Poor performance: steps to avoid courting trouble

Thursday 21 February 2008

Dealing with poor performing employees is a difficult issue for employers.

While the easy option is to dismiss poor performing employees as a quick-fix, the courts frequently find that dismissals for poor performance are unjustified. Often this is not because the substantive reason for the dismissal is unjustified, but because the process followed by the employer was flawed.

From the courts

The recent Employment Court case Easter Equities Corporation Ltd v Bright is a classic example of the difficulties involved when dismissing an employee for poor performance.

Mr Bright was employed as manager of the Gisborne branch of a business between 2002 and 2004. The relationship between Mr Bright and his employer deteriorated during this time. The employer considered that Mr Bright was not developing in the role as they had hoped and attempts by another senior manager to assist him were seemingly ignored.

Eventually, periodic performance appraisals were conducted, ultimately leading to termination of Mr Bright's job for alleged performance deficiencies.

The Employment Court found that there were clearly serious deficiencies in Mr Bright's performance as branch manager - and there was no doubt that these deficiencies were discussed with him and he was given the opportunity to improve.

However, the court found the procedure that was used to manage his performance was flawed in several respects. No written evidence of the reasons for dissatisfaction with Mr Bright's performance were given to him. As well, early on in the process, the employer had decided that if Mr Bright did not accept a demotion, he would be dismissed.

The court felt that the absence of warnings and lack of formal procedure resulted in a "substantial procedural deficiency", and as a result the dismissal was unjustified.

Performance management

However, the court did show some sympathy towards employers in this sort of situation, commenting that "dismissals for performance deficiencies are notoriously difficult for an employer". While it can be difficult to make clear cut decisions where there are performance-related issues surrounding an employee, there are some steps that employers should follow to avoid any later claims of procedural unfairness.

Set up a meeting

The first step is to set up a meeting with the employee to discuss performance concerns. The employee should be given written notice of the meeting in advance, along with a general explanation of the reason for the meeting. While the initial meeting should be dealt with at a relatively low level to avoid escalating matters unnecessarily, if the employee asks to bring a support person with them they should be allowed to do so.

First meeting

At the first meeting, the employee should be given a fair and specific assessment of their performance, against any job description or performance targets (such as sales figures or financial targets). The employee must then have a proper opportunity to respond to the employer's concerns and explain any reasons for the performance inadequacies that are alleged. The employer must listen to the employee's explanation and give it due consideration.

The employer should then outline their expectations to the employee going forward, and set reasonable targets for improving performance, as well as a time period in which those targets are to be met. The discussion should be recorded in a meeting note which clearly outlines the reasons for dissatisfaction and requirements for improvement, and the employee should be provided with a copy. A date for the next review should be set and the employee's performance should be monitored carefully during this time. Where possible, the employee's progress should be documented.

The employer should also provide the employee with any reasonable assistance they need to meet the requested targets, which may involve further training or support.

Second meeting

As with the first meeting, the employer should advise the employee in advance of the reasons for the meeting, and then repeat the process that was followed in the first meeting. If performance expectations still have not been reached, the employee should be advised of this, and a further time limit for reaching these targets should be set.

At this point the employee should be made aware that his or her employment may be in jeopardy if their performance does not improve. It may be appropriate to give the employee a written warning following this meeting, explaining how the employee's behaviour is deemed to be unsatisfactory, together with a requirement to improve performance. The warning should make it clear that if targets are not met, then disciplinary action, possibly including dismissal, may result.

Dismissal

If the employee is still not meeting the outlined requirements or expectations after a reasonable period of time, the employer may be able to justifiably dismiss the employee. The employer will need to be able to show that the dismissal was the action of a fair and reasonable employer in all of the circumstances at the time.

Before a final decision is made, the employee should be advised of the proposal to dismiss and given an opportunity to comment. If they provide an explanation or ask that the employer take any external factors into account, the employer is required to do so before making a final decision. If the employer decides that dismissal is appropriate, dismissal should be on notice (or payment in lieu of notice where this is contractually provided for, or agreed to by the employee).

The dismissal and any arrangements relating to final pay should be confirmed in writing to the employee.

Factors to be considered

Decisions to dismiss for poor performance are, as with any other dismissal, judged according to section 103A of the Employment Relations Act. This section provides that the question of whether a dismissal was justifiable must be determined on an objective basis, by considering whether the employer's actions were what a fair and reasonable employer would have done in all the circumstances at the time the dismissal occurred. Section 103A should be a consideration for any employer before any dismissal decision is made.

The leading New Zealand case on poor performance is Trotter v Telecom Corp of NZ Ltd (1993). In this case the Employment Court set out some of the considerations that it will take into account when determining whether a dismissal for poor performance is justified:

1. Did the employer in fact become dissatisfied with the employee's performance of their duties?

2. If so, did the employer inform the employee of that dissatisfaction and require the employee to achieve a higher standard of performance?

3. Was the information given to the employee in a readily comprehensible form, in the sense of being an objective criticism of the work so far and an objective statement of standards requiring to be met?

4. Was a reasonable time allowed for the attainment of those standards?

5. Following the expiry of such a reasonable time and following reasonable information of what was required by the employee, did the employer turn its mind fairly to the question whether the employee had achieved or substantially achieved what was expected? This might include an objective assessment of measurable targets, listening to the employee's explanation with an open mind, and exhausting all possible remedial steps such as training, counselling and redeployment.

Best approach

The courts clearly set a high standard for employers who dismiss an employee for poor performance, in terms of procedural fairness and justification. If you have an employee who is not meeting your expectations, consider embarking on a performance management process with them as soon as possible. It is better to address the problem early, rather than wait until it becomes an even greater problem for your business.

 

For further information, please contact your usual Bell Gully adviser or:

Auckland

Rob Towner
Partner

Clare Abaffy
Solicitor

Wellington

Andrew Scott-Howman
Partner

Maria Berryman
Senior Associate

Matt McGoldrick
Solicitor