When is it fair to dismiss an employee?  Conduct vs Capability

There are five potentially fair reasons for dismissing an employee, and two of the most common are conduct and capability. The line between them is not always clear, but treating an issue under the wrong heading can make a dismissal unfair. This guide for employers explains the difference and how to handle each one.

The five potentially fair reasons for dismissal

Under the Employment Rights Act 1996, a dismissal is potentially fair if it is for one of these reasons:

1. capability or qualifications
2. conduct
3. redundancy
4. a statutory restriction, where continuing to employ the person would break the law
5. some other substantial reason

Having a fair reason is only the first step. The employer must also act reasonably in treating that reason as sufficient to dismiss, and follow a fair procedure. Our article on fair reasons for dismissal looks at each reason in more detail.

Conduct or capability: identifying the real issue

Some cases are straightforward, but others involve a mix of conduct and capability, so it is important to classify the concern correctly and follow the right procedure.

When a concern is raised, you may need to investigate to find out whether it relates to the employee’s conduct or their capability. The Acas Code of Practice on disciplinary and grievance procedures stresses the importance of a fair investigation, and our guide to conducting workplace investigations sets out the key steps.

Talk to the employee about your concerns, as this can bring underlying problems to light. If the issue is linked to a disability, for example, you may have a duty to make reasonable adjustments.

Conduct issues

Conduct generally refers to an employee’s choices and actions that are within their control, such as carelessness, lateness or breaking workplace rules.

Where an employee’s behaviour is a concern, a formal disciplinary process may be needed, and you should follow your disciplinary policy and the Acas Code. The employee has the right to be accompanied at a disciplinary hearing by a colleague or trade union representative.

To dismiss fairly for misconduct, you should genuinely believe the employee is guilty, have reasonable grounds for that belief and have carried out as much investigation as was reasonable.

Capability issues

Capability issues usually arise when an employee is unable to do the job to the required standard for reasons outside their control. They may lack the skills or training, be unwell, or be affected by personal circumstances such as a bereavement.

Managing poor performance properly protects the productivity of the business. Explain clearly where the employee is falling short, agree realistic targets and give them the training and support they need to improve. Our performance management advice can help you put a fair process in place. Where the problem is ill health, obtain up-to-date medical evidence and consider adjustments before deciding next steps, and our absence management team can help.

The risk of getting it wrong

If a capability issue is wrongly treated as misconduct, and an employee is disciplined instead of being given training or support, this can lead to an unfair dismissal claim. For example, an employee whose output has dropped because of a medical condition may claim disability discrimination. Discrimination claims need no minimum length of service and compensation is uncapped.

Clear policies and a fair process

Employers should have clear written policies setting out separate procedures for conduct and capability. This helps employees understand what to expect, helps managers follow the right process and reduces the risk of unfair dismissal claims.

In most cases, an employee should receive warnings and a fair chance to improve before dismissal is considered. Dismissal without previous warnings is normally only appropriate for gross misconduct. When you dismiss, explain the reason clearly in writing and offer a right of appeal.

If you unreasonably fail to follow the Acas Code, a tribunal can increase any compensation by up to 25%. Our article on common disciplinary mistakes highlights the pitfalls to avoid.

Employees currently need two years’ service to claim unfair dismissal, but from 1 January 2027 the Employment Rights Act 2025 reduces this to six months and removes the cap on unfair dismissal compensation, so a fair process matters more than ever.

If you would like to discuss a conduct or capability issue, book a free 30-minute consultation or call our employment solicitors on 0141 471 9166.