Capability Procedure: How to Manage Poor Performance Fairly

Most unfair dismissal claims that succeed at tribunal come down to the same thing: the employer skipped steps. Not that the employee was performing well, not that the decision to dismiss was wrong, but that the process was unfair.

A capability procedure is the legally recognised route for managing genuine poor performance in the UK. It is distinct from a disciplinary procedure, which deals with conduct (behaviour). The distinction matters, because using the wrong process is one of the fastest ways to lose at tribunal.

This guide covers the full capability process from start to finish: when to use it, how to structure a performance improvement plan, and how to dismiss fairly if improvement does not happen.

Last updated: April 2026

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What Is a Capability Procedure in UK Employment Law?

A capability procedure is a formal process for addressing an employee's inability to perform their job to the required standard. It is one of the five potentially fair reasons for dismissal under section 98 of the Employment Rights Act 1996 (ERA 1996).

The legal term is "capability," defined in section 98(3) of ERA 1996 as capability "assessed by reference to skill, aptitude, health or any other physical or mental quality." In practice, it covers two categories:

• Performance capability: The employee cannot do the job to the required standard, despite having been given the opportunity, training, and support to do so.
• Health capability: The employee's physical or mental health prevents them from doing their job. This has significant overlap with disability discrimination law and is not covered in this guide.

This article focuses on performance capability: the classic "not up to the job" situation.

Capability vs. Disciplinary: Why the Distinction Matters

Getting this wrong is common and costly. Here is the difference:

• Capability (can't do): The employee is trying but failing. They lack the skill, knowledge, or aptitude to meet the standard.
• Conduct (won't do): The employee can do the job but is choosing not to. They are being lazy, careless, or deliberately underperforming.

The ACAS Code of Practice on Disciplinary and Grievance Procedures applies to both, but the approach differs significantly. A capability process is supportive by nature: you are helping someone improve. A disciplinary process is corrective: you are addressing unacceptable behaviour.

Using a disciplinary procedure for a genuine capability issue makes a dismissal look unreasonable. Tribunals expect employers to support, train, and give time before dismissing for poor performance.

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When Should You Start a Capability Procedure?

You should not jump straight to formal action. Before initiating a capability procedure, you need evidence that:

1. The standard is clear. The employee knows what "good" looks like. This means a written job description, documented targets or KPIs, and clear expectations communicated during induction or performance reviews.
2. The gap is real. You have objective evidence that the employee is not meeting the standard. This could be missed targets, error rates, quality assessments, client complaints, or peer comparisons.
3. Informal steps have been tried. You have had at least one (ideally more) informal conversations about the performance concern, offered support, and given the employee time to improve.
4. External factors have been considered. Is the underperformance caused by something outside the employee's control? Inadequate training, unclear instructions, personal problems, unrealistic targets, or workplace issues all need to be ruled out or addressed first.

If you cannot tick all four of those boxes, you are not ready for a formal capability procedure. Go back and build the foundation.

The Informal Stage

Most performance issues should be resolved informally. This means:

• A private conversation with the employee, explaining the concern
• Specific examples of where performance falls short
• Asking the employee whether there are any barriers or issues you should know about
• Agreeing on actions (training, mentoring, adjusted targets, regular check-ins)
• Setting a review date (typically two to four weeks)
• Making a file note of the conversation

If informal intervention does not work after a reasonable period, you move to the formal capability procedure.

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The Formal Capability Procedure: Step by Step

The ACAS Code of Practice sets the framework. Here is how to run a fair capability process that would withstand tribunal scrutiny.

Step 1: Investigation

Before calling a formal capability meeting, gather your evidence. This is not a full-blown misconduct investigation. It is an evidence-gathering exercise:

• Collate performance data (targets vs. actuals, error logs, quality scores)
• Gather any relevant correspondence (emails raising concerns, notes of informal conversations)
• Speak to the employee's line manager about the history
• Check whether reasonable adjustments or support were offered
• Review training records

Document everything. If it is not written down, it did not happen.

Step 2: Invite to a Formal Capability Meeting

Write to the employee and include:

• A clear statement that this is a formal capability meeting
• The specific performance concerns, with evidence
• The date, time, and location of the meeting
• The employee's right to be accompanied by a colleague or trade union representative (section 10, Employment Relations Act 1999)
• Enough time to prepare (five working days is standard practice)

Attach any relevant documents (performance data, previous meeting notes, the job description). The employee should not be ambushed.

