Effective performance management is essential for maintaining a productive and engaged workforce, but it can be challenging to handle underperformance while staying on the right side of employment law. With changing legal landscapes and increasing pressures on managers, addressing performance issues fairly and confidently has never been more important.

In this blog, we highlight five key considerations for handling performance management issues, ensuring you can drive business success while reducing the potential for legal complications.

Differentiate between employees who those who ‘can’t’ and those who ‘won’t’

Before taking the performance management route, first consider whether you’re dealing with an employee who can’t perform the job or simply won’t do it. Understanding the underlying issues will help you decide whether to proceed with a performance or disciplinary process.

• ‘Can’t do’ issues: These typically involve skills, knowledge or capability gaps. For example, an employee may be working too slowly because they are struggling to use the IT system, or missing deadlines because they are struggling to prioritise their time properly. These situations should fall under your performance management policy and can usually be resolved through training and support.
• ‘Won’t do’ issues: These occur when they the employee has the ability to perform the role but for some reason isn’t meeting the required standards. This could be due to lack of effort or focus. Such issues are conduct-related and should be dealt with under your disciplinary policy.

Sometimes, the lines between the two can blur, and the reason is not always clear cut. Where it is difficult to distinguish between conduct and performance, it’s often less risky to start with the performance management process, rather than jump straight into disciplinary action.

Hold an initial meeting with the employee to better understand the reason(s) for their underperformance. This will help you assess what you need to do to support the employee and address the issue effectively.

Be aware of health issues and disability

If an employee suggests that a health issue may be affecting their performance, you may need to pause the performance management process to explore the matter further.

For instance, an employee with a chronic back condition may struggle with lifting tasks, or an individual with mental health challenges may take longer than usual to complete routine administrative work. In these circumstances, it is recommended to seek the employee’s consent to a medical report from their GP or an Occupational Health provider for advice on their condition, the impact it has on their work, and any measures that should be taken to assist them.

From a legal perspective, it’s important to consider whether the employee’s health condition falls within the definition of a disability set out in the Equality Act 2010, i.e. whether they have a physical or mental impairment which has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. If it does, you must consider whether any reasonable adjustments could be put in place to help them perform their duties. If medical evidence indicates that the issue is health-related, it may be appropriate to treat it as a medical capability issue rather than performance.

Consider other risk factors and arm yourself with evidence

When addressing underperformance, there are other risk factors to be aware of. For example, if an employee can link their dismissal to one of the nine protected characteristics (such as age, pregnancy or race), or to the fact that they have raised whistleblowing concerns or health and safety issues in the past, there could be a risk of a claim.

While you can still performance manage or dismiss an employee with a protected characteristic, it’s crucial to ensure that you have strong evidence to support the fact that the underperformance is genuine. This will help avoid the suggestion that they were differently to their colleagues because of this.

For example, if the employee you wish to dismiss is the only female in an all-male sales team, she may believe that her dismissal is motivated by the fact that she is a woman, leading to claims of sex discrimination. To defend against this, ensure you have evidence showing that her performance is genuinely subpar compared to her peers, and consider whether male employees with similar performance issues have been treated in the same way.

Unlike unfair dismissal, there is no qualifying period of service required to bring discrimination or automatically unfair dismissal (whistleblowing) claims, so if you recognise these as potential risks, always obtain evidence before you consider issuing a formal warning (or dismissal).

Follow a fair performance management process

For employees with more than two years’ service, if their performance doesn’t improve and it becomes necessary to dismiss, there will be a risk of an unfair dismissal claim.

Defending such claims will rely on you having followed a fair performance management process.

Please note, this is particularly important in light of the Labour government’s plans to scrap the two-year qualifying period for unfair dismissal claims. If this change is implemented, all employees – regardless of their length of service – could challenge dismissals. For performance management, this would mean increased scrutiny over how underperformance is addressed, even for those in their first year. Ensuring fair procedures, documenting concerns thoroughly, and justifying decisions with clear evidence will be more critical than ever.

The formal performance management process involves holding several meetings with the employee to discuss their performance, setting clear improvement targets and reviewing progress. Before moving to the formal stage, you should have already tried to address the issue informally. If informal steps have been unsuccessful, follow these steps:

1. Conduct a reasonable investigation to gather all relevant facts before initiating the formal process.
2. If you decide to start the formal process, write to the employee outlining your concerns and inviting them to a formal meeting.
3. At the meeting, explain the areas of underperformance and run through the evidence. Give the employee the opportunity to ask questions, respond to the concerns, and provide any other evidence they would like you to consider.
4. After the meeting, write to the employee confirming the outcome (usually a first written warning), explaining the consequences if the targets are not met (usually a final written warning), and informing them of their right of appeal.
5. Issue a Performance Improvement Plan (PIP) to provide clear targets and timescales for improvement.
6. If no improvement is seen, consider a potential final written warning, following the same process as before. If problems continue, dismissal may be warranted.

Always check the terms of your own policies to make sure that you are following all the required steps.

Know when it’s safe to dismiss

Acas guidelines suggest that it’s best practice to give an employee at least two warnings, and therefore two opportunities to improve, before considering dismissal for poor performance. Before moving to dismissal, double check that there are no further stages in your own policies or other discriminatory factors that you need to consider.

To defend an unfair dismissal claim, you will also need to consider alternatives to dismissal, such as offering a final warning, demotion or transferring the employee to another position which better matches their capabilities. It may then be safe to dismiss.