Australia: Appropriate performance management crucial for businesses dealing with underperforming employees

Last Updated: 21 October 2015
Article by Rebecca Byun

Performance management makes perfect business sense where you have an employee who would clearly benefit from some guidance and management.  However, is it really that important where the employee's under-performance has been ongoing and is unlikely to improve?  

This is a reasonable question that businesses may ask, particularly in today's financial climate.  Performance management takes time and resources, and it may or may not result in the required level of improvement.  It may be especially difficult to justify where the employee's under-performance is dragging down the performance of other staff and the office morale, or is affecting the business of your clients. 

However, to skip the process altogether and proceed to dismiss the under-performing employee is a risky move.  Here's why.

1. Skipping performance management leaves your business exposed to various employee claims

Recent data continues to show that the majority of claimants coming before the Fair Work Commission are individuals disputing the termination of their employment.  This comes as no surprise as employees today are more aware of and vigilant with their rights. And mostly, employee claims are easy and inexpensive to commence. 

The highest risk group will be employees who are eligible to make an unfair dismissal claim. The claim would most likely be that their dismissal was harsh, unjust and unreasonable as they weren't given an opportunity to respond or improve their performance and/or conduct. In this context, a decision not to undertake performance management can be fatal to defending this type of claim. 

However there are also other claims. An employee may make an adverse action claim - i.e. "My dismissal was unlawful because one of the reasons for dismissing me was because of some protected trait or workplace right".  An employee who feels their dismissal is unexplained is more likely to seek to associate their dismissal to some unlawful reason.  It is less likely for an employee who has been shown clearly through an objective performance management process that there was a legitimate reason and it was nothing personal. 

2. Any savings that may have been made may be outweighed by the costs of recruitment and defending claims

The business may make some initial savings from not having to invest any further time and resources into the employee. However, the time, costs and resources you will then need to commit towards recruiting and training someone new for the job may ultimately cancel out those savings. Add to this any costs and time for defending any claims and you may find that it has cost your business much more in the longer term. 

3. The cost of underestimating an under-performer and overestimating the burden of performance management

The remaining value of an under-performing employee should not be overlooked for business productivity.  An under-performing may still have a valuable understanding of the business and skills that can still be utilised, albeit with some necessary guidance.  Considering the costs and time lost for the business in termination, recruitment and training, it may still be worth reconsidering their value.

And let's kill one myth of performance management once and for all – unless you have committed the business to this process in a policy or contract, there is no "three strikes" rule or a set minimum period for a performance management process.  The process of managing an employee's performance needs to be determined on a case by case basis. It will depend on factors such as the degree of under-performance, the nature of the required level of skills or performance, the extent to which the underperformance is impacting others including staff and clients and whether the employee has already been made informally aware of their performance issues.

So, is it really that important that your business undertakes a proper performance management process?  In most cases, the answer will be a resounding yes.  There is an abundance of cases where the Fair Work Commission has found that employers should have dealt with performance issues more adequately through performance management before proceeding to dismissal. Some more recent examples of successful claims against employers involve:

  • a bus driver who was dismissed without performance management for leaving a bus stop earlier than required, using his mobile phone while the bus was not parked and reading while driving the bus1;
  • a tram driver who was dismissed for serious misconduct being deliberately driving slowly to delay the tram service. The Fair Work Commission rejected that this was a valid reason for dismissal and ordered that the employee be reinstated.  Despite the employer's claim that the employee's performance could not be improved, it was found the employer had failed to warn the employee about their performance which could lead to their dismissal2; and
  • an employer who adopted an improper approach to commencing performance management.  The employee in question used inappropriate language in an exchange with his manager on his first day and appeared to get off on the wrong foot with his manager. The manager sought to commence a performance management process, however advised the employee that "it's not very pleasant and I don't recommend it for anyone".  The Commissioner found that the employee had been constructively dismissed and had been unfairly dismissed ordering damages against the employer3.

Each employee scenario has its own set of complex and nuanced factors the business must consider.  However, what these decisions show is that even if there may be genuine performance or conduct issues, the Fair Work Commission will likely find against an employer if the employee has not first been given an opportunity to improve through performance management.

With all this in mind, it is at the very least worth reconsidering the question and making sure you are aware of and prepared for the risks that your business may become exposed to before you skip the performance management process.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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