Capability Procedure UK: The Employer's Guide to Fair Performance Dismissal

Jess runs a 14-person logistics company in Coventry. Her warehouse supervisor had missed pick-rate targets for three months running. She had two informal conversations, logged both, and arranged extra training. Nothing changed. When she finally decided to move to formal capability action, she had no idea what it actually required. She just knew she could not keep absorbing £2,500 a week in missed throughput.

Eight weeks later, she had dismissed him fairly, survived a tribunal claim, and had a documented process she could hand to any line manager in the business.

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. That 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 (PIP), and how to dismiss fairly if improvement does not happen. It also covers the ERA 2025 changes that will affect every capability decision from 2027 onwards.

What Is a Capability Procedure in UK Employment Law?

A capability procedure is the 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. Tribunals assess whether the employer followed a fair process and gave the employee a genuine opportunity to improve before any dismissal.

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. For the full picture on all fair reasons for dismissal, see our dismissal and redundancy guides.

When Should You Start a Capability Procedure?

Start a formal capability procedure after informal support has failed to close a documented performance gap. At minimum: at least one recorded informal conversation, clear evidence the standard was communicated, and a genuine opportunity to improve. Without those foundations, a tribunal will find the formal process premature regardless of what follows.

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

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.
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.
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.
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.

The Formal Capability Procedure: Step by Step

A fair capability procedure follows seven steps: gather evidence, issue a written invitation with supporting documents, hold the formal meeting and set targets, issue a signed Performance Improvement Plan with specific measurable objectives, hold regular review meetings with written notes, convene an outcome meeting if the standard is not met, and offer a right of appeal.

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 well-structured 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.

PIP Timeline by Role Type

Tribunals expect the PIP length to reflect what a competent employee would realistically need. Using a blanket four-week PIP for a complex role is one of the most common reasons employers lose.

| Role Type | Suggested PIP Length | Review Cadence | Rationale | |-----------|---------------------|----------------|-----------| | Operative or measurable output (warehouse, call centre) | 4 weeks | Weekly | Targets are objective and fast to measure | | Customer-facing (sales, account management) | 6 to 8 weeks | Fortnightly | Sales cycles need a minimum period to show results | | Technical or specialist | 8 to 10 weeks | Fortnightly | Complexity of role requires a longer assessment window | | Senior or management | 10 to 12 weeks | Monthly | Decision-making impact takes time to assess |

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 before dismissing.
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.
Negotiate a mutual exit: A settlement agreement can be a clean resolution when both sides accept the role is not working. This is distinct from dismissal and should be considered alongside, not instead of, a fair capability process.
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.

How ERA 2025 Changes Capability Procedures

The Employment Rights Act 2025 cuts the unfair dismissal qualifying period from two years to six months on 1 January 2027. It is not a day-one right, despite the common shorthand. For capability procedures, this means a fair process is required for anyone past six months' service, not just those with two or more years.

This is the biggest structural change to UK employment law in a generation, and it directly affects every capability procedure you run.

Six-Month Unfair Dismissal Qualifying Period (1 January 2027)

From 1 January 2027, employees gain unfair dismissal protection after six months' service. The two-year qualifying period, which gave employers considerable flexibility in the early stages, shrinks to six months.

What this means in practice: if you dismiss someone for poor performance after seven months of service, they can bring an unfair dismissal claim, even if you have extended their probation. A capability procedure that was previously optional for anyone under two years becomes essential from the six-month mark.

Jess's story from the introduction is a useful example. She followed the full process because her supervisor had over two years' service. From January 2027, the same standard applies from month seven.

Probation Becomes Your Main Protection

There is no separate statutory probationary period in the final Act. The six-month qualifying period is what you get, so your probation needs to run and conclude inside it. You will still want a documented review process, because a dismissal at month five that you cannot evidence is a poor starting point if the employee later argues continuous service.

The six-month qualifying period guide covers the confirmed timeline and what employers are doing now to prepare.

Three Steps to Take Before 2027

Audit your induction process. Does a new starter know, from day one, what the performance standard is and how it is measured? If not, you cannot run a fair capability process at any point.
Shorten your informal stage. With a six-month window, informal conversations at weeks two and four replace the previous two-year runway.
Document probationary reviews. Every probationary review needs a written note. A verbal check-in is not enough from 2027. See our probationary periods guide for the full picture.

For more on preparing for this change, see our guide on the six-month unfair dismissal qualifying period.

Common Mistakes That Lose Tribunals

EmployerKit's review of capability dismissal tribunal decisions identifies eight recurring process failures. The most common: no documented informal stage, vague PIP targets that cannot be objectively assessed, inadequate support during the review period, and failure to offer a right of appeal. Any one of these can convert a justified dismissal into an unfair one.

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.

If a dismissal does reach tribunal, our employment tribunal process guide walks you through what to expect as the respondent employer.

Probationary Periods and Capability

Probationary periods do not give you a free pass. From 2027, an employee still on an extended probation who has passed six months' service has the same protection 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.

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)

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 2027 you should. Once the ERA 2025 qualifying period drops to six months on 1 January 2027, anyone past that point is protected. Discrimination claims apply from day one regardless. See our guide on probationary periods under ERA 2025 for more detail.

Q: How does ERA 2025 change the capability procedure?

A: The Employment Rights Act 2025 cuts the unfair dismissal qualifying period from two years to six months from 1 January 2027. It is not a day-one right, despite the common shorthand. Your capability procedure must cover every employee past six months' service, not just those with two or more years.

Q: What is the statutory initial period under ERA 2025?

A: ERA 2025 introduces a new statutory initial period (expected to be up to nine months) during which a lighter dismissal process applies for genuine poor performance cases. Employers still need to follow a fair process, but it can be shorter and more streamlined than for established employees. The details are still being confirmed in secondary legislation.

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.

Explore all our dismissal and redundancy guides for related guidance.

Sources and further reading

Official guidance and legislation referenced in this guide:

This guide is general information for UK employers, not legal advice. Employment law changes and individual circumstances vary. For decisions on specific situations, take advice from a qualified employment law professional.