Capability Dismissal – What is it and how does it work?

Sometimes, an employee might not be capable for a job. When this happens, it can affect output, services, other employees and your organisation as a whole.

Employers may do their best to improve poor performance issues. But, if things don’t improve, then capability dismissal may be the only option. You should use capability dismissal as a last resort and through the proper steps. If not, you could face an unfair dismissal claim. For a business, it could lead to paying fines and reputational damages.

In this guide, we'll look at what a capability dismissal is, what laws apply, and how to manage the process fairly.

What is a capability dismissal?

Capability dismissal is when you end an individual’s employment within your organisation because they're underperforming.

Employers don't need to prove it. They simply need to show that they honestly believe an employee can’t complete their duties, or were unable to meet the standards expected in their work.

Most businesses will help employees improve their ability for their job. For example, by providing further training or extending a probation period. But if they're still incapable, you could dismiss them.

In the UK, you can dismiss an employee based on a conduct issue or poor performance. But this should only be use as a last resort. And after you've offered enough support to help their circumstances.

Is capability dismissal legal?

If followed correctly under UK employment law, capacity dismissal is legal for employers to use in the case of an employee being unable to carry out duties of their role.

What is classed as poor performance at work?

Good employers regularly evaluate their people’s performance to ensure they’re progressing in their roles, as well as performing them correctly for the needs of the organisation.

However, there may be instances where an employee isn’t performing to what’s expected. Poor performance at work can look like:

• Tardiness and increased absences

• Not having the right skills to perform the job

• Repeated mistakes

• Not meeting critical deadlines

It’s on the employer to raise concerns for poor performance as they come up, as simply waiting until annual reviews and/or appraisals don’t give employees enough notice to potentially rectify any issues. By raising it and having open, regular discussions with the individual, the more you can keep up with their progress.

What are fair reasons for capability dismissal?

There are five 'potentially' fair reasons for dismissal, one of which is to do with capability:

1. Conduct

Someone’s conduct at work can be a fair reason for dismissal. Conduct, while a broad term, can mean various things such as:

• Not following instructions

• Tardiness and poor attendance

• Disclosing company-confidential information.

More serious acts such as theft, bribery, violence or drug abuse in the workplace can be grounds for immediate dismissal due to gross misconduct. In order to dismiss someone due to their conduct, you’ll need to fully investigate the issue as the employer, as well as give the employee an opportunity to defend themselves.

2. Capability

Capability dismissal, as we’ve already touched on, is a form of dismissal where an employee doesn’t have the ability to do the role they were hired for. This could be due to not having the right qualifications, abilities and/or skills. An employer must demonstrate why the employee is incapable of performing their role, as well as reasons for why no steps were taken by the company to help them.

A common route employers take is putting the employee on a performance improvement plan (PIP). If the individual fails to adhere to the terms of their PIP, then this can be grounds for dismissal.

Capability dismissal is a lot more complicated if the employee has a disability, so organisations must tread carefully before considering this route. They should also make any reasonable adjustments they can to accommodate the employee to avoid a discrimination claim.

3. Redundancy

When a job role is no longer needed, an employee can be dismissed through the redundancy route. Whatever this reason might be, the redundancy must only happen if the role will no longer exist. An organisation cannot try to dismiss someone then hire another individual for the same role – including ones where the role duties are similar. Doing so could result in an employee tribunal.

Dismissal through redundancy should only happen if you have a clear business case for it. You must also have a clear criterion for how redundancy candidates are selected, which takes into accounts experience, skills, disciplinary and similar.

4. Statutory restriction

This type of dismissal happens when someone is unable to work due to a requirement for their position. This could be a driving license for a driving-based role, a visa for an oversees employee, or if the individual acquires a criminal record.

5. Some other substantial reason (SOSR)

Although a vague term, SOSR refers to reasons for fair dismissal that do not belong to the other four categories. Dismissal can occur under SOSR for things like (but not limited to):

• Conflict of interest

• Third-party pressure

• An expired fixed-term contract

• Business restructures.

UK employment law on capability dismissal

Dismissal due to capability must show you acted reasonably and fair. Their dismissal must follow employment contract terms and procedures, and it must follow the employment law, particularly:

• The Equality Act 2010.

• The Employment Rights Act 1996 (ERA).

If employees find their dismissal unfair, they could decide to raise an unfair dismissal claim against your decision. Employees can only do this if they have at least two years of continued service with their employer.

Unfair dismissal claims are sent to employment tribunals. Here, an employment tribunal judge will decide if the employee was treated unfairly. For example, if they faced discrimination or harassment during their dismissal.

If the tribunal claim is successful, judges could force potential consequences. Like rehiring the employee or paying compensation fines.

What are alternative actions to capability termination?

Before you decide on capability terminations, there are other methods you can consider. For example:

Alternative employment

An employee may be suffering with their work duties because they lack the right ability. If that’s the case, you can offer them alternative employment.

