Formal capability procedures – an overview

Managing employee performance is a critical function within any organisation. While most performance issues can be resolved through day-to-day management and informal conversations, there are circumstances where a more structured and formal approach becomes necessary. Formal capability procedures should provide a clear framework for addressing ongoing performance concerns whilst ensuring fairness, consistency, and accountability.

This blog outlines what formal capability procedures are, how they differ from informal action, and the stages typically involved. It also highlights the potential consequences if required standards are not met during the formal process.

Understanding capability in the workplace

 

Capability refers to an employee’s ability to perform their role to the required standard. This may relate to skills, knowledge, aptitude, health, or other factors affecting performance. Capability issues are distinct from conduct or disciplinary matters, as they are not usually related to wilful misconduct but rather an inability to meet expectations.

Importantly, capability issues may arise due to underperformance (i.e. an employee’s ability to carry out their role) or due to ill health, including sustained or intermittent sickness absence. The appropriate approach will vary depending on the underlying cause.

Employers have a responsibility to support employees in achieving acceptable performance levels. However, when performance falls below required standards and does not improve despite support, formal capability procedures may become appropriate.

Informal action: the first step

 

In most cases, performance concerns should initially be addressed informally. Informal action is designed to be supportive in nature and focuses on early intervention.

Informal action aims to address performance concerns at an early stage, reducing the likelihood of escalation and the subsequent need to invoke formal capability procedures.

Typical features of informal action include:

• One-to-one discussions between the manager and employee
• Clear identification of performance concerns
• Agreement on expectations and improvement goals
• Provision of support, such as training or mentoring
• Regular follow-up conversations to monitor progress

The purpose of informal action is to resolve issues quickly and constructively without escalating to formal procedures.

Some organisations may retain records of informal action, such as one-to-one discussions or performance reviews. However, where matters have not been progressed to a formal capability procedure, informal action should not result in any form of sanction, such as a warning.

When to move to formal capability procedures

Formal capability procedures are typically introduced when:

• Informal measures have not resulted in sufficient improvement
• Performance issues are serious or persistent
• There is a need for a structured and documented process
• Consistency and fairness require formal escalation

Unlike informal action, formal procedures typically have defined stages, documented outcomes, and potential consequences if performance does not improve.

Formal capability procedures: key characteristics

Formal capability procedures should be structured and follow a clear progression. They are designed to ensure that employees are given a reasonable opportunity to improve while also protecting organisational standards.

Key characteristics include:

• A staged process with defined steps
• Written documentation at each stage
• Clear performance targets and timeframes
• Formal meetings
• Explicit consequences if improvement is not achieved

The nature, length, and complexity of formal capability procedures can vary substantially depending on the organisation, its size, sector and industry. It is therefore essential that managers and employees follow the organisation’s specific policies and procedures to ensure the process is applied correctly and consistently.

Formal action is not intended to punish employees but to provide a transparent and fair process for addressing ongoing performance issues. For more information on performance improvement plans, read our blog employee rights on a performance improvement plan.

Stages of a formal capability procedure

 

It should be noted that, although this blog refers to a number of stages within a formal capability procedure, this is intended as an illustrative example only. As set out above, the number of stages may vary depending on the size, structure, and resources of the organisation. The applicable stages and process should always be clearly set out in the organisation’s own policies and procedures and followed accordingly.

Stage 1: Formal review meeting

The process typically begins with a formal capability meeting. The employee is invited in writing. The invite outlines the purpose of the meeting and the concerns regarding the employee’s performance or level of absence.

During the meeting:

• Specific issues relating to underperformance or sickness absence are discussed in detail
• Evidence is presented to support the concerns
• The employee is given the opportunity to respond
• Expectations for improvement are clearly defined

The nature of the required improvement will depend on the underlying issue. In cases of underperformance, this may involve achieving defined performance standards within a specified timeframe. In cases of ill health, the improvement may relate to a reduction in levels of sickness absence or a return to work in line with medical advice.

