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How to handle an underperforming employee

Employees have a contractual duty to be competent and perform their role in an acceptable way. Where this is not happening, employers are entitled to intervene with a view to improving the performance of the employee. However, there are some legal risks associated with performance management so employers should ensure that issues of poor performance are dealt with fairly and consistently.

This XpertHR “how to” guide sets out a suggested process to follow when addressing underperformance.

The guide covers: Introduction Stage one: The initial response to poor performance Stage two: Action short of formal procedure Stage three: Formal procedure Performance dismissal hearing Dismissal Settlement agreements Where performance issues have not been addressed in the past

Where the employee raises a grievance Ongoing performance issues

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How to handle an underperforming employee

IntroductionEmployees have a contractual duty to be competent and perform their role in an acceptable way. Where this is not happening, employers are entitled to intervene with a view to improving the performance of the employee.

Employers should ensure that performance management is carried out fairly and consistently. Assuming that the employee is not treated in a discriminatory manner, there are two risks associated with performance management. The first is that the employer’s intervention undermines mutual trust and confidence, entitling the employee to resign and claim constructive dismissal. The second is that the employer eventually dismisses the employee and he or she claims unfair dismissal. However, the employer can deal with these risks by ensuring that issues of poor performance are dealt with in a constructive and proportionate way.

An important limitation on these risks is that claims of unfair dismissal can generally be brought only by an employee who has two years’ continuous service (or one year if his or her employment began before 6 April 2012). This means that the employer generally has two full years before being under any obligation to behave reasonably in dismissing an employee because of his or her performance.

This guide looks at a suggested process to follow when addressing underperformance. There is no statutory procedure for handling an underperforming employee, but employers should ensure that the process they follow complies with the basic principles of fairness set out in the Acas code of practice on disciplinary and grievance procedures (PDF format, 1.58MB) (on the Acas website).

Stage one: The initial response to poor performanceAn employer that observes poor performance from an employee should communicate this to him or her promptly. The person that provides the feedback to the employee will typically be his or her line manager, although this will depend on the size of the organisation.

Providing feedback on poor performanceThe manager should give feedback on poor performance in private. Pointing out errors in front of colleagues or customers can be upsetting for the employee concerned and can prove to be counterproductive. In extreme cases, this can amount to a breach of the implied term of mutual trust and confidence, allowing the employee to resign and claim constructive dismissal.

The manager should provide the feedback in a calm and professional manner. Whether a job is being done well or not is not always a purely objective matter; much depends on the judgment of the individual manager. However, the feedback should be as objective as the circumstances allow and, wherever possible, should be based on what the manager has directly observed. It should be factual and related to the work, not the personality of the employee. For example, if the employee has written a report that contains errors, the feedback should be “there are too many errors in this report”, not “you are a very bad writer”.

The manager should give the employee an opportunity to respond to the feedback and either dispute it or agree with the assessment. Provided that the employee’s performance does not present a risk to the organisation or to health and safety, the employee should be allowed an opportunity to take the feedback on board and continue his or her work.

Where the issue is ongoing, as opposed to a one-off incident, the manager should inform the employee that he or she will monitor the employee’s performance in the relevant area for a specified time to ensure that the necessary improvement takes place. This is an informal process, which should take place in the course of normal day-to-day management. No formal procedures need be invoked at this stage.

The manager should keep brief notes regarding the employee’s underperformance and what has been done to address the underperformance.

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Stage two: Action short of formal procedureWhere the feedback has no effect and the employee continues to underperform, the manager should hold a meeting with the employee to discuss the issue. The purpose of this meeting is to discuss an improvement programme, which should ideally be agreed with the employee. There is no statutory right to be accompanied to this meeting. Under s.13(4) of the Employment Relations Act 1999, the right to be accompanied applies to only those hearings that could result in: the administration of a formal warning; the taking of some other action (for example dismissal or other disciplinary sanctions); or the confirmation of a warning or other action already issued or taken (ie an appeal hearing).

The manager should encourage the employee to identify any factors outside work that may be affecting his or her performance. For example, the employee may be having trouble concentrating at work because of a difficulty at home or because of a health issue. The potential for resolving any external factors can then be addressed. The manager should also establish whether or not there are any factors in the workplace affecting the employee’s performance. The employee’s underperformance may be a straightforward competence issue that can be addressed through training or additional support or he or she may be underperforming because of an excessive workload. Alternatively, the employee may need to be more organised in his or her work or make more effort to perform.

