Managing underperforming employees: a guide for employers

Managing underperformance is one of the most common challenges employers face, and one of the areas most likely to lead to disputes if handled incorrectly. Taking a structured and consistent approach helps protect your business while giving employees a fair opportunity to improve.

Performance issues can affect productivity, team morale, and overall business performance. Addressing concerns early and following a clear process reduces the risk of escalation into formal disputes or claims.

Taking advice at an early stage can help ensure your approach is consistent, properly documented, and aligned with employment law requirements. For a broader overview of managing dismissal risk, see our related guide on avoiding unfair dismissal claims.

What counts as poor performance

Distinguishing between performance and conduct issues is critical. Performance relates to an employee’s inability to meet standards (“can’t do”), whereas conduct involves attitudes or behaviours such as lateness, dishonesty, or refusal to follow management instructions (“won’t do”).

Examples of poor performance may include:

• Consistently failing to meet agreed targets or standards.
• Inability to carry out key duties to the required level.
• Ongoing errors or lack of competence despite support.

Identifying the issue correctly at the outset ensures the appropriate process is followed.

Addressing performance issues early

Many performance concerns can be resolved without formal action if they are addressed promptly. Early intervention often prevents issues from escalating and reduces the need for formal procedures.

Steps may include:

• Informal discussions to raise concerns.
• Clarifying expectations and performance standards.
• Providing additional support or training.

A clear record of these conversations is usually helpful.

Managing performance formally: performance improvement plans

Where performance does not improve after informal discussions, a formal process is usually required. A performance improvement plan (PIP) is a structured approach to setting expectations and monitoring progress.

A PIP should include:

• Clear and measurable objectives.
• A defined timeframe for improvement.
• Support, training, or supervision where needed.
• Regular review meetings to assess progress.

This stage is important in demonstrating that the employee has been given a fair opportunity to improve.

When dismissal becomes a fair option

Dismissal for poor performance may be fair where a reasonable process has been followed, and the employee has failed to improve.

Employers should ensure:

• The employee has been made aware of concerns.
• A reasonable opportunity and timeframe to improve has been given.
• Decisions are supported by evidence and documentation.
• Usually a first and then final warning together with a right of appeal before moving to dismissal

Failing to follow a fair process can lead to claims, including unfair dismissal.

When to consider a settlement agreement

In some situations, a negotiated exit may be more appropriate than continuing a formal performance process. This may be the case where the working relationship has started to break down or where improvement is considered unlikely.

Settlement agreements can provide a clean, controlled exit, but they must be handled carefully and in compliance with legal requirements.

Common mistakes when managing underperformance

Errors in handling performance issues are a frequent cause of claims.

Common mistakes employers make include:

• Acting too quickly without giving the employee an opportunity to improve.
• Failing to follow a structured and documented process.
• Treating similar situations inconsistently.
• Relying on subjective assessments without evidence.

A consistent, well-documented approach is essential for reducing risk.

Performance management vs redundancy: avoiding the wrong approach

Performance issues should not be dealt with through redundancy. Redundancy applies where a role is no longer required, not where an employee is underperforming.

Trying to disguise it as a redundancy situation in these circumstances can expose employers to  legal risk and undermine the fairness of the process. For guidance, see our related article on avoiding risk in redundancy situations.

FAQs on managing underperformance

Common questions employers ask when dealing with poor performance issues are set out below.

1. How long should a performance improvement plan last?
   
   There is no fixed timeframe, but it should be reasonable in the circumstances to allow the employee to show improvement.
    
2. Can you dismiss an employee for poor performance?
   
   Yes, dismissal can be fair if a proper process has been followed and the employee has failed to improve after being given a reasonable opportunity.
    
3. Do you need to give warnings before dismissal?
   
   In most cases, yes. Employees should be made aware of concerns and given formal warnings as part of a fair capability process.
    
4. What evidence is needed to support dismissal?
   
   Employers should keep clear records of performance issues, meetings, objectives set, and any support provided. Documentation is usually key in defending any claim.

Guidance from our employment solicitors

Managing underperformance requires a balanced and legally sound approach, particularly where dismissal may be a potential outcome.

Matthew Irvine, employment law specialist, comments:

“Performance management is often where employers face the greatest risk of claims. A clear, consistent, and well-documented process not only supports better outcomes but also puts employers in a strong position if decisions are challenged.”

Taking legal advice early can help ensure processes are handled fairly, consistently, and with the appropriate supporting documentation.  It can also help with an agreed exit under a settlement agreement.

Get in touch to speak with our employment solicitors.