Performance management in the context of unfair dismissals

  1. This Employment Update examines three cases where performance management processes were not undertaken properly, and so resulted in the employee having a successful unfair dismissal application.

When will a dismissal be unfair

An unfair dismissal occurs where the employee is dismissed and:

  1. the employer did not have a valid reason for the dismissal;
  2. the employee was not afforded procedural fairness in accordance with the Fair Work Act 2009; or
  3. the dismissal was otherwise harsh, unjust, or unreasonable.

Getting a performance management process wrong will increase the risk that an employee will claim the dismissal was unfair on any one or more of these grounds. To help employers understand the importance of getting the performance management process right, we will examine recent case examples that relate to the assessable elements in an unfair dismissal claim.

Valid Reason

Yen Yap v Club Assist Pty Ltd [2022] FWC 520

Often unfair dismissal claims revolve around disputes over the performance management processes undertaken and particularly whether an employee was warned about their performance and provided a reasonable opportunity to improve prior to termination. This decision, however, is a useful example of how an employer might fail to establish they had a valid reason for dismissing an employee following a performance management process.

In this case, a roadside patrol employee working for a company that supplied labour to NRMA was dismissed for poor performance when he failed to meet three Key Performance Indicators (‘KPIs’) following a performance improvement plan. The employer alleged the employee (1) failed to keep battery sales to clients above 50% of jobs attended; (2) took too long on each job; and (3) replaced too many batteries under warranty.

The relevant task for the Fair Work Commission in the case was to objectively determine whether the employer’s assertion that the employee failed to meet the KPIs constituted a “sound, defensible and well-founded” reason for termination. Deputy President Boyce determined that task also required the Commission to assess the reasonableness of the KPIs themselves, and whether the employer’s assessment of the employee’s performance was reasonable.

Deputy President Boyce identified a number of serious issues with the KPIs set by the employer and the employer’s assessment of the employee’s performance, and this ultimately led to a finding that the employer had no valid reason for the dismissal. DP Boyce was particularly concerned that there was no document that explained the KPIs, how the KPI’s were calculated or measured, what variables impacted on them, and that there was no evidence the KPIs were ever explained to employees in detail.

However, the finding that was fatal to the employer’s case was that the employer only considered whether or not the employee achieved the KPIs.  The employer did not have convincing evidence that the cause of the employee not achieving the KPIs was that he was guilty of performance failures (such as spending too much time on a job, replacing too many batteries, or not converting jobs into battery sales).The employer was ordered to reinstate the employee and back-pay lost wages for more than 9 months.

This is an instructive lesson for employers that the mere existence of an employee’s failure to achieve a KPI is not necessarily enough, by itself, to support dismissal. An employer should probe into the reasons why the employee has not achieved a KPI and satisfy itself that there was a failure by the employee to perform some part of their job (or some part of their job adequately) that resulted in the non-achievement of the KPI.

Procedural Fairness

Welsby v Artis Group Pty Ltd [2016] FWC 2251

This decision concerns the dismissal of a senior management employee due to the poor performance of the branch that was under his management. The employer contended that it “discussed” these performance issues with the employee on three occasions prior to his dismissal, and over a period of 8 months.

The employer successfully refuted the employee’s claims that his sales targets and KPIs were unrealistic and unachievable, with Commissioner Platt finding that the employee failed to manage the branch “in a manner that returned a sustainable financial contribution” to the business.  Commissioner Platt was satisfied that this constituted a valid reason for his dismissal.

However, the employee was successful in arguing that he was not adequately warned of the consequences of his poor performance, nor was he allowed a reasonable opportunity to improve. While Commissioner Platt accepted the three performance “discussions” occurred, the employer failed to establish that the employee was warned that his employment was in jeopardy as a result of the continued poor performance.  The effect of that failure was that the employee was not afforded a reasonable opportunity to improve, which rendered the dismissal harsh, unjust or unreasonable. The employer was ordered to pay the employee compensation for lost wages.

In an important lesson for employers on giving clear warnings and providing reasonable opportunities to improve, Commissioner Platt stated:

[22] Whilst [the employee] was on notice that the SA Branch performance was unacceptable, he was never formally warned that his continued employment was at risk. It is evident that [his manager] was hopeful that [the employee] would regain his focus and improve the financial performance of the SA branch however, this did not eventuate.

[38] … Whilst it could be inferred that a person working at a senior level like the position occupied by [the employee] (acknowledging that he was the proprietor of the business prior to its purchase by Artis) should have known his role would be in jeopardy, there was no formal communication warning that his continued employment was at risk.

Otherwise Harsh, Unjust, or Unreasonable

Paul Weston v Coal & Allied Mining Services Pty Limited [2023] FWC 93

In this case, the employer had a valid reason for the dismissal and afforded the employee procedural fairness, however, the employee’s personal circumstances meant the dismissal was still considered harsh and therefore unfair.

While this decision relates to the dismissal of an employee for misconduct, rather than concerns with their performance, it is a useful lesson to observe. This is because even where an employer has a valid reason and follows a procedurally fair process, a dismissal could still be considered otherwise harsh, unjust or unreasonable because of its impact on the employee.

The employee in this case was dismissed after an altercation between himself and another colleague, during which the employee said to his co-worker that he would “cut his throat”.  Understandably, that colleague expressed fear for his safety to the employer. The employer carried out a procedurally fair process in dismissing the employee, including offering the employee an adequate opportunity to respond to the reasons for his dismissal.

However, the following factors contributed to the Commission finding that the dismissal was still harsh:

  • the employee had a lengthy tenure (12 years) and unblemished employment record;
  • the employee was contrite, remorseful, and apologetic;
  • medical evidence showed the employee suffered from PTSD and anger outbursts;
  • the colleague who the employee threatened was the one to instigate the incident; and
  • the employee was 50 years of age, had two young children and two mortgages.

These ‘other matters’ ultimately meant that the dismissal was harsh, but not unjust or unreasonable. As a result, the Commission ordered that the employee be reinstated.

Key takeaways

These decisions are highly instructive for all employers, particularly when managing poor performing employees or considering termination of employment. The decisions make it plainly clear that employers must have a valid reason for the dismissal and follow a fair procedure throughout the dismissal process, including giving the employee a reasonable opportunity to improve their performance.  The final decision is also a reminder that in considering a disciplinary action, an employer should consider all other relevant factors that might otherwise make the dismissal harsh, unjust or unreasonable.

If you are considering dismissing an employee or you are faced with an unfair dismissal application, contact Aitken Legal’s specialist employment lawyers today.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.