The statutory dispute resolution procedures have now been in place for nearly 18 months.  Whilst the main aim of the procedures (which were introduced by the Employment Act 2002) was to reduce the number of claims that went to the employment tribunal, many believe that the opposite is true and that the procedures have caused an increase in disputes and litigation.  We are now starting to see the first decisions on the application on the statutory dispute resolution procedures from the Employment Appeal Tribunal, however one area of uncertainty which remains relates to the application of the statutory dispute resolution procedures in a performance management context.

Performance management – normal principles

It remains the case that when dealing with performance management issues, employers should follow the general principles of fairness which were established in the case of James v  Waltham Holy Cross (1973), which provide that if a performance issue arises:

1.       The employer should attempt to deal with the matter informally – telling the employee to “pull his socks up”;

2.       If the performance issue persists, the situation should be appraised and the employee be formally told of the performance concerns, the improvement required of him and he should be warned of the consequences of a failure to meet the required standard.  An employer is also obliged to consider whether or not there is any additional support or training that he can give to the employee to assist him in reaching the required standard;

3.       The employer should then allow the employee a reasonable opportunity to improve his performance, during which time he will be monitored against specific objectives; and

4.       If performance still fails to improve, the employer will then be in a position to be able to lawfully dismiss on the grounds of capability or poor performance.

But do the statutory dispute resolution procedures apply?

Regulation 3(1) of the Employment Act 2002 (Dispute Resolution) Regulations 2004 provide that:

“The standard dismissal and disciplinary procedure applies when an employer contemplates dismissing or taking relevant disciplinary action against an employee”. [Our emphasis]

Clearly, dismissal on the grounds of capability would fall under the ambit of the standard dismissal and disciplinary procedure, however what about action short of dismissal, such as imposing a monitoring period?

Relevant disciplinary action is itself defined under regulation 2(1) of the 2004 Regulations, as:

“Action, short of dismissal, which the employer asserts to be based wholly or mainly on the employee’s conduct or capability, other than suspension on full pay or the issuing of warnings (whether oral or written)”.

Some believe that this definition is quite clear, namely that action short of dismissal (such as imposing a monitoring period) because of poor performance will fall under the ambit of the statutory disciplinary procedure.  Others believe that this cannot be the intention of the legislation given that performance management is an internal issue and why should it be treated differently to conduct situations which result in an oral or written warning?



Will the statutory disciplinary procedure apply to each of the steps of a performance management process?

It is clear from the guidance to the legislation that the statutory procedures are not intended to apply to informal action.  Employers are encouraged to resolve disputes informally prior to invoking any procedure, and to this end a word in an employee’s ear to “pull his socks up” would not give rise to an obligation under the statutory procedures.

At the other end of the spectrum, a dismissal on the grounds of capability or poor performance would fit squarely within the aim of the statutory dispute resolution procedures, and accordingly the standard dismissal procedure should be followed when effecting such a dismissal.

The grey area arises when an employer seeks to formally raise concerns regarding performance with an employee and imposes a monitoring period.  If the employer was simply to raise the performance concerns in isolation, then arguably this would fall outside the ambit of “relevant disciplinary action” on the ground that it amounts to a warning (which is specifically excluded).  However, it is rare for a warning regarding poor performance to be given in isolation – it would usually be linked with a period of monitoring during which time the employee is required to improve such poor performance.  The imposing of a monitoring period would amount to action short of dismissal, and given that the monitoring period is being imposed on the grounds of capability, it would amount to “relevant disciplinary action”.  Accordingly the statutory disciplinary procedure should be followed prior to taking such action.

The ACAS Code of Practise relating to the statutory dispute resolution procedures does envisage the statutory disciplinary procedure applying in performance management situations.  As such, employers should follow the 3 step process prior to commencing any such monitoring period.

What is the practical effect if you fail to follow the standard disciplinary procedure in a performance management context?

The answer to this depends upon the performance management process in question.

If the performance management procedure being followed is a one-off situation which is unlikely to lead to the employee’s dismissal, the risk in failing to follow the standard disciplinary procedure is small.  This is on the basis that an employee cannot bring a freestanding claim for breach of the statutory procedures.  The automatic uplift of between 10 and 50 per cent. of compensation attaches to other claims which the employee may be able to bring in the employment tribunal.  Accordingly, if there is no issue of unfair dismissal or discrimination etc., there will be no claim upon which the uplift could apply.

Alternatively, what if the employee sees the performance management process as “the writing on the wall”, and what if it indeed is?  In such circumstances if the employee is likely to be dismissed on the grounds of poor performance or capability, an employer should follow the standard disciplinary procedure when imposing such a monitoring period so as to prevent the employee from using such failure as leverage in the future.  Failure to follow the statutory procedures in this context may give rise to a claim for automatic unfair dismissal and an uplift to any compensation awarded to the employee if such dismissal is subsequently found to be unfair.

In the event that the employee sees the performance management process as an unfair attempt to push him out of the organisation, and he “jumps before he is pushed”, the question arises whether failure to follow the standard disciplinary procedure would amount to a repudiatory breach of the employee’s contract entitling him to claim constructive dismissal?  Whilst the legislation does include a provision implying the statutory dispute resolution procedures into all contracts of employment (in the same way as the equality clause under the equal pay legislation), the specific provision (section 30 of the Employment Act 2002) has not yet come into force.  Accordingly, whilst the employer is obliged to follow the statutory procedures (failing which any compensation which is awarded to an employee will be subject to an automatic uplift), such failure does not amount to a breach of contract entitling the employee to claim constructive dismissal.

In summary, if an employer does conduct a genuine performance management process and it is not envisaged that this will lead to an employee’s dismissal or allegations of discrimination being raised, the risk of failing to follow the statutory procedures in a performance management context may be low.  However, as the future (particularly relating to performance issues) is uncertain, and especially in cases where dismissal is a definite option, employers are best advised to follow the 3-step standard disciplinary procedure in order to minimise exposure to potential claim

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