Australia: Managing employee underperformance

Managing underperformance is not as simple as on TV. It requires preparation and understanding and the legal consequences of skipping those steps can be severe. Yelling "You're fired!" makes for a good dramatic scene. But in the real world, if those words are uttered, an employer can quickly find themselves stuck in a court-room saga, cast as the bad guy.

Take the case of fashion designer Danae Moumtzis. She got the surprise of her working life in August 2012, receiving a letter from her employer stating she was unfit to keep her job and telling her she was fired.

But her employer, Dolina Fashion Group, had failed to follow proper process, an omission that ended up being very costly when the courts finally ruled. "The evidence does not establish that Ms Moumtzis had been warned about the unsatisfactory performance," noted the decision by Fair Work Commission Vice President Watson, made in 2013. "I find that the dismissal was harsh, unjust and unreasonable."

Dolina was required to pay Ms Moumtzis 22 weeks' salary in compensation - equal to around $50,000. The employer's allegations that Ms Moumtzis' was not contributing to the firm's profit margins and that her designs were not selling were aired in court, but did not contribute to the finding. The Judge reminded the employer that performance inadequacies need to be discussed, and employees need to be helped to meet the standards, before action can be taken.

Such a process is complex and easy for a manager to delay. But underperformance doesn't just waste wages. It can poison relationships with customers and wreck morale of other staff who see a colleague not pulling their weight.

While carrying an underperformer is an obvious cost, the burden and risk of firing and re-hiring should not be underestimated. "There is often a very good reason why somebody is not performing," says Australian Human Resources Institute Chairman Peter Wilson. "They might be going through a marriage breakdown, they might have a child who is ill or struggling at school. Or something is going on. You can discover when you ask and it becomes easier to deal with." Wilson says "about half" of attempts to improve underperformance are successful.

Underperformance differs from serious misconduct, because it is not always clear and manifest. Underperformance can include failure to perform duties to a certain standard, non-compliance with rules and procedures, and unacceptable or disruptive behaviour.

The subtleties create room for different perceptions and the risk of entering a legal minefield. The legal pitfalls range from laws about adverse action, bullying, discrimination and unfair dismissal claims to which employees who earn less than $129,300 (as of 1 July 2013) are subject and penalties can be up to hundreds of thousands of dollars.

Sparke Helmore workplace practice partner Matthew Smith advises that the best approach is one that pays respect not only to the employee in question, but to all relevant procedures. "Any process that is set out in an EBA or workplace agreement, it is imperative that employers follow that process," Smith says. Bullying procedures and internal human resources policies must be scrupulously adhered to, he says. "The key thing that is going to be looked at is procedurally - 'did you follow your own requirements?' Failure to follow your own procedures is usually fatal in a legal proceeding."

But under unfair dismissal law, following procedures may not be enough. For example, if you fire someone for failing at an administrative task, Smith explains. "That's probably going to be considered a bit harsh. In other words, the punishment does not fit the crime. "You can fire someone for serious misconduct. But even then doing so on the spot opens you up to risk.

"Every bit of wrongdoing you think someone might have done it is very important you put it to them, and give them an opportunity to respond... it is not a mere formality that you put it to them. It is a matter of substance," Smith says. He urges employers not to see managing underperformance as a risk but also an opportunity. "You can often turn someone who is not performing into someone who is performing."

The Fair Work Ombudsman has a best practice guide that specifies the employer should identify the problem, figure out how serious it is and how long it has endured. Only then should they meet with the employee. This meeting - a source of risk for accusations of bullying - should take place in a private and non-threatening location. The employee must be given the opportunity to not only understand the employer's point of view, but to have their perspective heard. The Fair Work Ombudsman specifies in the best practice guide that the employer should "talk about the issue and not the person".

A solution should be developed jointly with the employee, where this is possible, and then monitored. Continual failure to meet the key requirements of the role is grounds for dismissal.

But if the employee achieves successful behaviour change, that can lift morale. Not only of the newly successful employee but the manager that facilitated the turnaround and the wider team. A happy ending indeed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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