When you offer employees a 'change of scenery', it can help grow their skills. This is a better choice compared to dismissal for both employers and employees. Staff will be grateful for this support and show it through retention or loyalty.

Reasonable adjustments

Sometimes, an employee might have a capability issue because of ill-health. This can include either be a physical or mental illness. When this happens, it could count as a disability.

Employers should provide reasonable adjustments to help employees work comfortably. You could change their contract terms, so their work conditions are easier.

When employees suffer from ill-health or a disability, it affects the whole business. You may need to ask them to provide a medical report, such as an occupational health assessment.

A qualified health professional should provide this form of medical report. It should state how ill-health can affect an employee's ability to work.

If you meet the right requirements, a medical capability dismissal is lawful. But if you manage it wrong, you could face discrimination and unfair dismissal claims.

Demotion

Sometimes, an employee's performance gets affected by capability. This means that they find it hard to meet the required standards of the job.

It's often seen when an employee gets a promotion. They might struggle with the bigger responsibilities that comes with their new job.

In this case, you might decide to demote them from their current role. A demotion isn't about taking away a job title. You may choose to lessen their responsibilities or give further training for another role.

There are certain rules when it comes to demotions. You need to have reasonable grounds to demote an employee. Make sure both parties agree to it through employment contracts.

How to manage a fair capability dismissal

Employees can suffer from all kinds of issues during work. A capability or performance problem can surface at any point.

Whatever the reasons, make sure you follow a fair process before dismissing anyone.

Here are steps on how to manage a fair capability dismissal:

Spot the capability or performance issues

The first step you should take is spot if an employee has a capability or performance issue.

For example, they’re not hitting their expected targets during their probation period. Or the employee's ability has breached their work terms.

Once you've spotted the issue, you'll be able to follow the right procedures to sort it. This might include warnings and retraining.

If an employee isn’t improving, you may choose to action a capability dismissal procedure

Start your capability procedure

If it has become clear the employee isn't reaching their required standards, even after you've done your best to support them, then you’ll need to start the capability dismissal process.

At this stage, you'll need to dive deeper into their poor performance levels. You can hold discussions, investigations, and hearings into why they're incapable. You must also give the individual an opportunity to defend themselves.

After these steps, you'll get a better understanding into their capability issues.

Consider alternative actions

After your procedures have taken place, you may reach a conclusion. Now is the time to decide on the final action.

An employer should take all findings and statements into account. For example, the employee could be suffering from personal issues like a disability. In this case, you can offer reasonable adjustments or further training.

Employers should also consider offering a Performance Improvement Plan (PIP). This plan highlights any weak areas and supplies methods for self-improvement.

Decide on final action

If there's enough evidence, an employee may be dismissed for capability or performance. Your reasons should be reasonable and legal.

During a formal capability hearing, employees can bring representation with them. This might be for legal or moral support (like a trade union representative).

If they choose to appeal the final decision, give them sufficient time for this.

Employers should present their final decision through a capability dismissal letter. Give the letter in writing and outline your reasons for dismissal.

How to deal with capability issues

Performance management for everyone role in your organisation can allow line managers to properly monitor progress, additional needs or further training that might be required for the individual. If poor performance in an individual is observed, then it will be easier to speak to them using clear guidelines of what’s expected from their role.

Whether the poor performance stems from a lack of ability or an unwillingness to improve – the distinction will ultimately dictate the course of action. Issues related to improper training must be rectified by the employer, whereas poor attitudes to work should be addressed through misconduct procedures. Capability concerns should follow a structured performance management process to ensure fair treatment and legal compliance with UK employment law.

If underperformance is due to capability, such as personal challenges or disabilities, employers should explore supportive measures like providing additional training or reasonable accommodations. When informal efforts fail, a formal performance improvement plan (PIP) can be used before capability dismissal is action. It should outline specific, measurable, and realistic targets, along with necessary support. The employee should be invited to a meeting to discuss the issues and agree on the improvement plan. And if, despite these efforts, performance does not improve, dismissal for capability may be considered as a last resort.

How an Employee Assistance Programme can support you during capability dismissal

As always, you should only use dismissal as a last resort. Employers must follow the correct procedure when dealing with poor performance or incapability. If not, you could face unfair dismissal claims. And these may lead to re-employment, compensation fines, and reputational damage.

At HA | Wisdom Wellbeing (Health Assured), we offer our Peak Performance customers access to our HR advice line, which can provide support for managers who need additional advice on how to navigate HR-related issues. Our Employee Assistance Programme can also work with your organisation to provide 24/7, 365 counselling support for your people, should they need extra support for mental health and wellbeing.

Conclusion

Following the correct protocols for capability dismissal can really support you in finding the best people for your organisation. However, something as simple as providing reasonable accommodations can really help individuals thrive. It’s always important to get the full story before going down a complex route, as failing to have all of the information can have detrimental affects on your organisation.