The most common reason for an employer wanting to terminate an employee’s contract is underperformance. Managing this process carefully is required given the complexities and differences surrounding each employment relationship. You need to ensure the employee is treated fairly and minimize any adverse repercussions on any business.
It is important to understand that underperformance and misconduct are distinct concepts and need to be managed differently. Risk can arise if an employer terminates an employee for ‘misconduct’, but the subject behaviours can be more accurately classified as poor performance.
Key processes that an employer ought to have in place are:
- A clear outline of what is required from the employee – position description with clear and measurable objectives.
- A system in place for appraising the employee’s performance regularly and providing feedback on expectations and performance against the set objectives.
- Early detection of underperformance.
- Identify the cause of underperformance. An employee’s capacity must be assessed through appropriate, defensible processes. The performance issues cannot be affected by factors outside of the employee’s control such as organizational structure, lack of resources or inefficient other employees.
- A system of informal coaching initially – raising the performance issues with the employee and offering the opportunity for improvement.
- A system of formal performance management (including a disciplinary policy) for circumstances where there is a pattern of repeated performance failure or the performance issue leads to a significant impact on the business.
Formal Performance Management Process
Formal performance management should be conducted in accordance with the appropriate workplace policies. Failure to do so could render the performance management and ultimate termination as unfair. A good formal performance management process should include steps such as:
- Meeting with the employee to discuss the performance issues.
- Allowing the employee opportunity to respond.
- Agree to an action plan for improvement – with measurable targets and agreed dates for further review. It should also include an outline of consequences should these targets not be met including termination.
- The targets need to be reasonable, attainableand allow for a reasonable period for attainment.
- If after a reasonable time reasonable targets are not met, a proper disciplinary process should be followed.
- Ensuring that the decision to terminate is not based on any reason that is discriminatory, relates to a workplace right or a temporary absence from the workplace due to illness or injury.
In Quattrocchi v Monsanto Australia Limited, Fair Work upheld the employer’s decision to dismiss an employee whose performance over an extended period was reviewed and remained unsatisfactory, as a result of his lack of attention to detail and lapses in concentration. Despite issues with the employer’s supervision and performance management process, due to the number and frequency of performance appraisals, the length of the performance improvement process, and the employee’s tendency to make inexplicable and entirely unsatisfactory errors during his duties, the termination was found not to be harsh, unjust or unreasonable. Also, see the decision of Todd Allan Rooney v Pickles Auctions Pty Ltd.
Generally, provided a proper performance management process has been followed and there has not been reasonable improvement, most contracts of employment can be terminated based on underperformance and by giving reasonable notice.
A good example of successful rollout of performance management and the protection it offered the employer is demonstrated by the case of A v The Commonwealth of Australia. In this case, an employee of Centrelink had a pre-existing psychological disorder. Centrelink had received advice in 2000 and 2006 confirming that the employee was fit for duties. In early 2010 issues arose relating to underperformance and a performance improvement plan (PIP) was implemented over a 12 week period. Over this period the employee’s performance did not improve. The employee was advised that termination was being considered and her response was invited. The employee disputed the underperformance. She claimed that ill health impacted on performance and provided a medical certificate noting stress-related anxiety and depression. Centrelink had the employee assessed for fitness for work by an independent medical assessor. It was determined that she required 1 month off work but was not partially or permanently impaired for work. The employee took 1 month off work, following which her employment was terminated with four weeks’ notice.
The employee was unsuccessful with unfair dismissal proceedings and in summary, found:
- The termination was not harsh unjust or unreasonable in that the termination was based on legitimate performance concerns. The employee had been alerted to these concerns and given the opportunity to participate in PIP.
- The employer was not unfair in applying normal performance expectations on the employee.
- The employee did not identify any medical condition or need for an absence from work such as would undermine the integrity of the performance management until after the completion of the PIP.
Other considerations regarding performance management
Generally, employees cannot rely on the unfair dismissal provisions under the Fair Work Act 2009 (Cth) unless they have been employed for 6 months or 12 months (if it is in a business that engaged fewer than 15 employees).
However, employers still need to be careful in terminating employees during this initial period. There is potential for Section 18 of the Competition and Consumer Act 2010 (Cth) to provide protection to an employee from the representations made by an employer relating to skill and qualifications required of that employee.
 John Steven Little v Petfood Processors (WA) Pty Ltd (2010) 62 AILR ¶101-216
 Ross Fichera v Thomas Warburton Pty Ltd (2012) 64 AILR ¶101-624(33);  FWA 4382 or Jeffrey Pool v Cash in Transit Pty Ltd T/A Secure Cash  FWC 1627
 Masson-Forbes v Gaetjens Real Estate Pty Ltd (2015) 67 AILR ¶102-409;  FWC 4329
 (2010) 62 AILR ¶101-095;  FWA 882
  FWC 858 25 February
 Represented by Centrelink (2011) 63 AILR;  FWA 3532
 S383 FWA