This month, Leeanne Armstrong concludes that following a clear capability procedure, implemented with tact and consistency across your workforce, will facilitate a smooth process and limit the legal risk of liability for claims of unfair dismissal, harassment, discrimination and breach of contract. There are many sound commercial and practical reasons for engaging with your employees through a capability procedure and prudent employers embarking on a performance management process will benefit from taking a step back at the outset, to consider the appropriate procedure.

Leeanne continues the Essential Elements of the Employee Handbook series this month with a look at one of the key parts of the employee handbook – Capability Procedures, talking about the importance of an effective capability procedure to assist an employer when dealing with cases of poor performance.

This months article covers 7 key areas of advice including; the importance of appropriate performance management, identifying expected performance standard and dealing with issues informally in the first instance, formalising the process and managing conflicts within teams.

Introduction

Creating an environment where employees feel supported and encouraged to succeed is highly likely to result in a happier, more productive and loyal workforce, and lead to better employee retention. It is therefore important that sufficient time and resources are given to developing and supporting employees and that performance and development conversations are an on-going feature of any employment relationship. Depending on the nature of your organisation, poor performance and/or failing to address it, can have a negative impact on workplace morale, health and safety, and productivity.

Many businesses will implement pay reviews, bonus schemes and periodical appraisals to assess performance against objectives or targets but may not have anything in place to deal with managing underperformance. In this month's article we talk about the importance of an effective capability procedure to assist an employer when dealing with cases of poor performance.

The importance of appropriate performance management

Rather than have a separate and distinct capability procedure, many employers may seek to use their disciplinary procedures to handle issues of underperformance. Care needs to be taken, however, as handling genuine issues of underperformance requires a different approach to managing misconduct.

Underperformance issues need to be dealt with carefully. Although tackling poor performance is not generally a breach of trust and confidence (which could result in a constructive unfair dismissal), if dealt with inappropriately you may be exposed to a range of potential claims. For example, if there is insufficient evidence of performance issues in the first place, or not enough support or targets for improvement provided.

A capability procedure should ensure that employees know what to expect as well as providing guidance to managers on the right steps to take. As always, we would encourage drafting procedures in line with your organisation's values and ethos. But it is important to remember that a written policy or procedure is just a starting point; it must be implemented sympathetically and tactfully. For example, in Hilton International Hotels (UK) Limited v Protopapa [1990] IRLR 316, an employee was found to have been constructively unfairly dismissed when a manager severely criticised an employee in front of colleagues.  We would recommend that managers are given training and support on dealing with capability issues and carrying out a performance process.

An overarching consideration is that the reason for underperformance needs to be carefully explored. Employers need to be mindful of their legal obligations in situations where underperformance may be related to pregnancy, disability, ill health, childcare issues or poor management. This does not mean that underperformance of such employees should be ignored, but you may need to alter your approach to managing underperformance in these cases.  For a disabled employee, you may need to consider making reasonable adjustments to your usual performance standards and targets, and possibly your performance management process itself.

You may also need to take medical advice before considering what further action needs to be taken if the underperforming employee has health issues (such as stress) or a disability which might be impacting on their capabilities at work.

Identifying expected performance standards and dealing with issues informally in the first instance

Setting clear expectations for performance standards and providing training goes beyond a formal induction process. As an employer you will want to consider the frameworks, training and performance evaluation processes that are right for your organisation and its values.

Having means of conveying expected performance standards and role requirements to employees across your organisation can help manage potential issues before they reach the stage of underperformance. Capability frameworks, regular appraisals, targets, job descriptions or role profiles, and other policies and procedures (such as those we have outlined in previous features) can all help communicate what is expected. The appropriate means for measuring or setting standards of performance may vary by role and should be tailored to your organisation's characteristics.

Identifying training and development needs and providing support for such development can help prevent an issue from getting worse or escalating. Objectively measuring performance may be difficult in relation to some roles, such as senior managerial roles or employees who work in highly technical fields. However, a lack of essential leadership skills can amount to a fair reason for dismissing an employee for lack of capability, even though that quality is very difficult to objective demonstrate. This was illustrated in a case called Masson v Meggitt Avionics Limited (EAT0183/13), where the Employment Appeal Tribunal found that evidence of leadership skills is "difficult to tie down", but the employee's dismissal was fair because there was evidence that they had not met the required standards and the employer had genuinely attempted to secure improvements in performance.

Regardless of the method chosen to measure performance, it is advisable that employees are involved in their development and have clear expectations around standards and timescales.

In line with best practice, support and development should be an on-going feature of discussions between line management and employees throughout the year. Managers should seek to address performance issues and development needs early and informally in the first instance.

Even when dealing with an issue informally some record keeping is advised. A recorded note in a manager's diary or notes for placement on an employee's personnel file can be useful for looking back over issues and discussions that have taken place, particularly if considering moving to a formal process for managing an underperformance issue. Note, however, that there is a wide duty of disclosure if an employee brings a later employment tribunal claim, and even e-mails and other written communications which are marked 'private' may have to be produced at a hearing. Therefore, care should be taken to avoid unguarded comments in writing about an employee's performance issues.