Addressing barriers to effective performanceIf barriers to effective performance are identified, the employer will need to consider how these should be overcome or removed. This may involve an element of retraining or some organisational change, such as a reallocation of duties between employees, or a change in administrative procedures. How far a fair employer will go in providing training or reallocating duties will vary according to the circumstances. For example, where the employee’s poor performance has arisen as a result of changes introduced by the employer, more will be expected of the employer than when the employee is simply failing to perform in a core area of his or her role.

Where the employee has a disability that affects the performance of part of his or her job, the employer may be under a duty to make reasonable adjustments that remove any disadvantage. This does not mean that the employer must tolerate poor performance. The purpose of a reasonable adjustment is to remove the barriers to good performance. It is for the employer to decide what the organisation can reasonably accommodate, bearing in mind that it may be required to defend that decision if challenged.

Setting a standard for the employee to meetIt is important that the manager sets an agreed standard for the employee to meet. The standard should be as measurable as possible, consistent with the standard achieved by comparable employees and justifiable in terms of business need. The manager should also agree a timescale with the employee in which the standard must be met. The length of this period should be long enough to allow the employee a reasonable opportunity to overcome any barriers previously identified.

Reviewing the progress that the employee has madeThe manager should arrange regular feedback sessions, for example once a week, to discuss the employee’s progress. The manager should not wait until the end of the agreed period to tell the employee if he or she considers that insufficient progress is being made. The manager should ensure that the feedback sessions are constructive and should acknowledge any progress made by the employee, while being clear about any areas where the expected improvement is not being made.

At the end of the agreed timescale the manager should review the progress that the employee has made. The employee’s performance may have improved sufficiently so that no further special action is required. Alternatively, the manager may consider that an extension of the review period is likely to result in the employee reaching the required standard within a reasonable time frame.

If it is clear to the manager that the employee has failed to improve or has not made sufficient

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progress to achieve the required standard, it may be appropriate for the employer to advance the process to a more formal stage and invite the employee to a formal performance management hearing.

Stage three: Formal procedureThe purpose of a formal performance management hearing is to decide whether or not the employee’s performance is so poor that he or she should be warned that a failure to improve sufficiently will lead to his or her dismissal.

Holding a formal performance management hearingThe invitation to the hearing should explain clearly the respects in which the employee’s performance is considered unacceptable and set out what the possible consequences of the hearing might be, ie a warning. The invitation should not be phrased as though the poor performance of the employee is an established fact. For example, it could make it clear that the employee will be given an opportunity to challenge the assertions made by the employer and to argue either that his or her performance is of the required standard, or that a further opportunity for improvement should be given without the need for a formal warning.

The hearing should follow the structure of a disciplinary hearing, and many employers use their disciplinary procedure for this purpose. However, it is likely to be more constructive if the employer avoids the language of a disciplinary hearing. The employee will have a statutory right to be accompanied at the hearing by a fellow employee or trade union official as it will count as a disciplinary hearing for the purposes of the statutory right to be accompanied. The most senior manager who has a detailed understanding of the employee’s work should chair the hearing. Unlike a disciplinary hearing, where the hearing should be held by a manager who has not been involved in the investigation into alleged misconduct, there is no requirement for a performance management hearing to be chaired by someone independent of the issue. The employee’s manager or head of department will usually be in the best position to judge his or her performance.

At the hearing, the manager should review the history of the performance management process and invite the employee to comment on whether or not he or she accepts the fact of the underperformance, and whether or not the employee has any explanation for his or her failure to improve. The manager should listen carefully to the points made by the employee and may decide that further investigation of particular factors is required before a decision is taken. Where appropriate, the hearing can be adjourned for further investigation.

The employer should keep notes of the hearing. It is good practice for the employer to provide copies to the employee.

The outcome of the hearingAt the conclusion of the hearing, the employer should decide on an outcome appropriate to the circumstances. This may be to conclude that the employee’s performance is at an acceptable level, or it may be that the employer considers that further time is needed to allow the employee to improve, in which case a new review period should be set with appropriate support and ongoing supervision. However, if the conclusion is that the employee’s performance has not reached the required standard, and that a reasonable opportunity for improvement has been given, the hearing can result in a warning that, if a given level of performance is not reached in an appropriate time frame, the employee will be dismissed.