An outcome letter is issued following the meeting, setting out:

• The required standards of performance or attendance
• A performance improvement plan (PIP), where appropriate in cases of underperformance
• The timeframe for improvement
• The consequences of failing to improve

Stage 2: Monitoring and support period

Following the initial formal meeting, the employee enters a monitoring period. This is where the focus is on enabling improvement.

During this period:

• Regular review meetings are held
• Progress against targets (whether performance-based or attendance-based) is assessed
• Support measures are implemented (e.g., training, coaching, or workplace adjustments)
• Feedback is provided

Where underperformance is linked to ill health, it may be appropriate to obtain and consider regular updates from healthcare professionals to better understand the employee’s condition and prognosis.

Similarly, where the employee has a disability, appropriate support measures should include consideration of reasonable adjustments to the role or working arrangements.

It is important to distinguish between capability due to underperformance and capability due to ill health. For example, a performance improvement plan would typically be appropriate where the issue relates to an employee’s ability, but would not generally be an appropriate measure where the issue relates to ill health or absence.

Where the employee meets the required standards during this stage—whether by achieving the expected level of performance or by reducing sickness absence to an acceptable level—the formal capability process would ordinarily be discontinued. Depending on the organisation’s policy, if a similar issue arises within a relatively short period, the process may be resumed at a later stage rather than starting again from the beginning.

Stage 3: Second formal review

If the required improvement is not achieved within the agreed timeframe, the issue progresses to the next stage of the formal capability procedure.

This stage involves:

• Reviewing progress against the agreed objectives
• Assessing whether sufficient improvement has been made
• Identifying any ongoing concerns relating to performance or attendance

If standards remain below the required level, the issue progresses to the next stage of the formal capability procedure.

Stage 4: Final review and outcome

If the required improvement is still not achieved after the previous stages, the issue progresses to the final stage of the formal capability procedure.

At this stage, possible outcomes may include:

• Confirmation that sufficient improvement has been achieved
• Redeployment to a more suitable role (where available)
• Dismissal on the grounds of capability

Dismissal should be regarded as a last resort, and that decision should only be taken once the formal capability process has been exhausted.

Legal implications of failing to follow the process correctly

 

The formal capability process should be carried out with thought and care. Failure to do so may result in an employee, who has been dismissed, pursuing a claim in the Employment Tribunal.

For example, where an employee is dismissed on the grounds of capability for failing to meet the required standard, the employee may pursue a claim for unfair dismissal. In such cases, allegations may arise that the process was flawed, for instance because insufficient support was provided or the employee was not given a reasonable opportunity to improve.

When determining whether a dismissal is fair, an employment tribunal will consider whether the employer’s decision fell within the band of reasonable responses. This assessment includes consideration of the size and administrative resources of the employer, as well as whether a fair procedure was followed.

When facing an Employment Tribunal claim, documentary evidence is particularly important. Records demonstrating the support provided to the employee, the steps taken during the process, and the opportunities given to improve are likely to be highly relevant in defending such claims.

Similarly, where an employee with a disability is dismissed due to high levels of sickness absence, they may pursue a claim for discrimination arising from disability. In these circumstances, the employer will need to demonstrate that the decision to dismiss was a proportionate means of achieving a legitimate aim.

Again, clear documentation will be key. Evidence showing that appropriate support was considered or provided, that alternatives were explored, and that the decision-making process was robust and reasoned will be highly relevant in establishing that the employer acted reasonably.

Plotkin and Chandler works exclusively in the areas of HR and Employment law.

We have expertise in providing HR consultancy and HR training on all aspects of performance management, including properly managing a performance improvement plan and implementing support measures. We also assist employees and can provide a range of support regarding what to do if you feel that your performance improvement plan is unfair, so if you need advice on this topic, we would be pleased to hear from you.

In addition to our HR services, we also specialise in employment law. Whether you are an employer defending an Employment Tribunal claim, or you are an individual that is interested in bringing an Employment Tribunal claim we can help.

Contact us on 020 3923 8616 or email us on info@plotkinandchandler.com to discuss your situation and find out the ways that we can help.