MDC Legal’s Mark Cox, Director, and Nikita Barsby, Senior Associate, discuss how recent authorities have shown that the procedural side of managing under-performing employees is a risky area for employers.
1. Performance management is important to the success of any enterprise. But it is an aspect of workplace relations that can be fraught with risk, especially if mishandled, and often forms the basis of claims by employees against their employers. Trends in recent authorities suggest that the procedural aspects of managing underperforming employees are a common pitfall for employers.
2. Competently addressing underperformance is crucial. Underperforming employees can expose employers to reputational damage; the risk of dissatisfied customers; the risk of breaching commercial agreements and other liabilities (e.g. occupational health and safety risks). They also affect workplace morale and productivity, and can cause stress or other unsafe work environments for other employees.
3. Common myths about performance management include that:
(a) an employee must agree to all performance targets for them to apply;
(b) performance concerns can only be raised formally and must be formally documented;
(c) there is a set period of time that employers must give an employee to improve performance; and
(d) there is a minimum number of warnings (“3 strikes”) that must be given prior to terminating an employee’s employment.
4. In fact, none of these are legal requirements, but some of them may provide useful guides to be adapted to the circumstances of each case.
5. An employee does not need to agree to performance targets for them to apply. Effectively drafted employment contracts will enable employers to vary performance targets according to business need, and without requiring agreement from employees. However, having them agree to performance targets gives them ownership of them and makes it harder for them to argue that they are unreasonable or unfair.
6. Performance concerns can be raised informally or formally, but in either case should be documented. Initially an informal approach may be suitable, progressing to a more formal approach where underperformance continues.
7. There is no set time frame that must be given to an employee to improve performance; however, the timeframe must be reasonable. What is reasonable will depend on the circumstances of the particular case, including the size and needs of the enterprise.
8. There is also no minimum number of warnings that must be given when managing underperformance. However, a warning should:
(a) identify the relevant aspects of the employee’s performance that are of concern; and
(b) make it clear that the employee’s employment is at risk unless the performance issue identified improves.
9. Part of ensuring procedural fairness during performance management may include the development and implementation of a clear, written performance improvement plan. A performance improvement plan should always be developed after consulting all sources of obligations owed to the underperforming employee.
10. Communication with the underperforming employee is important. There may be many possible reasons that underpin underperformance including illness, injury or other personal circumstances. Approaching performance management discussions with empathy and with an open mind will reduce the risk of communication breakdown and assist in facilitating a cooperative discussion.
11. The employee must be given a reasonable opportunity to understand what the performance issues are and respond to them. Clear, detailed and recent examples of underperformance should be provided, with broad or vague statements avoided. Where possible, objective examples should be referred to (e.g. number of sales made by reference to KPIs; specific errors or omissions in tasks, etc.). The employee should be asked if there is any explanation or reason for the poor performance.
12. If required, the employee should also be provided with time to consider the allegations of underperformance and respond.
13. The expected manner or level of performance should be set out clearly, with measurable and reasonable performance objectives set that are to be reviewed within a reasonable timeframe. Future meetings should be set for ongoing performance to be reviewed.
14. Any performance management process should be documented. Records of meeting requests and notes from those meetings should be kept on the employee’s file, and any informal discussions should be followed up in writing (even if by way of a more casual email) and or file noted. Performance management and assessment documents can provide objective evidence on which to base a decision to terminate an employee and can be relied on in defending any claim that later arises.
15. Lessons learned from recent cases suggest that a best practice approach to performance management and safe termination should include:
|1.||Understanding obligations to employees under legislation, industrial instruments and the employment contract (including any relevant policies and procedures).|
|2.||Identifying (realistically) the work standards expected of employees, clearly articulating and communicating them (i.e. job descriptions, KPIs) and applying the standards consistently.|
|3.||Effective use of probationary periods, with an option to extend.|
|4.||Providing the employee with a reasonable opportunity to respond to allegations of poor performance and asking the employee whether there is a reason or explanation for the poor performance.|
|5.||Implementing performance assessment processes that ensure the collection of objective evidence to support any claim of underperformance that will withstand the valid reason test (sound, defensible and well founded) and is well documented.|
|6.||Effectively communicating unsatisfactory performance in a timely manner.|
|7.||Taking active steps to address underperformance – training, counselling, mentoring, performance improvement plans etc.|
|8.||Engaging in a warning process and unequivocally stating, where relevant, if the employee’s ongoing employment is at risk.|
|9.||Considering other relevant factors – illness or injury, other personal circumstances etc.|
|10.||Providing the employee with an opportunity to ‘show cause’ before making any final decision to terminate.|
|11.||If necessary, taking disciplinary action or terminating employment with a sensitive and sensible strategy – including by ensuring that adverse action is not being taken for a protected reason or by reason of a protected attribute.|
16. Approaching performance management in a careful and considered manner will increase the likelihood of a competent and lawful process being adopted, which will at best enhance an employee’s performance and, at worst, leave the employer well placed to defend legal claims.
Mark Cox (BA LLB Hons, University of Melbourne) leads the specialist employment law team at MDC Legal. He has over 17 years practice in industrial, workplace and employment law. In previous lives he was Associate to Chief Justice David Malcolm, worked in a commercial litigation firm, then as a senior associate of a national firm, and as Principal Solicitor of the Employment Law Centre. Mark is a well-regarded practitioner in workplace relations law, named as a “leading lawyer” in Doyle’s Guide 2014, 2015, 2016 and 2017. In addition to providing strategic and front end advice and implementing contracts policies and procedures, Mark has conducted litigation and acted as counsel in several jurisdictions on “both sides of the fence” in a wide variety of matters, including injunctions and restraint of trade matters, protected industrial action, contractual claims, general protections and unfair dismissal claims, and bullying and discrimination claims. Contact Mark at [email protected]
Nikita Barsby (BA LLB, Murdoch University) is a Senior Associate at MDC Legal, with almost a decade’s experience in workplace and employment law. She is recognised as a recommended employment lawyer in Doyle’s Guide to the Legal Profession, 2018. Nikita has worked with Corrs Chambers Westgarth and Lynn & Brown Lawyers, prior to joining MDC Legal. Nikita has advocacy and negotiation experience in the Federal Court of Australia, the Federal Circuit Court of Australia, the Magistrates, District and Supreme Courts of Western Australia, in the Fair Work Commission and in the Western Australian Industrial Relations Commission. She advises employees and employers on all aspects of State and Federal workplace laws, including unfair dismissals and general protections matters, contractual and statutory rights and obligations, the drafting and interpretation of employment contracts, redundancies, performance management and termination and discrimination. Nikita also works with Human Resources practitioners and business owners in the development of workplace relations strategies, policies and procedures. Contact Nikita at [email protected]
 See for example: Newchurch v Tangentyere Council Aboriginal Corporation  FEC 4231; Hinchen v Moonee Valley Racing Club Inc.  FWC 2176; Michael Burke v Suncorp Group Ltd  FWC 3357