When can underperformance constitute misconduct? And how much should an employee’s personal circumstances be taken into account? An employment law expert clears up common grey areas around managing underperformance.

Addressing underperformance is often an uncomfortable task for managers. It requires them to navigate a delicate line between acting decisively to protect team performance and ensuring employees are treated fairly.

What’s more, the legal boundaries of performance management are not always as clear-cut as they seem. Factors such as an employee’s personal circumstances, prior performance and the seriousness of the issue can all impact whether the approach stands up to scrutiny.

Below, Brenna Mackay, Senior Associate at Snow Legal,  provides insight on six common areas of confusion when it comes to managing underperformance, and how HR can help managers navigate these situations in a practical and legally sound way.

1. Does length of service or prior performance change how performance issues should be managed?

There is both a legal and a practical view to take to this question, says Mackay.

“If you’ve got a really long-standing employee who has got an unblemished record, I presume your HR team is going to want to keep that employee around, and they’re going to want to keep a really good working relationship with them.”

For this reason, she advises approaching a formal performance management process with caution, suggesting a more informal process might be more appropriate if this appears to be an isolated dip in performance.

“Maybe there’s something else going on; perhaps they’ve got a really high workload at the moment.”

From a legal perspective, she says subjecting a long-tenured employee with an unblemished performance record to “a harsh performance process” could backfire.

“In an unfair dismissal case in the Fair Work Commission, one of the factors that the Commission considers is harshness leading to the dismissal.

“Whether there’s a valid reason for termination – and underperformance can be a valid reason – is one aspect the Commission will consider. But even if there is a valid reason, if the termination was harsh with consideration to those sorts of things, then it could still be considered unfair.”

In these instances, businesses can open themselves up to orders of compensation, or, in some instances, reinstatement, she adds.

In a recent decision, the FWC reiterated the importance of procedural fairness during a dismissal for poor performance. In this case, an employee was dismissed for legitimate performance concerns backed by a clear paper trail. 

However, the dismissal was still deemed harsh and unreasonable due to flaws in the process, including short notice of a performance meeting, limited opportunity to respond and signals that the termination decision had been made prior to any opportunity for the employee to improve.

“You want to be able to show as a business that you’ve taken all of the right steps so the employee knows what the issue is, they’ve been given an opportunity to improve and that the termination hasn’t come out of the blue,” says Mackay.

When it comes to employees with short tenures, Mackay says “you’d definitely be managing that differently”.

“For example, if someone’s in their probation period, you want to make sure they are up to performing the role. 

“It’s an opportunity for both the employer and the employee to test the waters and make sure the performance capabilities are the right fit. You might jump to either a formal or informal performance process a lot quicker than if someone had been there for quite a long time.”

Read AHRI’s article ’10 considerations to ensure probation periods lead to strong performance cultures‘, written by Catriona Hardiman FCPHR.

2. To what extent must personal circumstances be considered?

When it comes to considerations for personal circumstances that might be impacting an employee’s performance, Mackay says beyond the practical approach of doing the right thing to support employees during difficult personal times, there are also legal considerations.

“If they’re going through something personal that is also a protected characteristic – things that jump to mind are caring responsibilities, for example, of an elderly parent who’s fallen unwell, or a personal illness or injury – they’re all protected under the Fair Work Act.

“In this circumstance, a performance improvement plan (PIP) can actually be considered as adverse action, meaning it has a detriment to their employment security and continuity. 

“Adverse action is incredibly broad; while termination is obvious, there is another category, which is ‘to injure the employment’. A PIP could be considered a potential injury to the employment [relationship] because it places some ambiguity over the security of the employment.

“If the employee tells the business they have new caring responsibilities, and then the PIP is implemented because of those responsibilities, then that will be a contravention of their general protections. It doesn’t mean a performance plan can’t be implemented, but it just needs to be a bit more considered and deliberate,” says Mackay.

3. When does underperformance become serious enough to justify termination rather than continued support?

Mackay says there are two key aspects to consider before determining if underperformance can justify termination. The first is to ensure the employee has a meaningful opportunity to improve.

“That means they need to know what the underperformance issue is, they should be given the opportunity to ask for supports that they need, and… [are given] enough time to have an improvement in their performance be recognised.”

The second, and more important, consideration is: have they been given a warning? 

