MT Expert: Legal - Letting go of underperforming staff

As workforces shrink, there's no room for underperforming staff. Here's how to lose the dead wood - without being sued.

by Huw Cooke
Last Updated: 19 Aug 2013

The upturn in the economy may have saved us from the dreaded double-dip, but many firms are still operating with a smaller workforce, having been forced to make difficult decisions at the beginning of the year.

As business does improve, managers will be keen to ensure their team set-up maximises performance and enables their company to move confidently into brighter economic times. But that means there’s no room for underperforming staff. Here we look at some of the legal implications of performance dismissals, and explain how a proper procedure can help establish a fair dismissal.

Dismissal of poorly performing employees can give rise to a number of potential legal claims against the employer, such as unfair dismissal, breach of contract and discrimination.
In order to fairly dismiss a poorly performing employee, an employer must rely on the employee's lack of capability as the fair reason for dismissal. Capability refers to the employee's skill or aptitude to do the job that they were employed to do.  This may not be as apparent as it seems – for example an employee may be poorly performing because they cannot be bothered (i.e. misconduct) or because they're not able to do so (i.e. incapability).

What is a proper poor performance process?
While each process depends on its own facts and on what is reasonable in the circumstances, an employment tribunal is likely to look for the following as a minimum:

1. Investigation into the employee's performance, to establish whether there is a gap between what the employee should be doing and what the employee actually is doing.

2. Informal action should be taken, if appropriate.

3. If formal action is required, the employer should invite the individual to a meeting setting out the basis for the alleged poor performance (with the employer's supporting evidence); you must offer the right to be accompanied and warn about possible sanctions. It is at this point that the employer will want to ensure that it is following its own policies and procedures, along with the ACAS code of practice.

4. At the meeting, the manager should present his concerns, listen to the employee's explanations and discuss any issues with the individual.

5. Following the meeting, a decision should be made and the employee informed in writing of the failure to reach a required performance standard, the targets to be met by the individual, the date by which such targets must be met, what assistance is being offered by the employer, the level of the warning imposed (e.g. first written warning) and its duration, the consequences of failing to meet the targets or to improve. The employee must also be offered the right to appeal.

6. Any appeal should be dealt with.

Employers must remember that only in very rare circumstances will a first incident of poor performance justify dismissal.  In most cases, an Employment Tribunal will, in line with the ACAS code of practice, expect three cycles of poor performance management (i.e. first written warning, final written warning and dismissal) before an employee is dismissed for poor performance.

If an employee is unfairly dismissed, a tribunal will award compensation comprising a basic award and a compensatory award (reflecting the employee's loss of earnings). This can be as much as £65,300.

It is common for employees to allege that discrimination underlies a poor performance dismissal. This could be because the employee's line manager sets unreasonable targets on discriminatory grounds (e.g. race or sexual orientation) or because medical symptoms or absence caused by a disability has led to performance dipping.

It is important to note that a failure to comply with the ACAS code of practice can result in an uplift of up to 25% in both unfair dismissal and discrimination compensation.

Employers should follow and document a proper poor performance process to ensure that any dismissals are both fair and non-discriminatory.

Huw Cooke is a senior associate in the employment team at law firm Burges Salmon.

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