Employee performance management
Head of Employment Nicky Cranfield led an interesting discussion on practical considerations to keep in mind when managing performance in the workplace. Here, we note the key highlights from this session, which focused on the legal distinction between employees with/without two years of service, unfair dismissal and how employers can avoid unfair dismissal claims, the ways in which employers can proactively manage employee performance, the role and content of settlement agreements, and a couple of case studies to place everything into context.
Performance issues
Performance issues, including the need to discipline and dismiss employees on the basis of continued poor performance, will inevitably arise as a business scales its workforce. Issues around employee performance management can be tricky at times, given the broad range of rights, obligations and processes that are imposed by employment law, so it’s important to ensure that you’re aware of your obligations as an employer from the get-go.
Dismissing employees with 2+ years of service
One of the first points to consider in the context of performance management is whether an employee has worked for the business for two or more years. If they have, they will acquire what are referred to as “unfair dismissal” rights, which means they can only be dismissed for a “fair” reason, following a “fair” procedure.
What is a “fair” reason for dismissing an employee?
Fair reasons tend to relate to employee conduct, employee capability, broader (genuine) redundancy programmes, and illegality. When it comes to poor performance, the most relevant of these reasons is typically “capability”, which is assessed by reference to an employee’s skill, aptitude, health and any other physical or mental qualities.
In this context, the key question for the court is whether the employer acted reasonably in dismissing the employee based on their inability to perform to the required standard. Examples of where courts have condoned capability-related dismissals include cases where employees have consistently demonstrated a lack of productivity, acted inflexibly, or failed to establish good working relationships with colleagues or customers
What does not constitute “poor performance”?
A court will not recognise an employer’s assertion that an employee lacks sufficient capability if their alleged “poor performance” stems from ill-health, disability, issues relating to childcare or caring responsibilities, issues resulting from poor management within the team (or harassment or bullying by a manager), or the employee being delegated an excessive workload that leads to stress and the employee’s inability to deliver work of the appropriate quality.
What is a fair procedure to follow when dismissing an employee?
Once an employer has established that they have a fair reason for dismissing an employee, they must then ensure that they follow a fair procedure in the lead up to the dismissal. But what is a “fair” procedure.
For starters, an employer will need to demonstrate that their belief in the employee’s incompetence is reasonable, which can involve evidencing that there was an investigation into their performance. Employers must also demonstrate that they gave the employee the opportunity to improve, which might include setting reasonable targets and giving the employee a reasonable opportunity to meet those targets, as well as supporting the employee’s professional development (e.g. through arranging mentoring or external training). In practice, the actions required in this context will vary depending on the circumstances (e.g. the employee’s length of service, the nature of their role, any relevant business objectives, and so on)
If the employee fails to improve after receiving appropriate support, the employer could then consider alternatives to dismissal (for example, moving them into another role), which can help to demonstrate that the employer acted reasonably in all the circumstances. If this isn’t viable, and the employer wishes to continue with the dismissal, they must then arrange a hearing (presided over by an independent person in the business), consider any representations put forward by the employee, document any decision to proceed with the dismissal, and allow for an appeal hearing.
What about employees with less than 2 years’ service?
If an employee has worked for the business for less than two years, they will not have the same right to bring a claim for unfair dismissal (subject to very limited exceptions, for example where they have been discriminated against). This means employers have more flexibility to manage their performance and, ultimately, dismiss them
Can I impose probationary periods on new recruits?
Employers often include a probationary period in employment contracts, which can entitle them to terminate on very little notice if it quickly becomes clear that the employee is unable to meet their expectations and requirements. These can be anywhere from 2 weeks to 6+ months, potentially with the option to extend (e.g. if the employee takes an extended period of time off work whilst on probation).
What else must employers comply with?
Employers should also take into account the ACAS Code of Practice, as well as any internal policies that apply to the circumstances (for example, disciplinary and grievance procedures set out in a staff handbook).
ACAS Code of Practice
The ACAS Code of Practice is a statutory code that sets out various rights and obligations relating to a business’ disciplinary and grievance procedures, including (for example) requirements around providing written notice of disciplinary hearings and allowing employees to bring companions to such hearings. Note that although compliance with the ACAS Code isn’t a strict legal obligation, any unreasonable failure to comply with it can lead to an Employment Tribunal imposing greater compensatory awards in favour of employees.