Step 3: The Formal Capability Meeting

At the meeting:

• Explain the performance concerns clearly, with specific examples
• Give the employee a full opportunity to respond. Listen properly. They may raise factors you were not aware of.
• Discuss what support has been provided and whether it was adequate
• Explore what further support or training could help
• Agree on a Performance Improvement Plan (PIP) with specific, measurable targets

This is where most employers fail. They either do not give the employee a genuine chance to respond, or they set vague targets that are impossible to measure later.

Step 4: The Performance Improvement Plan (PIP)

A PIP is the core of the capability procedure. It is a written document setting out exactly what the employee needs to achieve and by when. A robust PIP should include:

• Specific targets: Not "improve your sales." Instead: "Achieve a minimum of 15 qualified leads per week" or "Reduce error rate from 12% to below 5%."
• Measurable criteria: How will you assess whether the target has been met? Who measures it? What data source?
• Support offered: Training, mentoring, coaching sessions, reduced workload, additional supervision. Be specific about what you will provide.
• Review dates: Regular check-ins during the PIP period (weekly or fortnightly). Not just a start date and an end date.
• Timeline: Typically four to twelve weeks depending on the role and the nature of the underperformance. Complex roles may warrant longer.
• Consequences: State clearly that failure to improve to the required standard may result in further formal action, up to and including dismissal.

Both parties should sign the PIP. Give the employee a copy.

Step 5: The Review Period

During the PIP period:

• Hold every scheduled review meeting. Do not skip or reschedule without good reason.
• Document performance against each target at every review point.
• Provide the support you committed to. If you promised coaching and did not deliver, the PIP is undermined.
• Give honest feedback. If progress is insufficient, say so clearly. Do not wait until the final review to reveal that the employee has been failing all along.
• Keep written notes of every review meeting.

If the employee meets the targets, close the capability process and confirm in writing that their performance is now at the required standard. Monitoring can continue informally.

Step 6: Outcome Meeting (If Improvement Is Insufficient)

If the employee has not met the PIP targets despite reasonable support:

• Invite them to a further formal meeting (same notice requirements: written invite, right to be accompanied, evidence provided in advance)
• At the meeting, review performance against each PIP target with objective evidence
• Give the employee a full opportunity to respond
• Consider whether there are any mitigating factors

Possible outcomes:

• Extend the PIP: If there has been some improvement but not enough, an extension may be reasonable.
• Redeploy: Is there a suitable alternative role where the employee's skills are a better fit? Tribunals expect you to have considered this.
• Issue a final written warning: Put the employee on notice that dismissal will follow if the standard is not met within a further specified period.
• Dismiss: If improvement has not occurred despite a fair process, you can dismiss with notice on grounds of capability.

Step 7: The Right of Appeal

Under the ACAS Code, the employee must be given the right to appeal any formal outcome, including dismissal. The appeal should be heard by a more senior manager who was not involved in the original decision.

If you do not offer a right of appeal, a tribunal can increase compensation by up to 25% under the ACAS Code uplift.

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How Day One Unfair Dismissal Rights Change This

From January 2027, the qualifying period for ordinary unfair dismissal drops from two years to six months under the Employment Rights Act 2025.

This changes the capability landscape significantly. Previously, if an employee was underperforming within their first two years, you could dismiss with notice and face minimal legal risk. From 2027, employees hired from July 2026 onwards will gain unfair dismissal rights after just six months.

That means your capability procedure needs to be operational for all employees, not just long-serving ones. If you dismiss someone for poor performance after six months of service without following a fair capability process, they can bring an unfair dismissal claim.

For more on preparing for this change, see our guide on day one unfair dismissal rights.

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Common Mistakes That Lose Tribunals

Tribunal decisions in capability dismissal cases consistently flag the same employer failures:

1. No evidence of informal intervention. You went straight to a formal PIP without ever telling the employee informally that their work was not good enough.

2. Vague targets. "Improve your communication skills" is not measurable. The tribunal will ask how the employer assessed whether this target was met. If you cannot answer clearly, the dismissal looks unfair.

3. Inadequate support. You set a PIP but did not provide the training, mentoring, or resources you promised. The employee can argue they were set up to fail.

4. Rushing the process. A two-week PIP for a complex role is unlikely to be seen as reasonable. The timeline should reflect what a competent employee would realistically need to demonstrate improvement.

