Checklist: Carrying out a capability process (UK)

Introduction

This checklist will assist in-house counsel, private practice lawyers and human resource professionals who are responsible for conducting capability processes for underperforming employees in England, Wales and Scotland (GB). This checklist does not apply in Northern Ireland, where employment law is devolved to the Northern Ireland assembly. This checklist does not cover situations where an employee is medically incapable of undertaking their role.

This checklist addresses the following steps:

1. Establish legally compliant procedures and training
2. Conduct an informal capability process
3. Conduct a formal investigation
4. Hold a formal capability meeting
5. Set improvement objectives
6. Implement a system for reviewing progress
7. Consider issuing formal warnings
8. Consider dismissal and alternatives

This checklist can be used in conjunction with How-to guides: How to carry out a fair termination of employment, Overview of workplace discrimination and harassment law and How to comply with the duty to make reasonable adjustments in the workplace.

Employers should be aware that the Employment Rights Bill 2024, introduced on 10 October 2024, aims to significantly enhance worker protections in the UK. Key provisions include granting day-one rights for unfair dismissal, paternity, parental, and bereavement leave, changes to sick pay and flexible working rights, protections against zero-hours contracts and restrictions on the use of ‘fire and rehire’ practices. New legislation will be introduced throughout 2025 and 2026. Further information can be found at UK Parliament: Employment rights bill and Employment Rights Bill: factsheets.

Step 1 – Establish legally compliant procedures and training

Step 2 – Conduct an informal capability process

Step 3 – Conduct a formal investigation

Step 4 – Hold a formal capability meeting

Step 5 – Set improvement objectives

Step 6 – Implement a system for reviewing progress

Step 7 – Consider issuing formal warnings

Step 8 – Consider dismissal and alternatives

Explanatory notes 

Legal framework

It is not possible for employers in GB to lawfully dismiss an employee without: 

• establishing a fair reason, which must be one of the five potentially fair reasons set out in the Employment Rights Act 1996 (ERA 1996) – conduct, capability, redundancy, illegality or some other substantial reason (SOSR); and
• following a fair procedure. 

(See section 98, ERA 1996) 

Employers seeking to dismiss an employee for underperformance will usually seek to rely on the fair reason of capability and must ensure that a fair procedure is followed prior to any dismissal.

Employees must normally have two years’ continuous employment with an employer in order to bring an ordinary unfair dismissal claim, and therefore some employers choose to dispense with a capability procedure for any employee who does not meet this qualifying threshold (eg, employees who are dismissed during or at the end of a probationary period). However, many employers carry out some form of capability procedure for all employees regardless of length of service, for a number of reasons, including:

• to provide a defence to discrimination or automatic unfair dismissal claims, neither of which have a minimum qualifying period; and
• to follow a fair process for all dismissals regardless of service, so as to ensure a fair and transparent workplace.

For further information about ordinary and automatic unfair dismissal see How-to guide: How to carry out a fair termination of employment, and for information about discrimination see How-to guide: Overview of workplace discrimination and harassment law.

Step 1 – Establish legally compliant procedures and training

An employer should have a clear, fair and comprehensive capability procedure (sometimes known as a performance management procedure or policy). This serves a dual purpose:

• it sets the expectations for performance; and
• it provides managers with a structured approach to address underperformance.

This procedure should be communicated to all employees from the outset of their employment. It should define what is considered as satisfactory performance, how performance will be monitored and what steps will be taken in the case of underperformance.

1.1 Ensure alignment with legal requirements

The capability procedure must be consistent with the ERA 1996 (see Legal framework above) and the Acas Code of Practice on disciplinary and grievance procedures (Acas Code) (see 1.2 below), which underline the importance of having written disciplinary and capability procedures. While a failure to comply with the Acas Code will not automatically result in a finding that any dismissal was unfair, it can provide evidence to support an unfairness or discrimination claim.