Formalising the process

Careful consideration needs to be given to whether an issue is in fact one of poor performance and not misconduct, as the approach to be taken with respect to a genuine performance will differ quite significantly.  In some instances, the line between a misconduct issue and one of underperformance may not be clear, but the importance of treating the issue appropriately will be of great importance if faced with a legal challenge to dismissal. Section 1 of the LRA Code of Practice on Disciplinary and Grievance Procedures (the "LRA Code"), dealing with disciplinary rules and procedures, applies to both conduct and capability matters. The LRA Code notes that when addressing issues of unsatisfactory performance, "employers should consider whether this is due to a lack of ability to perform a job to the standard required or to negligent behaviour by an otherwise able employee in order to determine if they are dealing with a genuine capability problem or a conduct problem."  This follows comments made by the Employment Appeal Tribunal in the case of Sutton and Gates (Luton) Ltd v Boxall [1978], IRLR 486 in which it was suggested that "cases where a person has not come up to standard through his own carelessness, negligence or maybe idleness are much more appropriately dealt with as cases of conduct or misconduct rather than of capability."  They also highlighted that where performance is something over which the employee has control they should be warned several times and given plenty of opportunity to improve. For example, an employee who is underperforming and has deliberately refused to attend compulsory training designed to improve their capabilities, may be dealt with under a misconduct process rather than a performance procedure.

Once the appropriate procedure has been identified, capability management should be a staged process and can be structured in a number of ways, including:

• Performance Improvement Plan - with structured periods of review, at the end of which an employee may be dismissed if performance has not sufficiently improved;
• Warnings - issued at each stage of the formal process e.g. first written/performance improvement notice, final written warning, dismissal.

Although there are no fixed rules on the stages to include in a capability process, the LRA Code recommends that employees are given at least one chance to improve their conduct or performance before issuing a final written warning. They suggest that some degree of investigation into the underlying causes of poor performance and review meetings to outline required improvements and review progress takes place.

Documentary evidence of poor performance can help support the process but employees should also be given adequate opportunity to consider and respond to the evidence. To ensure there are measures upon which performance can be suitably assessed, it is also necessary to set clear targets for improvement and a realistic timescale for reviewing performance.  Appraisal documentation is likely to be key to proving poor performance.

Dismissal for poor performance

Poor performance could be related to a lack of application to the role, or a lack of capability/skills in general.  When considering dismissal, an employer is required to provide a potentially fair reason for that dismissal. Under the Employment Rights (Northern Ireland) Order 1996 ("ERO") (s.130(2)(a) dismissal for underperformance is  potentially fair on the basis of capability. The ERO states that capability "in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality." In dealing with matters of underperformance, the focus on capability will therefore be on employee skills and aptitude.

In Alidair Limited v Taylor [1978] IRLR 82, although the Court of Appeal held that it was not necessary for the employer to prove that the employee was incapable or incompetent,  it did highlight that tribunals should consider whether the employer reasonably and honestly believed that the employee was incompetent and whether there was a reasonable ground for that belief. In capability cases, in practice, an employer is unlikely to be able to prove reasonable grounds without evidence of underperformance.

It is relatively rare for a single act of poor performance to be so bad that it provides a basis for dismissal. Therefore, in practice, management of an underperforming employee through a capability process will likely be a labour intensive exercise which may run over several months before reaching the stage of dismissal. While individual circumstances of each underperformance will be different, you should follow the process itself for your organisation fairly and consistently, whilst maintaining a clear paper trail.

The LRA Code also highlights that a decision to dismiss for capability or conduct reasons should not be taken lightly and employers should be able to demonstrate that the decision was reasonable. It advises that all other options to encourage improvement be exhausted and that the employee is provided with every opportunity to improve. It also suggests that available redeployment opportunities be considered.  The guiding principle here is reasonableness: an employee should not be dismissed without being aware that their failure to meet the required standard has reached a point where the employer is no longer willing to continue the employee's employment.

Where there are challenges to a dismissal which results in an unfair dismissal claim, the Tribunal will also turn its attention to the time, support, guidance and training given by the employer, i.e. the Tribunal will look at the whole picture, and the focus will not solely be on the evidence of underperformance itself when assessing the reasonableness of the decision to dismiss (Steelprint Limited v Haynes, [1996] 7 WLUK 12).

Failing to consider alternatives to dismissal and showing a lack of support for performance improvement, training or alternative action could also amount to a breach of implied trust and confidence. For example, in Fowler v Hertfordshire County Council ET/1501047, initiating an informal capability procedure without grounds and changing the matters raised in a capability meeting without warning were found to have breached the implied terms of trust and confidence.