5. Moving the goalposts. Changing the targets or criteria during the PIP period undermines its fairness. Set the targets at the start and stick to them.

6. Not considering alternatives to dismissal. Redeployment, a different role, a different team. Tribunals expect you to show you at least considered these options.

7. Failing to separate capability from conduct. Using a disciplinary procedure for a genuine capability issue, or treating laziness as inability, is a process error.

8. No right of appeal. This is a direct breach of the ACAS Code and will increase any compensation award.

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Probationary Periods and Capability

Probationary periods do not give you a free pass. From January 2027, an employee on probation who has six months' service has the same unfair dismissal rights as any other employee.

Your probationary review process should mirror a condensed capability procedure: clear standards from day one, regular check-ins, documented concerns, and a structured review before the end of probation.

If you are planning to exit someone during probation for performance reasons, follow the same principles: identify the gap, support improvement, document everything, and give the employee a chance to respond before making a decision.

For detailed guidance on managing probation under the new rules, see our guide on probationary periods under ERA 2025.

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Documentation Checklist

Keep a clear paper trail at every stage. As a minimum, you should have:

• [ ] Written job description with measurable standards
• [ ] Notes from informal conversations about performance
• [ ] Formal invitation letter to capability meeting
• [ ] Notes from the formal capability meeting
• [ ] Signed Performance Improvement Plan with specific targets, timeline, and support
• [ ] Notes from every PIP review meeting
• [ ] Evidence of support provided (training records, mentoring logs)
• [ ] Performance data at each review point
• [ ] Outcome letter (confirming PIP result and next steps)
• [ ] Appeal invitation and outcome (if applicable)
• [ ] Dismissal letter with notice period, reason, and appeal rights (if applicable)

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FAQ: Capability Procedure UK

Q: What is the difference between a capability procedure and a PIP?

A: A capability procedure is the overall formal process for managing poor performance. A Performance Improvement Plan (PIP) is a specific tool used within that process. The PIP sets the targets and timeline for improvement. The capability procedure is the broader framework that includes investigation, formal meetings, the PIP itself, outcome decisions, and appeal.

Q: How long should a PIP last?

A: There is no statutory minimum or maximum. The ACAS Code does not specify a duration. In practice, four to twelve weeks is typical. The length should be proportionate to the role and the nature of the performance gap. A warehouse operative with a measurable output target might need four weeks. A senior manager with complex responsibilities might need eight to twelve. The key test is whether the employee was given a reasonable opportunity to improve.

Q: Can I dismiss someone for poor performance without a PIP?

A: In theory, yes, if you can show that the dismissal was fair in all the circumstances. In practice, dismissing without a PIP (or equivalent structured improvement process) is extremely risky. Tribunals expect to see that you identified the performance gap, told the employee about it, gave them support and a reasonable period to improve, and only dismissed after that process was exhausted. Skipping the PIP makes it very difficult to show the dismissal was procedurally fair.

Q: Does the ACAS Code of Practice apply to capability dismissals?

A: Yes. The ACAS Code of Practice on Disciplinary and Grievance Procedures applies to dismissals for both conduct and capability. A tribunal must take the Code into account when deciding whether an employer acted reasonably. Failure to follow it can result in a 25% uplift on any compensation awarded.

Q: What happens if the employee goes off sick during the PIP?

A: You should pause the PIP for the duration of the absence. Continuing to measure someone against performance targets while they are off sick is unreasonable and could also trigger disability discrimination issues if the sickness is related to a disability. When the employee returns, restart or extend the PIP with adjusted timelines. Take occupational health advice if the absence is prolonged or relates to a condition that might amount to a disability under the Equality Act 2010.

Q: Can I use a capability procedure for someone in their probationary period?

A: You can, and from January 2027, you should. Once an employee has six months' service, they will have unfair dismissal rights regardless of whether they are still on probation. For employees within their first six months, you have more flexibility, but following a fair process is still good practice and protects you against discrimination claims, which apply from day one. See our guide on probationary periods under ERA 2025 for more detail.

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Ensure Your Capability Procedure Is ERA 2025 Compliant

Need to ensure your capability procedure is ERA 2025 compliant? The EmployerKit Audit flags gaps in your HR policies before they become tribunal issues. From £49. Visit employerkit.com/tools/employerkit-audit.

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Last updated: April 2026