Changes to retirement rules put the spotlight on performance management

The abolition of the default retirement age (DRA) has created a series of new challenges for employers and employees across the upstream sector. In the past, this milestone in someone's career offered a useful get-out for employers, whose performance management systems were less than robust. However, as many employers now opt to operate without a retirement age, increasing reliance will need to be placed on capability as a potentially fair reason for dismissal.

A growing number of employers have found that significant improvements will be required in the management of performance and capability issues, to avoid unfair dismissal, age and disability discrimination claims. The issue has even caught the attention of the Coalition Government, with Nick Clegg reportedly suggesting employers may be given the right to have 'protected conversations' with staff about capability or retirement, the details of which could not be used as evidence in a future employment tribunal. Whether this proposal ever makes it onto the statute books remains to be seen.

Discrimination claims present a significant risk to employers. With the prospect of uncapped compensation awards, companies could be left exposed where capability is managed incorrectly or used as an excuse to mask other reasons for dismissal.

Whatever the reasons for the poor performance, employers must have a means of tackling it. Where processes are carefully thought through and drafted, they are more likely to identify deterioration in performance before it becomes a real issue. This will enable an employer to take the appropriate steps to bring about the required performance improvements.

Capability is potentially a fair reason for dismissal. However, to avoid possible unfair dismissal claims an employer must not only get the procedure correct but also be able to show that capability is the actual reason for the dismissal. There is long-standing case law addressing these issues, with cases from the seventies and eighties setting the standards that are still required of an employer.

When contemplating a capability dismissal, it is important to get to the bottom of the issue. In particular, does the individual know what is required of them and is simply ignoring any instructions?

If it is clear that it is a capability situation, there are two questions a tribunal will expect an employer to be able to answer. Firstly, did they honestly believe the employee was incompetent or unsuitable for the job? Secondly, were the grounds for that belief reasonable?

In answering these questions, employers will need to be able to point to objective evidence. This will first of all help ensure the fairness of any action taken, in the eyes of the employee, which could make it less likely the decision will be challenged and viewed as discriminatory. Equally important, this evidence will also be required to back up the assertions as to lack of capability.

When considering whether the grounds for belief in an individual's incompetence are reasonable, an employer will need to satisfy the tribunal that the requirements of the job were reasonable. The tribunal will take into account all the surrounding circumstances.

If introducing a performance management regime for the first time, an employer should aim to pilot it first with a view to implementing this at the start of a financial or staff-reporting year. This will allow sufficient time for training and communication in advance. It is important to develop a system that creates a feeling among employees that appraisals are done for them (and even by them through 360 degree appraisals), not something done to them.

A performance management process must not conflict with other decisions or actions. An employer may have difficulty defending an unfair dismissal claim on the grounds of capability if they have recently awarded an employee a pay rise based on performance, or by claiming capability as a reason for dismissal, while providing a glowing reference for the employee to another employer.

Without the Default Retirement Age, employers must ensure they can rely on objective measures to assess their employees' capabilities to do their job, whatever their ages. The absence of a coherent approach to this challenge could see employers face lengthy tribunals and the prospect of unlimited compensation awards.