Fuelled by the belief that employers struggle to dismiss underperforming employees, proposals to make it harder for employees to claim unfair dismissal are currently going through Parliament. However, as Hannah Lee of Howes Percival solicitors explains, the current law does enable employers to deal with poor performers. Here is her guide to what employers can do now and a summary of how things could be different if the government's proposals become law.

Fair reason for dismissal

Poor performance by an employee is a fair reason for dismissing them. The law recognises employers have the right to expect their employees perform their role to a satisfactory standard. Employers should also remember that employees do not have the right to claim 'ordinary' unfair dismissal until they have been employed for at least 1 year (if recruited before the 6th April 2012) or 2 years (if recruited on or after the 6th April 2012). This is to give employers time to decide whether an employee is suited to the job.

Action plan

  1. Investigate the problem

Speak to the employee informally, and in private, about the problem. This may reveal underlying causes such as ill health, problems with child care arrangements or a heavy workload which require further investigation or a change in working practices. Investigate the poor performance, for example check the employee's sales figures, their appraisal record and speak to the employee's line manager. Don’t humiliate the employee or reprimand them in front of colleagues or customers as they could resign and claim constructive and unfair dismissal.

  1. Formal hearing

If the investigation shows that there are no underlying reasons for the poor performance, invite the employee to a formal disciplinary hearing. Ensure the disciplinary process follows any company procedure and is compliant with the ACAS Code of Practice on Disciplinary and Grievance procedures. At this meeting make the employee aware of what the problem with their performance is, what they need to do to improve and the period for improvement (e.g. 3 months). Explore whether the employee needs any training to assist them. At the end of the hearing consider whether to issue the employee with a formal warning. Make the employee aware of the consequences of failing to improve (e.g. being issued with a final written warning). Ensure that all employees are treated consistently – disciplining an employee for their performance when others have not been dealt with in the same way could lead to claims of discrimination.

  1. Deciding to dismiss

If after the period set for improvement, the employee's performance is still below the required standard, hold a second disciplinary hearing to consider either issuing a final written warning or terminating employment. Employees are usually given two warnings before being dismissed for poor performance. However where an employee's incompetence has had serious adverse consequences for the employer, only issuing them with one warning before moving to dismissal may be sufficient.

Compromise and Settlement

Another option for employers is to offer the employee a Compromise Agreement as an alternative to continuing with the disciplinary process. At present unless such an offer is made to settle a genuine dispute between employer and employee (e.g. the employee raises a grievance in response to the employer commencing the disciplinary process against that employee), the employee can reject the offer and then refer to it in support of any future claim in the Employment Tribunal. The government's proposal is that when an employer makes an offer to settle by offering the employee a Settlement Agreement (the new name for Compromise Agreements), it will not matter whether or not they are in 'dispute' with the employee, the employee will be prevented from referring to or relying on that offer of settlement in any future Tribunal claim of unfair dismissal. Employers should note though that employees could refer to the offer of a Settlement Agreement in a discrimination or 'automatic' unfair dismissal claim at Tribunal.

Coupled with the new Settlement Agreement proposals are changes to the Tribunal system which may have the effect of reducing the number of claims. The first is the introduction next summer of Tribunal fees. For unfair dismissal and discrimination claims an employee will have to pay an issue fee of £250 to lodge their claim and a further fee of £950 to pursue their case to a Tribunal hearing, unless they are on benefits or a low income and qualify for fee remission. The second is the likely reduction in the 'cap' on unfair dismissal compensation. Currently an employee who is unfairly dismissed can be awarded compensation up to a maximum of £72,300. However under government proposals this could be substantially reduced, potentially to as little as £25,882.

Therefore given that, from next year, it could cost an employee £1200 in fees to bring an unfair dismissal claim to Tribunal and the amount they could receive in compensation may be reduced, signing up to a new 'Settlement Agreement' could become a more attractive offer for many underperforming employees.