Poor performance covers a range of issues from lack of productivity to an inability to establish good working relationships with clients or colleagues. Last month’s Q&A looked at the removal of the statutory default retirement age, this will almost certainly see an increased focus upon performance management of employees, albeit that this must be conducted across the workforce and not limited to older workers. This month's Q&A section therefore takes a practical look at the key legal issues in managing poor performance.
Q: What are the main legal risks when an employer implements a performance management process?
A: Claims may arise out of any stage of a performance management process – from the very fact that something is dealt with as a performance issue, to the way that any part of the process is handled.
The most common claim arising from the management of poor performance is an unfair dismissal claim from an employee with more than one year's service who is dismissed on grounds of incapability. While poor performance falls into one of the potentially 'fair' categories for dismissing an employee, an employer will only avoid a potential unfair dismissal claim if it can also demonstrate an honest and reasonable belief in an employee's incapability to do the job to the level required and demonstrate that it has carried out the performance management and dismissal process in a fair and reasonable way.
In assessing this, the Employment Tribunal will in part have regard to whether the employer has complied with the ACAS Code of Practice on Disciplinary and Grievance matters (ACAS Code). Not only will a failure to follow the ACAS Code be taken into account in determining if the dismissal is fair, it can also result in an increase in any unfair dismissal compensation by up to 25%.
Other legal risks associated with performance management include a discrimination claim (for example, if an employee contends that the only reason they were subjected to a performance management process was because of their sex, age, religion or one of the other characteristics in relation to which discrimination is unlawful), and/or a breach of contract claim in relation to any failure by the employer to comply with its contractual obligations, including any contractual capability or disciplinary procedure.
Q: What are the main steps involved in dealing with a performance management issue?
A: The process of managing shortfalls in performance should begin well before a performance issue arises, with the employer making sure that the requirements of the job and the expected performance level are set out to the employee at relevant points, namely: at the outset of employment; when performance requirements change for any reason; and in the case of any subsequent promotion to a new position. Not only should doing this assist in helping to minimise performance issues arising in the first place, it will also assist in terms of managing any performance issues that subsequently arise by allowing the employer to refer to the expectations that it previously set out.
A summary of the main steps involved in dealing with performance management issues once they have arisen is as follows:
- Make the employee aware of the shortfall in his or her performance and give them the opportunity to improve within a reasonable timescale.
- Provide the employee with any relevant support and training in order to reach the required performance standard.
- Ensure that the employee's progress is monitored and reviewed within the period given for improvement.
- If, after all of the above, the employee's performance has not improved to the required standard, the employee should be invited to a dismissal meeting in accordance with the ACAS Code.
- Offer the employee the opportunity to appeal if dismissed.
It is also important that performance issues are dealt with consistently in order to avoid allegations that certain employees are being singled out. Employers should consider implementing a capability procedure setting out how it will deal with performance issues, making sure that it retains sufficient flexibility to deal with situations according to their particular circumstances.
Q: How should performance be reviewed across the workforce to identify problems?
A: The nature of the performance review very much depends upon the nature of the employer's organisation. What is essential is that whatever performance review system the employer puts in place, it is able to provide evidence of under-performance in order to justify any warnings or subsequent dismissal on performance grounds.
It may be that issues can be identified by simply recording and assessing an employee's performance against measurable targets (e.g. number of sales). However, even if such a measure exists, it is still invaluable for an employer to conduct some form of regular performance review with its employees, which allows for employees to be informed both of what is expected of them, and how they are doing against those expectations.
Performance reviews are typically conducted via an appraisal system, albeit that in order to be a useful tool, appraisals should be regularly carried out, be conducted by those with direct knowledge of the employee's performance and constitute an accurate reflection of an employee's performance. An employer who does not indicate a problem in an appraisal, which it later seeks to flag up as a performance issue, is likely to be in a difficult position in establishing the required honest and reasonable belief that the employee was not up to the job. Given the abolition of the statutory retirement age, such reviews are likely to form a platform from which employers can also discuss work-related aspirations with all their employees, irrespective of age, in order to assist with workforce planning.
Q: At what stage should performance issues be dealt with?
A: From both a legal and practical perspective, it is important that performance issues are addressed as soon as possible. It is going to be very difficult for an employer who has previously ignored an employee's under-performance for a significant period of time to justify warnings or a dismissal on performance grounds either in relation to an employee who has acquired unfair dismissal rights, or in relation to an employee who has been employed for less than a year if he or she is alleging that they are being performance managed for an ulterior motive that could trigger a claim that does not require a minimum service qualification.
Q: How many chances should an employee be given to improve shortfalls in performance before dismissal can be considered?
A: Except in cases of gross negligence or incompetence, the ACAS Code advises that at least two warnings should normally be given before dismissing for lack of performance. This would normally comprise of a first and final written warning. However, the ACAS Code also recognises that there may be some situations where the impact of the poor performance is so serious and/or potentially harmful to the employer's business that the employer may be justified in issuing only a final warning.
In either case, any warnings should only be given after the employee has been given the opportunity to comment and should set out the area of underperformance; the standard required; the period within which the employee has to improve and how this will be monitored; any support to be given to the employee; and the consequences of failing to sufficiently improve. These points should be carefully considered as they are all areas that can result in any subsequent performance related dismissal being judged to be unfair.
Q: Does an employee dismissed for poor performance have to be given and/or be paid in lieu of his or her notice entitlement?
A: Except in the rare case of gross negligence or incompetence, an employee dismissed for incapability on grounds of poor performance should always be given or paid in lieu of his or her full contractual notice entitlement.
Q: Can a compromise agreement be used as an alternative to completing a performance management process?
A: We are often asked by employers if they can by-pass what can be a time consuming performance management process, and instead approach an employee with the offer of a termination package subject to the employee entering into a compromise agreement (the only form of legal agreement other than one negotiated via ACAS under which the employee can agree to waive their statutory employment rights such as unfair dismissal).
The answer to this question is 'potentially yes', subject to the following points:
- In order to be able to approach an employee on a 'without prejudice basis' (e.g. an approach that cannot be referred to by the employee to support any subsequent Employment Tribunal claim in the event that a compromise agreement is not concluded).
- If it has not followed any kind of performance management process, or if there are other complicating issues, the employer may find itself in a very weak bargaining position in terms of the termination package that needs to be offered in order for it to be accepted by the employee.
- However, taking a purely commercial approach to resolving a work-place performance issue should always be considered at the outset as it can avoid a long-winded performance process taking several months during which time the employee continues to receive their normal salary and, having eventually been dismissed, (normally with a payment in lieu of notice), still brings a claim of (at least) unfair dismissal, which then leads to a further payment to settle matters .
For a free initial consultation please call 01202 499255 and Kate or Paul will be happy to discuss any questions you may have.
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