Capability procedures explained

This month, in our Breaking Down the Handbook series, we look at capability policies and why they are a useful tool for employers to have when it comes to dealing with poor performance.

The need for a written procedure

Dealing with poor performers is often the area which managers find most challenging. Addressing matters of performance can also be concerning and stressful for the individual employee being taken through the process.

It is therefore helpful if employers can have a comprehensive capability procedure both to ensure that employees know what to expect and to provide managers with appropriate guidance and support. Having a clear, fair and reasonable procedure in place will also assist employers to avoid claims of unfair dismissal (and more) - providing it is followed!

Employers often debate whether to include capability issues within an existing disciplinary policy or whether to separate these out into a stand-alone capability procedure. There is no right or wrong answer to this question. Both the Employment Rights Act 1996 and the ACAS Code of Practice confirm that employers should have in place written disciplinary procedures for disciplinary decisions (which include warnings or other sanctions for poor performance) or disciplinary situations (which include poor performance issues), and so it is possible to simply incorporate performance management within the disciplinary process. However, many employers feel that the language and tone of a disciplinary process is not appropriate for a performance situation, where there is no deliberate failing on the part of the employee and where the employer's approach is one of support rather than blame. As a result, many employers feel that a separate capability procedure is the best approach to take.

Aims of the procedure

The primary aims of an employer's capability procedure should be to: 

• provide a clear framework setting out required performance standards; 
• encourage improvement where necessary and address any root causes of poor performance; 
• establish a mechanism for dealing with any initial performance concerns on an informal basis; 
• have in place a formal procedure for dealing with any significant performance concerns or where previous informal discussions have not led to the required improvement.

What should be included in an employer's capability procedure

Generally, a capability procedure should cover the following: 

1. An informal process

Best practice suggests that initial performance concerns should be addressed on an informal basis where appropriate, which may include an employer's annual appraisal system, regular one-to-one meetings or such other informal discussions as necessary. These can be used to: 

• identify areas of concern at an early stage; 
• clarify the standards required; 
• establish and address any likely causes of poor performance; 
• identify any training needs or other support; and
• set expectations for improvement.

2. The need to carry out a reasonable investigation

The ACAS Code of Practice states that before embarking on a formal capability process an employer should carry out an investigation, which should include speaking to the employee and giving them the opportunity to comment on any evidence which highlights performance concerns.

Accurately documented performance appraisals or previous informal discussions which have attempted to address concerns will assist with this process so it is advisable to keep a written log of any previous informal discussions.

An investigation may also reveal underlying reasons for the performance concerns, which an employer will need to consider before deciding whether it is appropriate to take any further steps to address those concerns. For example, any issues which are caused by the employer's failure to provide training and/or support may be resolved by the provision of such training / support. Similarly, any indications of ill-health or physical impairment should be investigated further in case the employer needs to consider making any adjustments to enable the employee to reach the required standard.

3. The need to hold a formal meeting(s)

If there is no underlying reason or obvious explanation for the performance issues, and an informal process hasn't led to the required standards being achieved, a formal procedure should be followed and a capability meeting arranged. It is important that the employee is provided with the with detail of any shortcomings in their performance prior to the meeting, together with a summary of the information which has been considered and any relevant documents which support the concerns raised. A key part of any process is also to warn the employee of the possible consequences if their performance is found to have fallen short of the required standard.

At the meeting, both employer and employee should explain their case and explore the cause of the underperformance as well as determining what, if any, remedial action can be taken. An accurate note of the discussions should be kept. If underperformance is established then a formal capability warning (discussed below) should be issued, and the employee should be notified in writing of the outcome of the meeting and their right of appeal.

4. The right to be accompanied

Employees do not have the right to be accompanied at any investigatory meeting, but they do have the right to be accompanied at any formal capability meeting that could result in a capability warning being issued.

5. The need to give the employee the chance to improve

Where underperformance is established, clear and reasonable objectives should be set for the employee to achieve within a reasonable timeframe and the employee should be warned about what will happen if those objectives are not met. How much time needs to be given to the employee to achieve the set objectives will depend on the circumstances and the role in question.

6. An acknowledgment that training and/or support may be available

As well as setting objectives, an employer should also offer appropriate support to help the employee to meet the required standards of performance. This could include training, regular monitoring of the employee's performance, additional supervision or providing extra resources to assist the employee.

7. A system of review

It is important that employers properly review and document an employee's performance once objectives have been set. Review dates for improvement should therefore be diarised and regular monitoring should take place in between these dates.

8. A system of warnings before dismissal

Given that employees need to be given the chance to improve, a system of warnings should be used. The ACAS Code of Practice recommends that employees should be given at least one chance to improve before the issue of a final written warning. The warning system within a capability procedure is therefore similar to that within an employer's disciplinary procedure, i.e. written warning, final written warning, dismissal (on notice). However, as mentioned above, many employers prefer to use different terminology in a capability context, perhaps using the term 'improvement notice' rather than 'warning'.

9. The need to consider alternatives to dismissal

Whilst there is no absolute obligation on an employer to consider alternative employment or demotion before taking the decision to dismiss for capability reasons, it may be unreasonable not to do so depending on the size and administrative resources of the employer.

10. An appeal procedure

The ACAS Code of Practice requires a right of appeal to be given against any disciplinary action, including capability warnings and any subsequent dismissal for capability reasons. An employee's appeal should be made in writing, include their grounds of appeal, and generally be made within 5 working days of the warning or notice of dismissal being issued.

Training for managers in this area is also crucial to ensure that matters of performance are dealt with consistently and fairly and in such a way so as to avoid possible employment tribunal claims being made against the employer.

Next time

Next month we will be focusing on the need to have clear and effective flexible working and family leave policies in place.