Australia: Poor performance management = Poor defence to unfair dismissal claim

Last Updated: 16 June 2016
Article by Emily Dempster

A spate of recent unfair dismissal cases has exposed the consequences of poor performance management processes. If you want to avoid an unfair dismissal claim, or put yourself in a good defensible position, read on.

What you need to know:

  • Following a proper performance management process is fundamental in demonstrating that an employee has been provided with procedural fairness.
  • Section 387 of the Fair Work Act 2009 (Cth) (Act) may be used as a guide for employers in ensuring that they take steps that demonstrate they have followed a proper process.
  • Failure to follow a proper performance management process can be fatal in defending an unfair dismissal claim.

General

Performance management is one of those necessary processes that most HR Managers and employers dislike, as it is often time consuming and resource intensive. Further, there are so many ways that performance management can go wrong – and when it goes wrong, it often results in dissatisfied and disengaged employees, not to mention unfair dismissal claims!

When determining whether a dismissal is in fact unfair, the Fair Work Commission (Commission) will scrutinise the performance management process and, more often than not, will find faults in the process. In some instances these faults are minor and inconsequential, however, in other instances these faults may result in a dismissal being harsh, unjust or unreasonable.

There have been a few unfair dismissal cases handed down recently where poor performance management has been an issue. On that basis, we thought it would be timely to briefly discuss performance management in the context of defending an unfair dismissal claim.

Legislative Guidance

Section 387 of the Act sets out the range of matters that the Commission must take into account when determining whether a dismissal was harsh, unjust or unreasonable including, but not limited to, the following:

  • whether there was a valid reason for the dismissal related to the employee's capacity or conduct;
  • whether the employee was notified of that reason;
  • whether the employee was given an opportunity to respond to any reason related to the capacity or conduct of the employee; and
  • if the dismissal related to unsatisfactory performance by the employee – whether the employee had been warned about the unsatisfactory performance before the dismissal.

The Explanatory Memorandum to the Act explains that the Commission must consider all of the factors outlined in section 387 in totality and that no factor alone will necessarily be determinative. Therefore, whilst there may be a valid reason for a dismissal, the dismissal may be otherwise unfair because the employee was not notified of that valid reason. Likewise, an employer may have followed a foolproof process but if there was not a valid reason for the dismissal, the employer may find itself on the losing end of an unfair dismissal claim.

Therefore, the Commission must examine all of the matters outlined in section 387 of the Act when making a determination regarding whether a dismissal is harsh, unjust or unreasonable. This means that the cases handed down by the Commission will generally provide guidance regarding what employers have done right and, more importantly, what they have done wrong when undergoing a performance management process.

Case Guidance

In a recent case, David Welsby v Artis Group Pty Ltd [2016] FWC 2251, Mr Welsby made an unfair dismissal claim after his employment as Regional Manager - South Australia of Artis Group Pty Ltd (Artis) was terminated. In his position as Regional Manager, Mr Welsby was responsible for the financial performance of the South Australian Branch of Artis. The reason given for the termination of Mr Welsby's employment was the fact that the South Australian Branch had ongoing poor financial performance – a fact that Mr Welsby did not dispute. Notwithstanding, Mr Welsby, in making his claim, alleged that his dismissal was unfair given (among other things):

  • Artis did not warn him that his performance was such that his continued employment was at risk; and
  • he was not given an opportunity to improve his performance.

In response, Artis alleged that Mr Welsby was spoken to regarding the poor financial performance of the South Australian Branch on three separate occasions. Whilst this was accepted by the Commission, the Commission also found that whilst Mr Welsby was on notice and the South Australian Branch's financial performance was unacceptable, he was never formally warned that his continued employment was at risk – not even on the day that his employment was terminated. In fact, on the day of his dismissal, Mr Welsby was (prior to the termination of his employment) invited to tender his resignation from his employment from Artis. When Mr Welsby requested for more time in which to consider whether or not to tender his resignation, his request was refused and his employment was subsequently terminated, effective immediately.

Although not related to the performance management process (or lack thereof), it is important to note that after he was dismissed, Mr Welsby forwarded a large number of Artis' emails to his personal email account. These emails contained commercially sensitive information. Once Artis became aware of Mr Welsby's conduct in this regard, it purported to summarily dismiss him from his employment. The Commission found that this subsequent dismissal was ineffective on the basis that Mr Welsby had already been dismissed. The Commission also found that whilst Mr Welsby's conduct in this regard would, in most circumstances, constitute serious misconduct, Artis could not rely on Mr Welsby's specific post termination conduct to support its earlier decision to dismiss Mr Welsby (although the conduct is relevant to the determination as to the quantum of any compensation).

Referring to the matters set out in section 347 of the Act, the Commission found as follows:

  • there was a valid reason for the termination as Mr Welsby had failed to manage the South Australian Branch in a manner that returned a sustainable financial contribution to Artis;
  • that Mr Welsby was notified of the valid reason on three occasions prior to the termination in that he was informed that the performance of the South Australian Branch was unsustainable and he was therefore aware that he needed to improve the South Australian Branch's business performance;
  • that Mr Welsby had not been given an opportunity to respond to the proposed termination; and
  • that Mr Welsby had not been warned that his continued employment would be in jeopardy.

On the basis of the above, the Commission determined that the termination of Mr Welsby's employment was harsh, unjust or unreasonable.

When making a decision regarding the appropriate compensation that ought to be awarded to Mr Welsby for the unfair dismissal, the Commission took into account the post termination conduct of Mr Welsby and applied a 60% discount. Ultimately, Mr Welsby was awarded compensation in the amount of $4602.00.

Conclusion

As is clear from the legislation and cases, any good performance management process involves satisfying the matters listed in section 387 of the Act. It is also clear that a poor performance management process will result in an employer having great difficulty maintaining a strong defence to an unfair dismissal claim.

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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

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