1.2 Understand the distinction with a disciplinary process

Although a capability procedure can be integrated within a disciplinary policy, many employers opt for a separate capability procedure to emphasise support over blame when there is no deliberate failing on the employee’s part. Capability processes are generally longer-running processes than disciplinary processes. The introduction to the Acas Code states the following:

Disciplinary situations include misconduct and/or poor performance. If employers have a separate capability procedure they may prefer to address performance issues under this procedure. If so, however, the basic principles of fairness set out in this Code should still be followed, albeit that they may need to be adapted.

1.3 Provide clarity on performance standards

A capability procedure should explicitly outline the performance standards expected from employees, providing a reference point for both employees and employers in the event of underperformance. It is advisable that the policy also aligns with best practice guidelines within the industry or sector. This might include reference to industry standards, professional guidelines or frameworks that help in identifying and addressing performance issues.

1.4 Provide manager training

Equipping managers with the appropriate training is vital. It ensures that they handle capability issues consistently and fairly, which is instrumental in reducing the potential for employment tribunal claims. Training should also be provided on all aspects of equality and diversity to reduce the potential for discrimination claims, and in particular disability discrimination claims.

1.5 Establish communication with employees

Effectively communicate the capability procedure to all employees to ensure that everyone is aware of the standards and procedures and in order to create a transparent work environment.

1.6 Maintain documentation

Employers must maintain accurate and up-to-date records of all employees’ performance. This includes any appraisals, feedback, performance reviews and any other relevant documentation that provides insight into the employee’s performance over time.

Step 2 – Conduct an informal capability process

An informal capability – or performance management – process is crucial for identifying performance concerns promptly. Capability processes are proactive and aim to address issues before they escalate and become irremediable.

Any instances of underperformance should be thoroughly documented, including the nature of the performance issue, the date it was identified, any impact on the team or the organisation, and any communication that has occurred with the employee regarding the issue.

2.1 Conduct informal performance discussions

These can take the form of regular appraisals and one-to-one meetings, where managers can clarify the expected standards and articulate any issues with the employee’s current performance.

2.2 Seek to identify the cause of the underperformance

Informal discussions should seek to uncover the underlying causes of underperformance, which could be factors that are unseen and unknown by the employer (eg, a medical problem or personal issues). Understanding these factors is essential for providing targeted support to the employee.

2.3 Consider support and training needs

The informal stage should also determine if there are any gaps in the employee’s skills or knowledge that can be bridged through training or other supportive measures.

2.4 Set and communicate improvement expectations

The employer should work collaboratively with the employee to set clear and achievable goals for improvement.

2.5 Maintain documentation

Keeping a written log of all informal stages and agreed-upon actions is imperative for future reference, especially if the process escalates to a formal stage.

2.6 Establish a feedback mechanism

The informal process should include a mechanism for ongoing feedback from the employer to the employee and vice versa, allowing for adjustments to be made swiftly and ensuring that the employee feels supported throughout their improvement journey.

Step 3 – Conduct a formal investigation

When informal processes do not result in a sufficient improvement in performance, the employer can transition to a formal investigation. This process is important to ensure that any subsequent actions by the employer are justifiable and fair.

3.1 Carry out an objective assessment

The employer should conduct an impartial investigation to collect and examine all relevant facts. This includes a comprehensive review of the employee’s performance records and any previous informal discussions aimed at addressing performance issues.

3.2 Ensure employee engagement

The employer should involve the employee in the investigation process, giving them a fair opportunity to respond to the concerns raised about their performance. It is also important to be transparent with the employee about the documentation of their performance issues and the impact it may have on their employment, while at the same time maintaining confidentiality.

3.3 Gather evidence

The investigation must be thorough, with a systematic collection of evidence including documented appraisals, reports, or feedback from colleagues. The employer should ensure that the documentation is objective, unbiased and based on factual information rather than opinion, so as to reduce the scope for personal bias and claims of discrimination. This will help in providing a fair assessment of the employee’s performance. Objective metrics and evidence could be quantitative data like sales figures, error rates or project completion times; or, qualitative assessments based on peer reviews, customer feedback or supervisor evaluations.

