Employers must consider why they're conducting a performance management process – it should be to identify and resolve any performance concerns
Interaction between unfair dismissal and performance management
In determining whether an employee has been unfairly dismissed under the Fair Work Act 2009 (Cth), Fair Work Australia (FWA) is directed to consider a number of factors, including if the dismissal related to the unsatisfactory performance of the employee and whether the employee had been warned about that unsatisfactory performance before the dismissal.1 Performance management processes have therefore become more common in employment contracts within the private sector.
The recent FWA decision of Frank Moretti v HJ Heinz Company Australia Ltd2 outlines the tribunal's approach to the interaction between unfair dismissal and performance management. Previous decisions of FWA have found that where there are performance management processes in place, it is important that the employee is afforded procedural fairness in the administration of that process.3 In Moretti, however, FWA considered the intention and purpose for which the process was being implemented.
Facts and submissions to FWA
Mr Moretti was employed by HJ Heinz Company Australia Ltd from 1983 until he was dismissed from his employment in August 2011. Mr Moretti had held the position of Western Australian field sales manager since 1990 and reported to the national field sales manager.
In May 2011, Mr Moretti underwent a performance review. Later that month, Mr Moretti reported allegations about improper conduct of one of his subordinates to his line manager. Mr Moretti was informed that the matter would be dealt with by head office.
In June 2011, Mr Moretti met with Mr Patterson, the general manager retail sales. There are different versions of what was said at that meeting. Heinz submitted that Mr Moretti was given feedback about performance concerns and was told that advice would be sought from human resources about managing those performance concerns.
However, Mr Moretti asserted that he was told that Heinz no longer had a job for him and that he should resign. Mr Moretti was ultimately dismissed after a number of meetings and communications between the parties in July and August 2011.
Dismissed employee's submissions
Mr Moretti asserted that he was informed by Mr Paterson that he would be "performance managed" out of the company, and argued that discussions between the date of the meeting on 9 June 2011 and the date of his dismissal were designed to result in his dismissal. Mr Moretti also submitted that he repeatedly requested identification of areas where his performance was lacking and he believed that there were no issues with his performance.
On the other hand, Heinz argued that the dismissal of Mr Moretti related solely to his refusal to comply with a request to participate in the performance management plan and discuss performance expectations. It was submitted that there were concerns about Mr Moretti's performance and that the performance management plan sought to clarify expectations and to provide feedback. Further, the purpose of the plan was to ensure that Mr Moretti understood Heinz's expectations of him, and identify areas where he was not meeting expectations and ensure that appropriate training and support was provided.
Harsh, unjust and unreasonable dismissal
Deputy President McCarthy held that there was no valid reason for the dismissal and did not accept Heinz's argument that the sole reason for the dismissal was Mr Moretti's refusal to participate in the performance management plan, rather than for performance.
It was held that Mr Moretti had good reason to be "suspicious about the need for the plan and what its real purpose was" and McCarthy DP accepted that Mr Patterson had told him that he was going to be "performance managed" out of the company. Mr Moretti had not previously been subject to a performance management plan and no other managers were being subjected to performance management plans.
Further, it was found that Heinz's views that Mr Moretti's performance should be improved were formed "on questionable grounds" for an employer of its size and that there were options available to Heinz other than dismissal.
The dismissal of Mr Moretti was ruled to be harsh, unjust or unreasonable.
Reinstatement and lost remuneration ordered
Heinz was ordered to appoint Mr Moretti to another position on terms and conditions no less favourable and also pay the remuneration that had been lost between dismissal and reappointment.
Implications for employers and conclusion
This case illustrates the necessity for employers to consider the purpose for which they are conducting a performance management process. The purpose of the process should never be to facilitate the termination of an employee, or to "performance manage" an employee out of a position. Rather, the performance management process should seek to identify and resolve any performance concerns. It is also prudent for an employer to communicate the purpose of the process to the employee.
Employers must ensure that they properly form their views about an employee's performance, or lack thereof, and adequately communicate these views to the employee. The employer and employee should then attempt to work through any concerns prior to terminating the employment relationship and consider whether any alternative actions can be adopted in order to avoid a result similar to the one encountered in Moretti.
It is not unheard of for employees to be informed that they will become subject to a performance management process, or be "performance managed" out of an organisation, if they do not resign. Moretti provides a warning to employers about adopting such an approach without seriously considering the ramifications.
First published in Employment Law Bulletin June 2012
1Fair Work Act 2009 (Cth), s 387(e).
2Frank Moretti v HJ Heinz Company Australia Ltd  FWA 1016.
3For example, David Quattrocchi v Monsanto Australia Ltd  FWA 882.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.