Managing Capability Issues for Short‑Service Employees on Sickness Absence

Managing performance concerns is rarely straightforward. The process becomes more complex when the employee is also absent due to sickness and has less than two years’ continuous service. Although short service reduces the risk of an ordinary unfair dismissal claim, employers must still proceed with care to avoid discrimination claims, breach of contract allegations, and procedural pitfalls.

This article sets out practical guidance for employers navigating capability issues in these circumstances.

Short‑Service Employees and the Legal Framework

Under the Employment Rights Act 1996 an employee generally needs two years of continuous service in order to bring a claim for ordinary unfair dismissal. As a result, employers often assume they have greater flexibility when managing short‑service employees, including in situations involving performance concerns.

However, several risks remain. One of the most significant is the possibility that the employee’s health condition qualifies as a disability under the Equality Act 2010. If the sickness absence or incapacity stems from a condition that has a substantial and long‑term effect on the employee’s ability to carry out normal day‑to‑day activities, then the condition may be a disability. In such circumstances, employers must consider reasonable adjustments and must ensure that the decision‑making process is not influenced by disability‑related factors unless they can be justified. These obligations apply regardless of the employee’s length of service.

Employers must also comply with the contractual terms that apply to the employee, including notice provisions and any contractual procedures. A dismissal that breaches these requirements may expose the organisation to a breach of contract claim.

Handling Performance Concerns in a Fair and Transparent Way

Even though short service employees do not have ordinary unfair dismissal protection, employers should still approach capability concerns in a structured and transparent manner. Performance issues must be properly identified and evidenced. Rather than relying on general statements that an employee is “not meeting expectations,” employers should set out the specific examples and incidents that demonstrate the concern. This allows the employee to understand the issues clearly and contributes to a process that is both fair and defensible.

Where appropriate, the employer should invite the employee to a formal capability review meeting. The letter should explain the purpose of the meeting and outline the performance issues that will be discussed. If sickness absence is relevant, the letter should also summarise the employee’s attendance record, so they are not taken by surprise during the conversation and prepare accordingly. The employee should be given the opportunity to be accompanied by a colleague or trade union representative.

Considering the Effect of Sickness Absence

When capability and sickness concerns overlap, employers must take care not to treat the two issues as though they are unrelated. During the meeting, the employer should explore the reasons for the employee’s absence and ask whether there is any underlying medical condition. The employer should also ask whether medical evidence is available and whether the employee believes their health may be affecting their performance or attendance.

If there is any indication that the condition may be long‑term or may amount to a disability, the employer should consider referring the employee to occupational health. Occupational health professionals can advise on the likely prognosis, whether the condition may be a disability, and what adjustments might assist the employee in carrying out their role.

Reasonable adjustments might include modifying the employee’s duties, adjusting supervision arrangements, providing additional support, or temporarily reducing workload. The employer must consider whether the proposed adjustments would enable the employee to achieve the required standard and whether they are reasonable in the context of the organisation’s business needs. In some situations, it may also be appropriate to explore whether alternative roles are available. Although redeployment is not a legal requirement for short‑service employees, considering it may reduce risk and demonstrate that the employer has acted reasonably.

Using Settlement Discussions Strategically

In cases where performance concerns have been clearly documented and there is limited confidence that the situation will improve, employers may wish to consider initiating a confidential settlement discussion. Under section 111A of the Employment Rights Act 1996, employers can hold protected conversations with employees about the potential termination of their employment on agreed terms, provided the discussions are not improper.

A settlement offer may include an ex gratia payment, payment in lieu of notice, holiday pay, an agreed reference, and a contribution towards the employee’s legal fees. Any proposal should be marked “Without Prejudice and Subject to Contract,” and the employee must receive independent legal advice before the agreement becomes binding. In many cases, settlement provides a commercially pragmatic and lower‑risk option, especially where the working relationship has broken down.

Next Steps if No Agreement Is Reached

If a settlement agreement is not reached, the employer will need to decide how best to proceed. This may involve continuing with the capability review process, considering dismissal on capability grounds, or terminating the employment with the appropriate contractual notice. Although a full, lengthy capability process may not be legally required for employees with less than two years’ service, following a fair and structured approach will help reduce risk and support the employer’s decision‑making.

Before reaching any decision to dismiss, the employer should ensure that it has properly assessed any disability risks, considered reasonable adjustments, taken occupational health advice where appropriate, and correctly calculated all contractual entitlements, including notice and accrued holiday pay.

Conclusion

Although short‑service employees do not usually have ordinary unfair dismissal rights, employers must not assume that dismissal in these circumstances carries no risk. When performance concerns coincide with sickness absence, careful and well‑documented handling is essential to reduce the likelihood of discrimination claims or procedural challenges. A structured capability meeting, thorough documentation of concerns, proper consideration of health issues and reasonable adjustments, and, where appropriate, the use of protected settlement discussions can together provide a measured and defensible approach.

Seeking legal advice at an early stage can further help employers manage these cases effectively and with minimal risk.

If you require tailored advice or support managing capability issues for employees on sickness absence, please complete contact us form and a member of our Employment Team will get in touch.

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