3.4 Identify underlying issues

Employers should explore any potential underlying issues contributing to poor performance, such as health problems or challenges at work or at home, and consider if additional training or support has been adequately provided. They should try to understand the underlying causes of the underperformance – is it due to lack of skills, knowledge or resources, or is it a behavioural issue? Identifying the cause can help in addressing the issue more effectively and employers should take into consideration any external factors that may be affecting the employee’s performance.

3.5 Maintain documentation

Accurate and detailed records of the investigation’s findings are essential. The documentation will support the integrity of the process and is likely to serve as evidence if the matter escalates to dismissal and/or an employment tribunal. Employers should maintain a timeline of events, documenting each step of the capability process as it occurs. This should include dates of discussions, meetings, and any interventions or support provided to the employee.

3.6 Complete the investigation

Upon completing the investigation, the employer should review the findings to determine whether proceeding with a formal capability process is justified or if alternative solutions, such as training or other support, can be implemented.

Step 4 – Hold a formal capability meeting

If the investigation suggests continued underperformance, a formal capability meeting should be arranged. The employer should provide the employee with adequate notice and information about the meeting, including the specific performance issues to be discussed. The employee should be allowed to be accompanied at the meeting by a colleague or trade union representative.

4.1 Disclose the evidence

Prior to the formal capability meeting, the employer should share with the employee all relevant evidence and documentation that supports the identified performance issues.

4.2 Explore the underperformance

During the meeting, both the employer and employee should have the opportunity to present their case. The employer explains the performance gaps, while the employee has the chance to provide their perspective and context.

The discussion should objectively assess the performance issues, steering clear of personal biases, and focusing on factual evidence. The employer should provide constructive feedback that focuses on the behaviour or outcomes, rather than on the individual.

4.3 Make the employee aware of potential outcomes

It is important that the employee is made aware of the possible consequences of continued underperformance, including the issuance of formal capability warnings.

4.4 Document the meeting

Maintain an accurate record of the meeting as this is crucial for transparency and may serve as evidence in any subsequent legal proceedings. It may be helpful to have a third party, such as an HR representative, present during the meeting to ensure fairness and clarity, and to take detailed notes of the discussion.

4.5 Communicate the outcome

After the meeting, the employer should promptly inform the employee in writing about the outcome and any next steps, such as performance improvement plans or formal warnings (see step 7 below), and ensure that the employee is made aware of their right to appeal against the outcome.

Step 5 – Set improvement objectives

The formal capability meeting should result in a clear set of performance objectives that the employee is expected to meet within a specified timeframe.

5.1 Agree a Performance Improvement Plan (PIP)

The performance objectives should be realistic, measurable and relevant to the employee’s role and should be clearly documented and provided to the employee in writing. This is often known as a Performance Improvement Plan (PIP).

Both the employer and the employee should agree on the performance objectives during the formal meeting. This will demonstrate that the employee is fully aware of what is required and the consequences of not meeting these objectives.

Following the formal meeting, the employer should clearly communicate in writing the performance issues, the expected standards and the details of the PIP to the employee, outlining the employer’s expectations, the support available and the timeline for review. It is vital that the employee understands what the expectations are and where they are falling short.

5.2 Arrange regular reviews

Setting up regular check-ins or review meetings to discuss the employee’s progress towards the agreed objectives is essential. These reviews allow for adjustments to the PIP if circumstances change or if initial objectives are found to be unrealistic and can help in keeping the employee engaged and motivated to improve.

5.3 Provide support

To help the employee meet their objectives, the employer should commit to providing necessary support, which may include additional training, resources, mentoring or coaching. There should be an assessment of the employee’s training needs to determine what additional training or development activities would help them to improve their performance. This could include technical training, soft skills development, or coaching on specific tasks or responsibilities. The employer should ensure that the employee has access to the necessary resources, tools and information required to perform their job effectively.

5.4 Agree a reasonable timeframe for improvement

The timeframe for meeting the objectives in the PIP should be reasonable, giving the employee a fair opportunity to demonstrate improvement, but not so long that the employer ends up carrying an underperforming and non-improving employee.

5.5 Consider adjustments to work

The employer should consider making changes to the employee’s work environment or processes to better support their performance. See How-to guide: How to comply with the duty to make reasonable adjustments in the workplace (UK) for guidance on making reasonable adjustments for disabled employees.