Importance of following procedure

Employers should be mindful that the statutory 3 step dispute resolution procedure as outlined in Schedule 1 of the Employment (Northern Ireland) Order 2003 will also apply to management of issues of underperformance. A failure to follow the statutory 3 step procedure could leave the employer exposed to a finding of automatically unfair dismissal, as well as additional financial penalty, by way of an uplift to an employee's award.

This process consists of:

1. Written letter – setting out the grounds for taking action, characteristics or conduct which have led to the potential for dismissal, and inviting the employee to meeting to discuss;
2. Meeting – discussion with employee before any action is taken followed by a written outcome;
3. Appeal – employee can inform employer if they wish to appeal, and a further meeting takes place followed by a final decision in writing.

Workers should also be advised of their statutory right to be accompanied by a colleague or Trade Union representative at meetings during the process and at any dismissal hearing.  Some employers may go beyond the minimum statutory entitlement to be accompanied and allow employees to be accompanied by a friend or family member.

Aside from ensuring fairness and consistency across your organisation, it is important that any procedure you put in place for performance management is followed, as failing to follow a contractual procedure could also leave you exposed to claims for breach of contract, and provide evidence to support a challenge as to the reasonableness of a dismissal.

Managing conflicts within teams

In order to run a fair and appropriate capability procedure you will need to consider whether there are other issues which could lead an employee to challenge the process.

If there are on-going difficulties in a relationship between a line manager running a performance management process and the employee, or an employee is challenging the need for the process, it may be appropriate for someone else from another team or another part of the business to manage the performance improvement process. However, the employee in question should not be allowed to drive the process, particularly if this may cause avoidable delays. In these circumstances, it is a question of assessing the overall impact of the conflict and weighing up any potential unfairness to the employee in continuing with the same manager, against the impact of any delay caused by changing the manager running the process.

Overlapping procedures and harassment / bullying claims

If a grievance is raised which is related to the way in which a performance management process itself is being run, it may be appropriate for the performance management process to be paused pending a hearing of the grievance.  A particular issue is that the employee subject to the performance management process may claim that the process itself is a form of harassment. If the harassment is linked to a 'protected characteristic', such as disability or racial origin, then the employee may have a claim under the NI equality legislation.  Allegations that the performance management process is a form of harassment, therefore, should be taken seriously and dealt with under your grievance or dignity at work procedure.  It will usually be fair to adjourn proceedings while a separate investigation is undertaken into allegations of harassment, or any other form of grievance linked to the process itself.

In some circumstances it may be fair to go ahead with a performance management process despite the fact that an employee has raised a grievance about the process itself. This was considered in the context of a disciplinary procedure, in a case called Jinadu v Docklands Buses ([2015] 3 WLUK 453). In that case, the claimant, a bus driver, raised numerous grievances during disciplinary proceedings, on the basis that she was being bullied and being made a 'scapegoat'.  The disciplinary proceedings had commenced because the employee's driving had fallen below the required standard and she had repeatedly failed to engage with a process designed to improve her performance. The employer did not pause the disciplinary proceedings to deal with the claimant's grievances, but the Employment Appeal Tribunal said that, nonetheless, the dismissal was fair (although it did not expand on its reasons for coming to that conclusion).

If a grievance is raised during a performance management process which is not a complaint about the process, but is linked to the performance issues raised by the employer, then it may be appropriate to deal with that grievance as part of the performance management process. For example, if an under-performing employee raises a complaint that they were unable to work effectively because their manager refused to allow them time off to attend training, then this could be dealt with under the same procedure.

If a grievance is raised during performance management proceedings which is entirely unrelated to the issues being examined, then there is no need to suspend the proceedings and the grievance can be dealt with separately and at the same time.

Conclusions

Whilst dealing with performance management issues can require an employer to engage in some difficult conversations with employees, there are sound commercial and practical reasons for engaging with a process at an early stage. Following a clear procedure, implemented with tact and consistency across your workforce, will facilitate a smooth process and limit the legal risk of liability for claims of unfair dismissal, harassment, discrimination and breach of contract. Prudent employers embarking on a performance management process will benefit from taking a step back at the outset, to consider the appropriate procedure, and will ensure that principles of reasonableness are applied throughout – remembering that the aim is to help get the employee back on track, with dismissal being a last resort.

This month, Leeanne Armstrong concludes that following a clear capability procedure, implemented with tact and consistency across your workforce, will facilitate a smooth process and limit the legal risk of liability for claims of unfair dismissal, harassment, discrimination and breach of contract. There are many sound commercial and practical reasons for engaging with your employees through a capability procedure and prudent employers embarking on a performance management process will benefit from taking a step back at the outset, to consider the appropriate procedure.

Leeanne continues the handbook series this month with a look at one of the key parts of the employee handbook – Capability Procedures, talking about the importance of an effective capability procedure to assist an employer when dealing with cases of poor performance. This months article covers 7 key areas of advice including; the importance of appropriate performance management, identifying expected performance standard and dealing with issues informally in the first instance, formalising the process and managing conflicts within teams.