With the continuous development of the market economy, enterprises are facing unprecedented opportunities and challenges. In order to enhance the competitiveness of enterprises, building an effective performance evaluation system has become an indispensable aspect of human resource management. However, many companies are not very effective in implementing performance appraisals. Through cases, this article will analyze problems in the implementation of performance appraisal, and explore suitable countermeasures that have practical guiding significance.
1. Case brief: dismissal of a Director of Operations
Mr. Li is the Director of Operations of an information technology company. He signed an unfixed employment contract with the company beginning February 18, 2016, with an annual salary of more than CNY 800,000. During the performance evaluation for the fiscal year 2016, the company collected customer service feedback from Mr. Li's customers and received mostly negative feedback. Thus, the company believed that Mr. Li is not competent for the position of Director of Operations because he did not meet the job requirements for the position and did not manage his team. Therefore, in December 2016, the company sent an email to Mr. Li and several employees. The email stated: "In order to technically better manage the company, the company will adjust the MS team (...) We hope you all know that this is only a simple department adjustment". Then the company transferred Mr. Li to the IS department as described in the email. Later, the company launched the midyear performance evaluation for the fiscal year 2017. The evaluation results determined that Mr. Li still did not perform according to the job description and requirements of the director position. As a result, on June 6, 2017, the company dismissed Mr. Li on the ground he was still incompetent for the position, and paid CNY 80,000 in economic compensation.
Mr. Li believes that he is fully qualified for the director position and disagrees with company's approach. He believes that the email sent by the company is only an ordinary notice for a reorganization between two departments and does not involve a transfer of employees. Furthermore, the email is the only evidence as the company failed to provide other evidences to support their claim.
2. Interpretation of the arguments
There are two points of contention in this case one of which is: is it appropriate for the company to consider Mr. Li to have failed to meet the job requirements of Director of Operations in fiscal year 2016?
In regard to the first point, the lawyer believes that the evidence submitted by the company is insufficient. The evaluation of an employee should be based on the main job responsibilities of the employee and using only the feedback of the customer is too simple. If the customer evaluation is low, it may be a customer's own problem, or it may be caused by the customer service poor communication ability or bad attitude. It is not necessarily caused by Mr. Li personally. The assessment is highly controversial and cannot effectively and objectively reflect the quality of Mr. Li's actual work.
The second point of contention is: Is it legal for the company to unilaterally dismiss Mr. Li on June 6, 2017?
Regarding the second point, the lawyer believes that the company's procedures to unilaterally dismiss Mr. Li were unlawful. After the merger of the two departments, the positions remained unchanged and did not constitute a transfer. There are relatively high requirements for procedures and evidence when dismissing an employee in accordance with the second paragraph of Article 40 of the Labor Contract Law of the People's Republic of China. In practice, when there is a position adjustment due to incompetence, a training for the new position should be carried out first and the employees should be required to sign as to leave evidence. Generally, the difficulty of the adjusted position should be slightly lower than the original one. Furthermore, when unilaterally terminating an employee's labor contract on the ground of Article 40 paragraph 2 of the Labor Contract Law, the labor union shall be notified in writing in advance. Failing to follow this procedure may lead to invalidation of the termination during the arbitration phase.
3. Additional questions
3.1 The performance evaluation cannot be used to determine incompetency?
An unsatisfactory performance appraisal of employees is not equivalent to "incompetent for the position". It mainly depends on whether the company has a unified performance appraisal management system, whether the collected performance appraisal data has maintained consistency in its statistical calibers, standards, methods and data sources for each department, etc. Performance evaluation belongs to the company's right to manage, however, because it eventually triggers the dismissal of employees, the arbitrator will strictly review the rationality, fairness and legitimacy of the company's performance appraisal.
3.2 Does the employee have to consent to the transfer?
(a) A transfer of position can be done for incompetency or after expiration of the prescribed period for medical treatment under articles 40.1 and 40.2 of the Labor Contract Law. Such transfer is legal and belongs to the company right to manage. As long as the employee is not competent for the position and that the assessment is fair and reasonable, then the transfer can be done without the employee's consent. Whilst under these conditions the company can transfer unilaterally, it must still notify the employee.
(b) Otherwise, a transfer of position is a change in the labor contract and is effective only through consensus.
3.3 Is it required that the employee recognize the poor performance evaluation results?
In practical terms, poor performance evaluation results do not necessarily require employee approval. However, the company has the obligation to inform of the evaluation results in writing. The performance appraisal in practice should also include a refutation procedure to prevent unreasonable subjective assessment by the evaluating department.
4. Lawyer suggestion
In principle, the data on the basis for performance evaluation cannot be provided entirely by the department where the employee works. The data must also be confirmed by other relevant departments and approved by the leaders. If there is a situation where the employee is incompetent for the position, the company must retain the necessary evidence, such as the performance evaluation system, the evaluation results or other written documents confirmed by the worker that the task has not been completed. For employees who have been transferred or trained, the company must retain relevant documents, such as the training record signed by the employee or the transfer notice. If the issue persists after training or transfer, the company must keep proof that the employee is still incompetent for the position. To proceed with a dismissal, the company must notify the employee in writing 30 days in advance or pay one month's salary in lieu (and keep the payment notice as proof); notify the union of the dismissal and retain a copy of the feedback to the union as well as the notice to the employee.
Generally speaking, according to article 40.2 of the Labor Contract Law, to dismiss employees from the perspective of processes, the evidence for the first evaluation of incompetence for the position generally includes the (1) job description and (2) the performance assessment form. The position transfer or training evidence generally includes the transfer notice or training record, training summary, etc. The evidence of the second evaluation of incompetence for the position after the transfer generally includes the second position's (1) job description and (2) performance evaluation form.
In addition, in the process of collecting evidence, the company should also pay attention to whether the collected evidence is time-sensitive and processed timely (customer complaint rate, number of work mistakes, etc. The evidence should be handled and processed timely rather than settled afterward).
In the process of dealing with employees who are incompetent for their position, employers must grasp reasonable performance standards, normative content, legal procedures and proper communication. Only by comprehensively handling the above factors can we formulate a targeted solution to legally and reasonably eliminate incompetent employees whilst also effectively reduce the legal risks and avoid economic losses as much as possible.
Originally published 2020-07-06.
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.