Capability Dismissal

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Health Assured team

16 December 2022

Sometimes, an employee might not be capable for a job. When this happens, it can affect your business on a whole.

Employers may do their best to improve poor performance issues. But, if it reaches a certain point, you might have no choice but dismiss people.

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 them fairly.

What is a capability dismissal?

Capability dismissal is when you end an employee's job because they're underperforming.

Employers don't need to prove it. They just need to show that they honestly believe that 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, offer training services or probation periods. 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.

An employee collecting their possessions after being dismissed

What are fair reasons for capability dismissal?

There are five 'potentially' fair reasons for dismissal:


  1. Conduct: Like because the employee committed serious misconduct.
  2. Capability or performance: Like being unable to work because of ill-health.
  3. Redundancy: Like ending jobs because the business is closing.
  4. Statutory breach: Like firing an employee because they gave fake work documents.
  5. Some other substantial reason (SOSR): Like letting workers go because their contracts have ended.

When you dismiss an employee due to capability, it must be fair. Their conduct must have affected your business or breached their work duties.

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.

An employee collecting their possessions after being dismissedAn employee at a tribunal hearing for unfair dismissal

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 then 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 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.


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.

an employer considering suitable employment alternatives

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 procedure

Start your capability procedure

Next, you need to start your capability procedure.

It's become clear the employee isn't reaching their required standards. And this is even after you've done your best to support them.

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.

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.

Get guidance on capability dismissals with Health Assured

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.

Health Assured offers guidance on capability dismissals. Our Employee Assistance Programme (EAPs) are run by clinical experts who offer employees access to 24-7 counselling support.

Get in touch with one of our wellbeing experts to find out more today. Call 0844 891 0352

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