Performance vs Conduct - Why ERA 2025 makes this distinction critical for SMEs
Performance vs Conduct: Why ERA 2025 Makes This Distinction Critical for SMEs
The Employment Rights Act 2025 (ERA 2025) is reshaping the HR landscape for UK employers — and one of the biggest shifts is the need for absolute clarity between performance issues and conduct issues.
From January 2027, employees will gain the right to claim unfair dismissal after just 6 months’ service.
For SMEs, this dramatically reduces the margin for error. The days of “we’ll just manage it informally” are over.
If you want to dismiss fairly — and protect your business — you must be able to show that you chose the correct route from the very beginning.
And that starts with understanding the difference between performance and conduct.
What’s the Difference Between Performance and Conduct?
The simplest way to think about it is:
Performance = can’t
Conduct = won’t
This distinction matters because each route requires a different process, different evidence, and different expectations of the employee.
Performance (Capability) Issues
These arise when an employee is unable to meet the required standard despite trying.
It’s about skill, ability, competence, or health.
Examples include:
Struggling to learn a new system
Difficulty meeting targets despite genuine effort
Challenges with complex tasks
Slow learning curve
Lack of experience or confidence
Health‑related capability issues
Performance issues require:
Support
Training
Reasonable adjustments
Time to improve
A structured performance improvement plan (PIP)
Conduct (Behaviour) Issues
Conduct issues arise when an employee chooses not to meet expectations.
It’s about behaviour, attitude, or rule‑breaking.
Examples include:
Ignoring hygiene rules
Refusing to follow stock procedures
Repeated lateness
Disrespectful behaviour
Misuse of company systems
Breaches of policy
Conduct issues require:
Investigation
Clear evidence
A disciplinary process
Warnings (unless gross misconduct)
Why ERA 2025 Makes This Distinction More Important Than Ever
Under current rules, many SMEs rely on the two‑year qualifying period for unfair dismissal as a buffer.
That buffer disappears in January 2027.
Employees will be able to claim unfair dismissal after 6 months, which means:
You must follow the correct process
You must evidence fairness
You must show you categorised the issue correctly
You must demonstrate consistency
If you mix up performance and conduct — even unintentionally — you increase your risk of:
Unfair dismissal claims
Discrimination claims
Constructive dismissal claims
Costly settlements
Tribunal reputational damage
The distinction is no longer “nice to have”.
It is legally and financially essential.
Sector Examples: What Performance vs Conduct Looks Like in Real Life
To make this practical, here’s how the distinction plays out across the sectors you support.
Hospitality
Performance:
A team member is struggling to use a new POS system despite training and effort.
This is a capability issue — they can’t yet meet the standard.
Conduct:
A staff member repeatedly ignores hygiene rules or refuses to follow food safety procedures.
This is a behaviour issue — they won’t comply.
Retail
Performance:
An employee consistently misses sales targets but is trying, asking for help, and showing willingness.
This is a performance issue.
Conduct:
An employee refuses to follow stockroom processes or repeatedly ignores instructions.
This is conduct.
Professional Services
Performance:
A junior consultant struggles with complex client work or technical tasks.
This is capability.
Conduct:
A team member behaves disrespectfully, undermines colleagues, or breaches professional standards.
This is conduct.
Why SMEs Often Get This Wrong
Many SMEs blur the lines because:
The behaviour feels frustrating, so it feels like conduct
The employee is “difficult”, so managers assume it’s misconduct
There’s pressure to act quickly
Documentation is limited
The issue has been left too long
Managers weren’t trained to distinguish the two
But tribunals look at intent, effort, and process.
If the employee tried, it’s performance.
If the employee chose not to, it’s conduct.
Getting this wrong is one of the most common reasons SMEs lose unfair dismissal cases.
How to Decide Whether It’s Performance or Conduct
Ask yourself these questions:
1. Is the employee trying?
If yes → performance.
If no → conduct.
2. Is the issue about skill or behaviour?
Skill → performance.
Behaviour → conduct.
3. Would training fix it?
If yes → performance.
If no → conduct.
4. Is the employee breaking rules or expectations they already understand?
If yes → conduct.
5. Is the issue linked to health, confidence, or capability?
If yes → performance.
6. Is the employee refusing, ignoring, or pushing back?
If yes → conduct.
This clarity protects you — and it protects your people.
What Happens If You Choose the Wrong Route?
Choosing the wrong route can lead to:
A flawed process
A procedurally unfair dismissal
A higher risk of tribunal claims
Increased compensation payouts
Damage to your employer brand
Loss of trust within your team
Tribunals look closely at:
Whether the employer categorised the issue correctly
Whether the employee was given the right support
Whether the process was fair and consistent
Whether the employer acted reasonably
ERA 2025 raises the bar — and SMEs must rise with it.
How SMEs Can Protect Themselves Under ERA 2025
Here’s what I recommend:
1. Train managers on the difference between performance and conduct
This is the number one risk‑reducer.
2. Document everything
Notes, emails, training records, conversations — it all matters.
3. Use a structured performance process
Especially when the employee is trying.
4. Follow a fair disciplinary process
Especially when the employee is refusing.
5. Don’t skip steps because the employee is “new”
The 6‑month rule removes that safety net.
6. Get advice early
Most issues become expensive because they were left too long.
Not Sure Whether You’re Dealing With Performance or Conduct?
You’re not alone — this is one of the most common questions I get from SMEs.
If you’re unsure which route your situation falls into, bring it to my HR Clinic, held on the last Thursday of every month.
We can talk through:
What’s really happening
Whether it’s performance or conduct
What process you should follow
What documentation you need
How to reduce your risk under ERA 2025
Sometimes a 15‑minute conversation is all it takes to prevent a costly mistake.
Final Thought
ERA 2025 is a wake‑up call for SMEs.
The distinction between performance and conduct isn’t just HR terminology — it’s a legal safeguard.
When you get it right:
Your decisions are fair
Your processes are defensible
Your people feel supported
Your business is protected
And when you’re unsure, you don’t have to guess.
That’s exactly what the HR Clinic is for.
