings.  This idea is due to be the subject of a consultation paper later this year but has already met with an extremely mixed reaction with a number of commentators questioning the purpose and merit of the concept;

  • The ability to “nudge” employees out of their job.  This may have been nothing more than a passing comment to a Times journalist[4] and sounds a lot like an attempt to legalise constructive dismissal but it appears to be a further idea which may be in the minds of those responsible for making and/or changing the law.

It may be that rather than focussing their energies on the need to change the law, employers should be spending their time and money getting appropriate policies and systems in place to deal with underperforming employees in such a way as will be fair within the existing law.  However, it seems inevitable that change of some sort is on its way.  Whether that will have the desired effect remains to be seen.

Robert Vernon

[1] Call for evidence: Dealing with Dismissal and “Compensated No Fault Dismissal” for Micro Businesses, March 2012.

[2] Employment Tribunals and EAT Statistics, 2010-11

[3] The Telegraph, 23 November 2011

[4] The Times, 23 February 2012