Managing an underperforming employee is one of the most uncomfortable things a UK business owner or manager has to do. It involves difficult conversations, careful documentation, and the constant awareness that if it is handled incorrectly, it could end in an employment tribunal claim. Many employers either avoid the issue for too long or rush a dismissal decision without following the right process — and both approaches carry significant risk.
The good news is that performance management does not have to be a legal minefield. With the right approach, you can address underperformance fairly, consistently, and in a way that protects your business. This guide explains exactly how.
Why the Stakes Are Rising in 2026 and 2027
Performance management has always carried legal risk, but that risk is increasing materially. Under the Employment Rights Act 2025, the qualifying period for unfair dismissal is expected to fall from two years to six months from 1 January 2027. This means that any employee hired from around July 2026 onwards could have full unfair dismissal protection within their first six months — a dramatic change from the current two-year threshold.
Even more significantly, the cap on unfair dismissal compensation — currently the lower of 52 weeks’ pay or £118,223 — is also being removed from January 2027. Employment tribunals will be able to make uncapped awards based on actual financial loss. For businesses employing higher earners, the financial exposure from a poorly handled performance dismissal could be substantial.
The message is clear: getting performance management right is not optional. It is a business-critical priority.
Start With Clear Expectations
Most performance problems can be traced back to unclear expectations at the point of hire or during induction. If an employee does not know precisely what is expected of them — what success looks like in their role, what standards apply, and how their performance will be assessed — it is very difficult to fairly hold them to account when those standards are not met.
Every employee should have documented role objectives from day one. For existing employees, a performance review process that sets and records clear targets provides the foundation for any future performance management action. In the absence of this documentation, any dismissal for poor performance is significantly harder to defend.
Step One: Address Issues Early and Informally
The most effective performance management happens before formal procedures are needed. When performance concerns arise, address them promptly through an informal, supportive conversation. Explain clearly what the issue is, what improvement is required, and by when. Give the employee an opportunity to explain their perspective — sometimes underperformance has an underlying cause, such as a workload issue, a personal difficulty, or inadequate training, that the employer is not aware of.
Document this conversation. A brief written record of what was discussed, what was agreed, and the timeframe for review is not bureaucratic box-ticking — it is the starting point of a defensible process.
Step Two: Consider Whether Health or Disability Is a Factor
Before moving to formal performance action, employers must consider whether the performance issues could be connected to a health condition or disability. Under the Equality Act 2010, if an employee’s condition amounts to a disability — defined as a physical or mental impairment with a substantial, long-term adverse effect on daily activities — the employer has a duty to consider reasonable adjustments.
Failing to do this before initiating capability proceedings is one of the most common mistakes employers make, and it can convert what would otherwise be a defensible performance dismissal into a disability discrimination claim — which carries no compensation cap at all.
Step Three: The Formal Performance Improvement Plan
If informal intervention does not produce improvement, the next stage is a formal Performance Improvement Plan (PIP). A well-constructed PIP should include:
- A clear, specific description of the performance concerns — with examples where possible
- Measurable targets for improvement, with a realistic timeframe (typically four to twelve weeks depending on the role and the nature of the issues)
- Details of the support the employer will provide — training, closer supervision, additional resources
- Regular review points during the PIP period
- A clear statement of the consequences if improvement is not achieved
The PIP should be presented to the employee in a formal meeting, at which they have the right to be accompanied by a trade union representative or colleague. A written record of the meeting must be kept, and the employee should be given a copy of the PIP document.
Step Four: Conduct Regular Reviews
During the PIP period, hold scheduled review meetings and document each one. Note what progress has or has not been made, whether the agreed support has been provided, and whether any new information has emerged. These records are the evidence base for any subsequent decision.
If performance improves to the required standard, close the PIP formally and confirm in writing. If it does not, you have a documented process that supports a decision to escalate — whether to a final written warning or, ultimately, dismissal.
Step Five: Dismissal — Only After a Fair Process
A dismissal for poor performance can be legally fair, but only where the employer can demonstrate three things: a genuine belief that the employee was underperforming, reasonable grounds for that belief following a reasonable investigation, and a fair procedure. All three elements must be present.
The employee must be invited to a formal hearing, given advance notice of the meeting and the potential outcome, and given the right to be accompanied. At the hearing, the employer must present the performance concerns and give the employee a genuine opportunity to respond. After the meeting, the decision must be communicated in writing with the right of appeal.
Skipping any of these steps — even when the underlying performance case is strong — creates the risk of an unfair dismissal finding on procedural grounds.
Common Mistakes That Lead to Tribunal Claims
- Acting too quickly without giving the employee a genuine opportunity to improve
- Failing to document the informal stage before moving to formal proceedings
- Not considering whether a health condition or disability may be a contributing factor
- Applying the process inconsistently — treating similar situations differently for different employees
- Failing to provide the promised support during a PIP
- Making the dismissal decision before the formal hearing has taken place
- Not offering a right of appeal after a dismissal decision
The Role of HR in Performance Management
Performance management sits at the intersection of employment law, people management, and business judgement. For most SMEs, having an experienced HR consultant involved from the early stages of a performance concern — not just at the point of dismissal — is the most effective way to reduce legal risk and achieve a fair outcome.
An outsourced HR consultant can review the situation objectively, advise on process, draft the necessary documentation, support managers through difficult conversations, and ensure that every stage is handled in a way that would withstand tribunal scrutiny.
Clear Path Solutions provides end-to-end performance management support for UK businesses, including PIP templates, manager coaching, and HR guidance at every stage. Contact us before a difficult situation escalates: sales@clearpathuk.co.uk | 07544 732980