Laws relating to discrimination and harassment
Employers must also ensure that they do not fall foul of laws and codes designed to protect employees from discrimination (e.g. discrimination based on age, sex or disability) and harassment (e.g. where employees have not been treated with dignity).
How can employers proactively manage performance?
Failure to address issues from the outset can cause issues further down the line, so it’s key to manage performance proactively from the outset (and to keep a written record of any actions taken in this context). Doing so can help to demonstrate that a dismissal further down the line is fair, given the measures taken previously to attempt to address these issues.
Clarify expectations from the outset
For starters, employers should clearly set out their expectations at the earliest possible stage, including any required standards of performance for the role. These expectations and standards could be set out in the original job description, as well as the employee’s employment contract, and might include the employee’s job title and description, any applicable KPIs and qualifications, relevant policies and procedures, and so on.
There are also certain “implied” terms that will apply (i.e. terms that haven’t necessarily been expressly included in the contract), such as implied terms that the employee will be able to perform their duties, and will not act in a way that breaches the employer’s trust and confidence.
Monitor and support performance on an ongoing basis
Employers should then monitor employee performance on an ongoing basis and intervene when necessary, for example through providing regular appraisals, informal feedback, warnings where applicable, clear and reasonable targets, and training/coaching where necessary. Note that it’s key that any feedback is open, honest, actionable, and recorded in writing.
What can happen if I get this stuff wrong?
Ultimately, employers that fail to properly manage performance or dismiss employees in accordance with their employment law obligations risk leaving themselves open to claims relating to breach of contract, unfair dismissal, and possibly discrimination and harassment. So what can be done to mitigate this risk
Settlement agreements
Even where an employer follows all the correct procedures prior to dismissing an employee, that (ex-)employee might still try to bring one or more claims against the employer. Settlement agreements can help to mitigate this risk, as they tend to obligate the employee to agree to refrain from bringing certain claims against the employer in respect of their employment, as well as prohibiting them from disclosing confidential information, making derogatory comments about the employer in public, and so on.
Settlement agreements can also be used to protect an employer where it wants to avoid following certain employment law-related processes. For example, an employer might feel that a long and drawn out dismissal process would be inappropriate where swift action is necessary, where a very senior employee is being dismissed, or where there is the potential for such process to damage the employer’s reputation or detrimentally impact internal team dynamics.
Other considerations
Employers must also consider any other potential implications of terminating an individual’s employment. For example, if they hold a directorship, dismissing them as an employee might not automatically mean that their directorship simultaneously terminates (and they might subsequently drag their feet over resigning as a director). They may also hold shares or options, the default treatment of which could be dictated by (for example) leaver provisions in the company’s articles of association and/or shareholders’ agreement. These are all points that could be negotiated, with a settlement agreement recording the outcome of those negotiations.
As part of all this, employers must consider what they are willing to offer the employee in return for signing the settlement agreement, including (for example): the length of their notice period; payments in respect of accrued holiday pay, their pension, and any benefit entitlements; a portion of any bonus they might have otherwise been entitled to at year end; and the right to hold onto shares or options.
Note that for a settlement agreement to be fully valid and binding, the employee must have sought independent legal advice, and employers often contribute towards the cost of doing so.
Nicky Cranfield
Nicky trained at Eversheds LLP (now Eversheds Sutherland LLP), where she qualified as an employment lawyer in 2010, and spent time working in both the international employment law team and the core UK team, advising employers across a range of sectors. Nicky went on to expand her practice to advising senior executives, during her time at Fox Williams LLP, and also gained valuable experience from working in-house, through a virtual secondment from Konexo to Amazon.
Nicky provides advice on a wide range of employment law topics to both employers and senior executives. Nicky has extensive experience advising on the whole spectrum of issues and documentation that are intrinsic to the employment lifecycle: from preparing and advising on employment contracts, consultancy agreements and policies, via dealing with disciplinary, grievance, discrimination, performance, sickness and other day-to-day people issues, all the way through to managing employee terminations and senior executive exits, including the drafting and review of settlement agreements, as well as conducting claims in the Employment Tribunal. Nicky can also assist in relation to business reorganisations and redundancies and provide advice on TUPE in business transfers and outsourcings.
If you need advice on managing underperforming members of staff, or on any other employment-related matters, please contact Nicky Cranfield. If you would like to attend one of our future sessions, please contact Tammy@ignition.law.
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