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Performance & Capability: Everything employers need to know

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Performance & Capability: Everything employers need to know

In our latest HR Coffee Break Briefing webinar, Employment Expert & Associate Chris Dobbs looked at performance & capability.

This is the summary of that webinar. You can watch it back below, or read on for the summary.

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The legal framework

Capability of course refers to the potential for a situation to result in a in a dismissal.

Any dismissal is capable of being unfair if the employee has the requisite two years of service and a ‘fair’ reason for dismissal is not shown.

For a conduct dismissal you’re looking for that reasonable belief that somebody is guilty of the thing they're accused of, and proof that dismissal is a reasonable response.

For a capability dismissal, an employer must show that the dismissal “relates to the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do”.

The Employment Rights Act defines capability as “assessed by reference to skill, aptitude, health or any other physical or mental quality”. This legislation predates the Equality Act, and it gives us quite a broad range of issues that can fall within that ‘capability’.

Other legal considerations

Cases around capability and performance management can often be linked to equality issues such as age and disability discrimination.

Also bear in mind the Health and Safety at Work Act 1974, which states that it is the duty of every employer to ensure the health, safety and welfare of all of their employees at work. This can overlap with performance and capability if, for example, work related stress affects performance.

Related: Sickness Absence Policies - What to do if an employee is always off sick

Related: How to handle Workplace Grievances in 2023

Contractual obligations

There may be contractual obligations on you as the employer in relation to performance and capability processes including:

  • Training - if you have training obligations in your contract that you fail to deliver on, the performance process itself is potentially unfair
  • Performance management processes – if there’s an expectation on you putting employees through performance management processes and you don’t, this may be considered quasi-contractual
  • Performance expectations – if there are performance expectations and procedures in the contract that are linked to them, such as you conducting pay reviews, and such procedures aren’t followed there is a risk of claims arising
  • Trust and confidence – in situations where an employee feels they aren’t treated correctly and lose trust and confidence in you, a constructive dismissal claim may arise
  • Data Protection Requirements – I’ll speak about this later in the article

Related: How to write strong employment contracts - Advice for Employers

Performance Management v Capability

Performance management is the internal and more subjective process of setting targets or expectations, assessing performance and providing feedback.

It should focus on productivity, effectiveness and the individual’s contribution towards the wider goals of the business organisation.

Whereas capability is a more objective assessment of the employee’s actual ability to do the job duties to a required standard. Capability issues may arise from a lack of skill, health factors or other issues beyond the control of either the employee or employer.

They are different approaches to different issues. Performance is very much about not hitting internal standards, whereas capability is more about a fundamental inability to do the job.

Poor performance can be addressed through coaching, training and Performance Improvement Plans (PIPs), but it isn’t always reasonably possible to address incapability in this way.

Performance Management – Appraisals

Appraisals are designed to motivate and empower staff in their own progress and development. They should focus on development and medium to long-term goals.

There should be no surprises to the employee or employer.

Any performance management process may highlight something that is actually an incapability, and an unsuccessful PIP can give rise to incapability dismissal but choosing the right approach is still important.  

Risk of miscategorising

If staff feel they're being unfairly or unreasonably treated there’s potential for:

  • Discrimination claims to arise
  • Poor morale amongst staff
  • Legal challenges if capability is treated as poor performance

Legal considerations in Performance Management

When it comes to appraisals and day-to-day performance management, you need to be consistent and have a methodology that is applied evenly across the business. Being fair and consistent is essential.

Capability – Performance Improvement Plans

Remember this is about addressing an actual inability to do the job, not a lack of motivation or development.

In every process you run, capability or otherwise, open dialogue is important. Doing so can assist in establishing the cause of an employee’s performance dip and whether there’s an informal resolution as opposed to going down the more formal capability proceedings route.

Most of the time, employees perceive the introduction of a PIP as you trying to dismiss them. It’s therefore crucial that you establish that introducing the PIP is warranted. Employees shouldn’t just be hit with a PIP unexpectedly or without explanation.

If you haven't set measurable, reasonable, attainable targets, the performance management process cannot logically be fair.

Legal procedures for a capability process

  • Legal procedures for any kind of capability process must go through that formal process if the employee has over two years’ service.
  • You don't want to risk an unfair dismissal because you've just made a decision and not reasonably explored the options;
  • A capability process will always be longer than a conduct or disciplinary process simply because there is that expectation that there will be opportunities to improve and assistance given to do so


There’s no absolute approach to this but, most of the time, the structure is as follows

  1. Identify issue in performance

  2. Establish whether conduct, performance management or capability
  3. Engage in dialogue but keep records of discussions and outcomes
  4. Set clear and specific targets for improvement which are reasonable
  5. Monitor accordingly and carry out further reviews

If the reason for the poor performance under any process stems from the employee’s disability:

  • Consider reasonable adjustments
  • Do you need medical advice or occupational health?
  • Consider the risk of a section 15 claim arising under the Equality Act

In last month's webinar, I looked at reasonable adjustments and section 15 claims in more detail. Read it here.

Upcoming Events

Don’t worry if you missed this webinar, there’s still plenty more to come over the next few months as our employment team continue to talk you through the employee lifecycle.

The next one is taking place on Wednesday 3rd April, where Chris will be looking at sickness absences and management.

You can sign up to our free newsletter to receive invitations to upcoming webinars and events here.

You can also find recordings, slides and summaries of previous webinars here.

Employment & HR Solicitors

Our bright Employment Team has a vast experience in advising employers in cases of all kinds.

We’d be happy to provide tailored advice and assist you in regards to managing performance and capability, and mitigating claims.

You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial appointment.

We also offer tailored courses for new and experienced employers and HR professionals alike, which may be useful to you. You can find out more here.


The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.