The employer can choose to issue a lesser warning. However, there is no assumption in a performance management process that one written warning will lead to a final written warning, which will in turn lead to dismissal. One warning is sufficient prior to dismissal, provided that the employee has been given an adequate opportunity to improve and his or her performance is sufficiently poor to be unacceptable.

Giving a formal warningThe period of the warning, during which improvement must be made, should be fixed. For example, the warning might state that the employee must improve to the required

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standard within one month of the warning being given. The precise timetable of the warning will depend both on the nature of the underperformance and on the nature of the work. Depending on the circumstances, the warning may also specify that the improved performance must be maintained for a period of time once the required standard has been met.

The employee makes sufficient improvementIf the employee makes sufficient improvement, the employer should hold a meeting with the employee at the end of the time allotted for improvement and confirm that the matter is closed. A note should be made of the outcome and written confirmation given to the employee.

Performance dismissal hearingWhere the employee fails to reach or maintain the required standard in accordance with the period set out in the warning, the employer should invite the employee to a further formal hearing. The purpose of this hearing is for the employer to decide whether or not to dismiss the employee.

Procedure at the hearingThe hearing should follow the same structure as the first formal performance management hearing. The invitation should set out the possible consequence of the hearing, ie dismissal, and the employee has the right to be accompanied.

At the hearing the employee should be allowed a full opportunity to explain any issues around his or her performance that may lead the employer to decide that dismissal is not appropriate.

Where the employer considers that the employee has not met the required standard and is not capable of doing his or her job, the employer should consider whether to dismiss the employee, or whether he or she should be given the opportunity of working in another role (where such a vacancy is available) as an alternative to dismissal. If the stage has been reached where a decision to dismiss would be fair, it will also be fair to offer the employee the opportunity to accept an alternative role.

DismissalIf the employer is satisfied that the employee has still not met the required standard; he or she has been given a reasonable opportunity to improve, including support when appropriate; and it was made clear to the employee that a failure to meet the required standard would lead to dismissal, the employer can choose to dismiss the employee. Where the employer dismisses the employee, it should consider whether to ask the employee to work his or her notice period, or whether a payment in lieu of notice is appropriate. In many cases, a payment in lieu of notice will be more appropriate (see How to make a payment in lieu of notice). The employer should give the employee a right of appeal against the dismissal, which should operate in the same way as an appeal under the disciplinary process.

Redeployment as an alternative to dismissalThe employer may decide that it is appropriate to offer the employee the opportunity of working in a different role as an alternative to dismissal. The employer can order redeployment as an outcome of the performance management hearing only where the employee’s contract of employment provides for this. If there is no contractual right to redeploy the employee, the employer will need to obtain the employee’s agreement before redeploying him or her. A failure to obtain the employee’s agreement is likely to amount to a fundamental breach of contract, which would entitle the employee to resign and claim constructive dismissal. Depending on how different the new job is, the employee could even argue that the redeployment was itself a dismissal, allowing him or her to claim unfair dismissal while working in the alternative role. Where the employee refuses the offer of redeployment, the employer can dismiss the employee provided that the stage has been reached where a dismissal would be fair.

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Settlement agreementsThe employer may consider that, rather than going through a performance management process, it would be better to part company with the employee using a settlement agreement. A settlement agreement is a formal, legally binding agreement made between an employer and employee in which the employee agrees not to pursue particular claims in relation to his or her employment or its termination, usually in return for a financial settlement. Provided that the employer is careful when offering a settlement agreement as a possible option, this can be a useful option (see How to use a settlement agreement to resolve an employment issue).

The employer needs to ensure that it raises the issue of a settlement agreement with the employee in a way that does not hamper the performance management process, should agreement not be reached. Under s.111A of the Employment Rights Act 1996, in force from 29 July 2013, pre-termination negotiations between an employer and employee with a view to ending employment under a settlement agreement are not admissible as evidence in most unfair dismissal claims (see How to use a settlement agreement to resolve an employment issue > Admissibility of pre-termination negotiations in tribunal claims). However, there are limitations to this rule and it would be wise for the employer to ensure that it handles any conversation raising the option of a settlement agreement carefully, to avoid creating needless risk.