5.6 Maintain documentation

The employer should keep detailed records of all the support and training provided, as this will be important if there is a need to justify decisions made at later stages of the capability process or at tribunal.

Step 6 – Implement a system for reviewing progress

The employer should establish fixed intervals for reviewing the employee’s progress in meeting the performance objectives agreed as part of the PIP. This provides structure and ensures that performance is monitored consistently.

6.1 Carry out objective evaluations

At each review, the employer and employee should objectively evaluate performance against the set objectives, taking into account any clear evidence of improvement or continued areas of concern. The employer should keep in mind that while consistency is important, different employees might have different needs or challenges that must be taken into account to ensure fairness.

6.2 Be adaptable

Employers should be prepared to adjust objectives and support mechanisms if they are proving ineffective, if the employee’s circumstances change or if more information comes to light as to why there is underperformance.

6.3 Ensure good record-keeping and communications

Maintain thorough records of each review meeting, including the date, attendees, the content discussed, decisions made and any additional support offered to the employee.

The employer should communicate the outcomes of each review to the employee in writing, ensuring they understand any changes to their objectives or the support available.

Step 7 – Consider issuing formal warnings

The capability process should include a formal warning system where the employee is formally notified of their underperformance and the need for improvement.

7.1 Issue warnings in a gradual manner

Issue warnings in a gradual manner, typically starting with a verbal warning, progressing to written warnings and a final written warning. Before escalating to the next level of warning, the employer should review the situation to ensure that all support and training opportunities have been provided.

Each warning should clearly state the performance issues, the improvements required, the timescale for achieving these improvements and the consequences of failing to do so.

7.2 Give the employee an opportunity to respond

Give the employee an opportunity to respond to each warning at a formal meeting (following the process outlined at step 4 above on each occasion) and to present any mitigating factors or evidence of improvement.

7.3 Maintain documentation

Keep detailed records of all warnings issued, the reasons for them, and the employee’s responses as part of the process documentation.

Step 8 – Consider dismissal and alternatives

Prior to concluding a capability process with a dismissal, there are a number of steps for employers to follow.

8.1 Ensure compliance with any capability process and warning system

Ensure that all steps in the capability process have been followed before moving to dismissal. This includes any informal procedure (see step 2 above), investigation (see step 3) and warning escalations (see step 7). Employers should only move to a formal dismissal process after the capability procedure has been exhausted.

8.2 Consider alternatives to dismissal

The employer should consider less drastic alternatives to dismissal. This could involve reassessing the employee’s current role, considering possible redeployment to a different position more aligned with their skills, or making further adjustments to their work environment or responsibilities.

8.3 Carry out a formal dismissal process

Should dismissal become necessary, it must be executed with procedural correctness. This involves:

• a final formal meeting where the decision is communicated, at which the employee may be accompanied by a colleague or trade union representative;
• followed by a formal letter providing comprehensive reasons for the termination of employment; and
• ensuring that all actions are in line with the ERA 1996 and Acas Code (see 1.1 and 1.2 above).

For further information see How-to guide: How to carry out a fair termination of employment.

8.4 Provide for an appeal process

The employer must inform the employee of their right to appeal the dismissal decision. Any appeal process must be impartial and conducted by an individual not previously involved in the capability procedure or the decision to dismiss the employee.

An effective appeal is not a mere formality but an opportunity for substantive reconsideration of the employee’s performance and the appropriateness of dismissal. New evidence or arguments presented by the employee should be considered, and the process should aim to resolve any outstanding issues in a fair and just manner. The employee may be accompanied at any appeal hearing by a colleague or trade union representative.

8.5 Maintain documentation

Documentation is critical throughout the capability process, particularly at the dismissal and appeal stages. It should include detailed records of the decision-making process, the rationale behind the dismissal, and the handling of the appeal. This comprehensive record-keeping serves as important evidence of the fairness and legality of the process, especially if the employee brings a claim for unfair dismissal or discrimination and the matter is brought before an employment tribunal.

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