“This is a consideration that the Fair Work Commission will be looking at. If they’ve just been told that they’re underperforming, and then they receive a letter of termination without warning, that’s probably going to be an unfair dismissal. 

“If they’ve had an opportunity to improve but their performance hasn’t changed, and they’ve received a formal, hopefully written warning – perhaps two, depending on circumstances – we’re probably in the territory then where termination might be on the table.”

The length of a performance management process will depend on the circumstances, she adds.

“If they’re in their probation period, a shorter period of time is reasonable. If it’s a long-standing employee, you might want to give them a bit more time. The key question is how long does the business need to see improvement regarding the specific underperformance issue? What length of time could you reasonably see an improvement in? 

“That answer might come about through collaborative PIP discussions. Sometimes it might be four weeks, sometimes it might be six weeks – it will be quite situation specific. Having check-ins at those milestones is a good idea.”

“If the employee tells the business they have new caring responsibilities, and then the PIP is implemented because of those responsibilities, then that will be a contravention of their general protections.” – Brenna Mackay, Senior Associate, Snow Legal

4. When can poor performance cross the line into misconduct?

Mackay says her firm is often advising on the “blurry space” between underperformance and misconduct.

“What we are seeing is that… with a lot of talk about psychosocial hazards and protecting employees’ psychological health and safety at work – where those lines cross between someone who is underperforming and when those underperforming issues have a broader impact to other people in the team, [that’s] where we need to manage it a bit differently.”

Essentially, it boils down to whether or not underperformance has impacted others in a negative or counterproductive way.

“I was dealing with a matter recently looking into the conduct of a manager and their leadership style. There were concerns about the style being quite micro-managing, with a lot of control over how work was done and an overly critical style. On their own, those could be issues that fit within an underperformance lens.

“But when you consider it more broadly, their conduct also had the potential to impact other employees. When considering it through that lens, there might be both the side of the underperformance – considering a PIP – but the HR team might also need to consider whether a misconduct lens is appropriate from a WHS/safety perspective.

“Have you got employees complaining of their mental health being impacted? Have you got employees taking personal leave or stress leave? Those would all be red flags that this needs to be considered from a misconduct lens as well.”

5. What evidence do employers need to justify termination for underperformance?

Employers need to ensure there is a really clear paper trail, says Mackay.

“Obviously the written warnings are going to be the biggest document. It’s really helpful when businesses also have records of all the discussions that led to that process as well. File notes are really good if they’re kept contemporaneously. 

“Any correspondence, invites to meetings, and the PIP document itself – especially where it’s a collaborative document – is excellent.”

In some industries, it might be more common to give warnings in person, she adds. Ensure this is followed up in writing, with details of what was said, when and any other important detail.

“While it’s not strictly necessary to have them acknowledge receipt of an email or note, if you do get acknowledgement, it reduces the possibility of it being challenged as evidence later on down the track.”

6. What psychosocial risk considerations should employers keep in mind?

This tends to be one of the most fraught aspects of the performance management process,

“Psychosocial hazards [is] such a new area of law that we don’t actually have a lot of guidance yet as to how that will play out, so we’re having to take a bit of a common-sense approach thinking about risks to health and safety. Does this cause a risk to the harm of an employee? That harm, of course, can be psychological or physical.”

Mackay notes that while she hasn’t seen employees overtly misconstruing these protections yet, she has seen related claims emerge from a workers’ compensation lens. 

“There [are sometimes] critiques over the management process of a performance improvement plan, for example, and the suggestion that [it has] caused a psychological injury. Given the spotlight this issue is having, I would expect it to crop up more”.

Read AHRI’s article on the difference between stretch, stress and strain on employees.

She also highlights the impact on HR practitioners themselves.

“We’ve seen employees respond in a very distressed way when they are presented with a PIP. We’ve actually seen HR managers and business partners reporting distress to themselves because of the response of employees.

“We were involved in a matter last year addressing whether an employee’s distressed response to a PIP constituted misconduct. The employee argued that because it was such a stressful experience, he was justified in aggressive and intimidating body language and conduct towards HR staff. 

“It’s important that HR staff are also taking care of their own health and safety. It’s okay to stop a performance meeting if the employee is emotionally heightened. Making sure everybody’s health and safety is being considered – including the person running the PIP process – is vital.”

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