The employer should explain the performance management process, express confidence in it and a determination to help the employee meet the required standard. Provided that this is clearly communicated, the employer can go on to say words to the effect of: “Some employees at this stage decide that working here is simply not for them and consider leaving. If this is how you feel, let us know and we will see what we can do.” The key elements of this are that the employer is telling the employee that he or she has a choice and this message is communicated sincerely.

There is no benchmark for the level of settlement that should be offered by the employer. While the maximum award for unfair dismissal would be at the top of the range, the vast majority of cases would settle for far less. A payment in lieu of notice is likely to be the minimum that the employer could agree with the employee, with most employers offering several months’ pay on top of that, depending on how long the performance management process could otherwise have been expected to last, and the prospects for any dismissal resulting from the process being held to be unfair by an employment tribunal.

Where performance issues have not been addressed in the pastIt is not uncommon for employers to fail to address performance issues for a considerable period before deciding that action needs to be taken. Having an initial conversation about poor performance can be awkward and unpleasant. Often, an employee’s manager prefers to avoid having that conversation and instead works around the employee’s shortcomings, perhaps by allocating more difficult work to others or correcting the employee’s work when needed. However, at some stage this position may become unsustainable. A new manager may be appointed who is unwilling to overlook the issue, or changes in the organisation may mean that it is not possible for the employer to continue to work around the issue. This situation can also arise as a result of a TUPE transfer where the employer inherits an employee whose poor performance was tolerated by the old employer, or where the old employer had lower standards of performance.

The employer’s inaction is likely to have made the poor performance more entrenched than if the poor performance had been dealt with promptly. The employee will have been given the impression that his or her performance was at least acceptable and the employer must take responsibility for this mistaken impression.

The employer can still address the employee’s underperformance in these circumstances using the process set out in stages one to three above. It needs to tell the employee that his or her performance is not acceptable, but should also apologise for the fact that the employee has been given the impression that all was well with his or her performance. It is important

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that the employer clearly communicates its commitment to helping the employee succeed by providing appropriate support and training and a reasonable amount of time to improve. A fair employer will accept that more training is needed where the employee’s skills have been allowed to decline over an extended period.

Where the employee raises a grievanceA common reaction to the beginning of a performance management process is for the employee to raise a grievance about the way in which he or she is being treated by his or her manager. Where the grievance and the performance management process are related, it will generally be appropriate to deal with the grievance concurrently with the performance management process, ie the manager can deal with the employee’s concerns in the course of the performance management process. For example, this is likely to be appropriate where the employee raises a grievance about the tendency of a manager to shout when impatient, which makes the employee more nervous and likely to make mistakes. Where a grievance relates specifically to the manager conducting the performance management process, it is advisable that any feedback or review meetings are attended by an HR representative or some other “neutral” manager to ensure that they are carried out in a proper way.

The employer should try to avoid the raising of a grievance resulting in the performance management process grinding to a halt. However, in extreme cases, it may be necessary for the employer to postpone any meetings under the performance management process and investigate the grievance first. An example might be where the employee has made a particularly serious allegation about the conduct of the manager in question, which outweighs any concerns about performance.

Ongoing performance issuesWhere an employee shows marked signs of improvement when under the close scrutiny of a performance management process, only to suffer a relapse when the process comes to an end, it is not necessary for the employer to begin the whole performance management process afresh. A better approach is for the employer to move straight to the point of inviting the employee to a formal hearing, which may result in a formal warning (see Stage three: Formal procedure), based on the view that the employee can clearly reach the required standard, but once again is failing to do so. At the hearing the employee should be given an opportunity to give any explanation for the reason for the deterioration in performance.

The result of this hearing could be that the employer reissues the warning that a failure by the employee to maintain adequate levels of performance may result in his or her dismissal. In appropriate circumstances the duration of this warning could be longer than previously. The employer could justify an open-ended warning only in extreme cases, for example as an alternative to dismissal.

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More guidance from XpertHR

FAQs on performance management, including:

n If an employee has a really bad attitude, is this a conduct or capability issue?

n What is a reasonable review period when setting targets for an employee who is underperforming?

n For how long should warnings for poor performance remain “live”?

Line manager briefing on capability

Good practice guide on performance management

Liveflo: see how our revolutionary online HR tool can help you

n Liveflo workflow on dealing with a misconduct issue

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