What is capability dismissal?

Making sure every team member performs at their best is crucial to any business owner – but what happens when an employee isn’t meeting the necessary standards? Enter capability management and ultimately, if appropriate, capability dismissal. These might sound like complicated phrases, but they’re a necessary part of managing a team effectively. For managers, employers and business owners, understanding capability management and dismissal is vital, so we’re here to chat you through what they are, the legalities around them, how to handle them properly and best practices to make sure they’re fair and you’re staying compliant with the law.

 

Capability dismissal: What is it?

In employment law, there are five potentially fair reasons to dismiss an employee – misconduct, redundancy, illegality, capability (or qualification) or ‘some other substantial reason’. Capability relates to an employee’s ability to do their job.

With that in mind, capability dismissal is the final action you could take when an employee is unable to perform their job to the standard you need them to. This could be due to various reasons, often out of their control, like ability or health-related challenges

For example, if an employee consistently fails to meet sales targets or struggles to complete tasks, these might be considered performance-related capability issues. On the other hand, if an employee’s health condition prevents them from carrying out their tasks effectively or from sufficiently attending work, this can also fall under a capability process and could even ultimately lead to dismissal. It doesn’t include behavioural issues like repeated unauthorised absence – these would be dealt with as misconduct. It’s about what an employee can’t do rather than what they won’t do.

Employment laws are intricately linked with capability management and dismissals, though, because employers have to follow fair procedures. You need to recognise that while you do have an ultimate right as an employer to dismiss employees for capability, there are protections in place to prevent unfair dismissals and disability discrimination. You’ve got to understand these legal frameworks to make sure you’re doing everything right and you don’t leave yourself open to tribunal claims.

 

Capability dismissal procedure

Employers have to follow a fair procedure when deciding to take an employee through capability management and ultimately dismiss them on grounds of capability. This includes following the standards in the ACAS code of practice. such as inviting your employee to a formal hearing to discuss the allegations and giving them the right to appeal and representation. This makes sure that employees have the opportunity to defend their case. It could also include removing or adjusting certain duties or even a change in roles as an alternative to dismissal, if appropriate.

Handling performance capability dismissals needs a structured approach. The first step is identifying performance issues, which involves recognising patterns in an employee’s work that consistently fall below expectations. Once identified, you should first pick this up informally with the employee. If their performance doesn’t improve sufficiently, then it’s essential to put performance improvement plans (PIPs) in place. These plans are designed to help employees get back on track and offer them clear goals and support. This is important because you have to show that you’ve given an employee a fair opportunity to improve their performance whilst balancing this against it not becoming too problematic for the business. If the employee fails to adequately meet their PIPs then you would follow a formal disciplinary warning process and ultimately, this could lead to their dismissal.

If you have an employee with a poor attendance record, then this could also be managed through a medical capability process. However, there are different approaches depending on the type of absence. If they are frequently absent with short-term illnesses, then again this should be discussed informally first but if there is insufficient improvement, then it would be best to follow a similar ‘warning’ process, giving the employee a fair opportunity to improve their attendance and appropriate support.

If an employee is on long-term sickness absence then this would usually be dealt with through appropriate welfare meetings considering support, reasonable adjustments etc but ultimately, potentially to a formal hearing and dismissal. It would not usually be appropriate to follow a warning process.

However, in any medical capability situation there are certain other necessary considerations, including whether there is any forthcoming medical treatment that could improve the employee’s attendance/performance, the support that is being offered, how much sick pay they have left (if any), how long they have been absent for and what the medical evidence says. It is also essential to make all reasonable adjustments to level up disadvantages in the working environment and/or arrangements to support a disabled employee. It’s essential that you’ve taken all reasonable steps before resorting to dismissal, otherwise an employee can claim unfair dismissal and/or disability discrimination.

Documentation plays a really important role in the dismissal process, and you’ll need to keep detailed records of performance reviews, improvement plans, warnings and any support/adjustments or training provided to the employee. This documentation makes sure transparency and fairness is prioritised and it protects both you and your employee in the case of disputes.

 

Capability dismissal law

The legal landscape around capability management and dismissal is complex, with key requirements that employers like you have to stick to.

Employees with over two years’ service are protected from unfair dismissal under employment laws, so if an employee feels their dismissal wasn’t fair, they have the right to take their case to a tribunal. Of course, the Labour government is looking to make the right to claim unfair dismissal a day-one right from 2026, but this is still under consultation at the time of writing. Disabled employees are also protected from discrimination right from the beginning of the recruitment process and throughout employment.

What happens if you get it wrong?

As we’ve said, if you don’t follow a fair and correct procedure according to employment law, your employee has the right to take their case to tribunal. That could mean a big payout – and currently, the cap on compensation for an unfair dismissal claim is a year’s income or £115,115, whichever is the lower. Awards for disability discrimination are uncapped. Could your business afford that?

 

Poor performance best practice

You need to have an effective performance management procedure in place to make sure that you tackle underperformance fairly and give employees a chance to improve. This can also be far more effective in the long run than having to go through another recruitment process. It’s a complex procedure however and specialist advice should be taken

It’s important that all line managers, supervisors and anyone else in a position of responsibility for other people’s performance have proper training in the processes they need to follow if they are dealing with underperformance.

 

Get support on capability dismissal

With our team of HR consultants and Employment Law consultants, you’ll get personalised guidance to make sure your business stays compliant and your workforce stays protected. We’ll tailor our support to meet the unique needs of your business and help you navigate any challenges you’re facing. Check out our range of HR and Employment Law services from 24/7 HR advice, on-site HR support, HR outsourcing and more – and we can also help with your HR documentation.

Contact us today to chat with one of our experts and find out how we can help.