Following extensive objections to the concept of a "compensated no fault dismissal", employment solicitor Katy Jones reminds employers how to fairly dismiss someone for poor performance.

On 21 May 2012, the Government published a controversial report by Adrian Beecroft (a venture capitalist) on possible reforms to employment law, including radical changes to unfair dismissal law. Mr Beecroft came up with the notion of a "compensated no fault dismissal" which would allow an employer to dismiss an employee without giving a reason provided they make an enhanced leaving payment, equivalent to a statutory redundancy payment. In his report Mr Beecroft said that the "change would be that the onus would then be squarely on the employee to perform well enough for the employer to value them as an employee. It would no longer be possible to coast along, underperforming in a way that is damaging to the enterprise concerned but not bad enough for the employer to want to undertake the whole rigmarole of the unfair dismissal process with its attendant threats of tribunals and discrimination charges." The Government is consulting on the possibility of permitting "compensated no fault dismissals" in micro businesses (i.e. businesses employing fewer than 10 employees).

Mr Beecroft’s report has provoked a robust response from unions, with the TUC saying that "unions stand ready to oppose the attacks on workplace rights contained in the Beecroft Report".

In this context, employment solicitor Katy Jones provides a refresher for employers on the existing law relating to performance-related dismissal. Fairly dismissing an employee for under-performance does involve time and effort but a well run process sends two useful messages to staff, that under-performance will not be ignored and that the employer follows due process.

Performance-related dismissals

In order to defend an unfair dismissal claim brought by an employee dismissed for performance reasons, the employer will have to show that it honestly believed on reasonable grounds that the employee was not doing the job to the requisite standards and that the employer acted fairly in handling the matter.

Fairness requires the employer to:

  • investigate the matter properly;
  • inform the employee of the problems;
  • give careful consideration to any circumstances that may affect the employee’s ability to do the job;
  • treat the employee consistently, i.e. not treat the employee more harshly than other employees in a comparable situation;
  • warn the employee of the consequences of failure to improve and allow the employee to appeal against warnings or dismissal;
  • give the employee a reasonable opportunity to improve their performance;
  • keep the employee’s performance under review; and
  • provide support and training, if reasonably required.

Employers should follow their own disciplinary or capability procedure, if they have one. Some employers have a separate capability procedure for dealing with under-performance, as well as a disciplinary procedure for dealing with misconduct.

Employers should also have regard to the ACAS Code of Practice on Disciplinary and Grievance Procedures: The ACAS Code is a very sensible and clear document and one which employers can easily use. Where the employer has failed to have regard to the ACAS Code, employment tribunals have a power to increase an employee’s unfair dismissal compensation by up to 25 per cent.


Before commencing a formal procedure, the employer should check the employee’s:

  • job description and contract of employment to see how their role has been defined;
  • contract of employment and the applicable procedure to see what they say about how performance issues will be handled;
  • CV and any references on their personnel file to see if they seem to have the necessary skills and experience to perform their role; and
  • appraisals to see what has previously been said to the employee about their performance. A common problem occurs when in past appraisals the employer has chosen not to communicate to the employee concerns regarding their performance. Sometimes the best thing may be to focus on failures in performance since the relevant appraisals.

Collate as much data as possible in order objectively to test the judgment that the employee is in all the circumstances under-performing. When doing this, the employer should also check the equivalent data in relation to similar employees, to ensure that it can justify taking action in respect of one employee but not another or others.

Consider whether the employee has been properly managed and whether there may be any reasons for the under-performance, such as domestic problems.

Employers should try to anticipate what the employee will say in their defence. For example if one says "…if you are giving me a warning, why are you not also giving one to Jim? His sales figures are much worse than mine", consider what a fair response would be. For example, responses might be that "Jim has a much more challenging sales area" or "Jim is much less experienced" or "Jim was off work for six weeks earlier this year as a result of his knee operation".

Formal process

If an employer does not have their own disciplinary or capability procedure, a formal disciplinary process could commence as follows:

1.Prepare as outlined above.

2.Give the employee a letter inviting them to attend a disciplinary meeting:

  • the letter should explain the alleged shortcomings and, if possible, include evidence. The letter should also mention the employee’s right to be accompanied by a work colleague or trade union representative;
  • the employee should be given sufficient advance warning of the meeting to prepare for it – ideally five to seven days’ notice;
  • and if the employee or their preferred companion cannot attend on the chosen date, try to re-schedule the meeting.

3.The disciplinary meeting takes place. A proper and full discussion takes place of the employer’s concerns regarding the employee’s performance. The employee is allowed to state their case and put forward any mitigating circumstances.4.The disciplinary decision is made either at the end of the meeting or shortly thereafter, for example if the manager chairing the meeting needs time to think about things or investigate points raised by the employee.

5.A first written warning is given. The warning letter explains the shortcomings and sets out the improvements that the employer is looking for. The warning letter says that the employee’s performance will be kept under review for a specified period (with regular review meetings throughout) and that further disciplinary action may be taken during the review period if the employee fails to achieve and sustain a sufficient improvement in their performance. The length of the review period needs to be reasonable and that will depend upon the circumstances of the case. Typically a reasonable review period will be three or six months. The warning letter should specify how long the warning will be "live" for. In the absence of a provision in the company’s disciplinary procedure specifying how long warnings should last, the writer suggests a first written warning should be stated to last either six or twelve months.Except in the case of gross negligence, an employee should be given two warnings before being dismissed on capability grounds.

Work-related stress

It is quite common for an employee who is being performance-managed to go off sick with work-related stress. If this occurs, the absence should be actively managed by the employer. The employer should check how much sick pay the employee is contractually entitled to. Once the employee has exhausted any contractual entitlement to sick pay, the employer may be advised just to pay statutory sick pay going forward, in order to encourage the employee to return to work.

If the sickness absence continues for more than a couple of months, the employer may wish to consider sending the employee for a medical examination with a psychiatrist nominated by the company. Independent psychiatric reports can be very helpful in dealing with stress absences. Relying on reports from the employee’s own doctors is rarely satisfactory.

Avoiding the problems if the employee has not been with you very long

Except where the dismissal is automatically unfair (see below):

  • employees who started working for their employers before 6 April 2012 need one year’s employment before they can bring an unfair dismissal claim;
  • or employees who started working for their employers on or after 6 April 2012 need two years’ employment before they can bring an unfair dismissal claim.

Accordingly, if you have doubts regarding the capability of an employee who does not have sufficient service to bring an unfair dismissal claim, then it may be best to dismiss them before they acquire unfair dismissal rights. "If in doubt, sling them out" is brutal but often good advice, subject to two caveats.

First, employers should consider whether they may be accused of dismissing the employee:

  • for a reason connected with a protected characteristic – age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation;
  • or for another automatically unfair reason, for example for a reason connected with pregnancy or maternity leave; or because they are a whistleblower or have been involved in trade union activities.

Second, if you are dismissing an employee without notice just before the end of their qualifying period (one or two years’ employment, see above) you must ensure their employment ends at least one week before the end of the qualifying period. This is because to work out an employee’s length of service in these circumstances an employment tribunal notionally adds the one week’s statutory notice they were entitled to receive. In other words, you should regard the qualifying period as 51 weeks for employees who started with you before 6 April 2012 and 103 weeks for employees who started with you thereafter.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.