Matthew Howse & Nick Thomas: The importance of the performance management procedure

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Managing poor performance is one of the more challenging aspects of an HR professional’s role, especially when performance concerns are intertwined with medical issues. Trying to safeguard the needs of a business whilst navigating a path through legal hazards can be a thankless task, particularly in the context of business managers who have been reluctant to raise or seek to address their concerns until such point as they view the situation as untenable.

So what are an employer’s legal obligations in this area and what practical steps can be undertaken to minimise the pain?  Whilst no two cases are the same, some general principles can be applied which, when used wisely, provide the framework for an effective performance management strategy.

Most employers operate disciplinary processes, which mirror the ACAS Code of Practice on Disciplinary and Grievance Procedures (the “Code”) and which require informal, written and final warnings before a dismissal decision can be taken. In the context of performance management, a period of several weeks is often required between each stage, meaning that it can take many months to dismiss an under-performing employee. In many cases, it may be possible to considerably shorten this process with minimal legal risk.

The starting point is whether the under-performing employee has sufficient length of service to qualify for unfair dismissal. For all employees who started after 6 April 2012, this qualification period has been extended from one to two years. An employee without unfair dismissal protection can in theory be dismissed without following any process at all and in this sense is no better off than a recent recruit who is still in their probationary period.

In addition to extending the qualification period for unfair dismissal, the Government has lowered the cap on unfair dismissal damages (to one year’s salary for most employees). Therefore, the risk of dismissing a low-paid employee without conducting a full performance management process is significantly reduced.

As a consequence of recent legislative changes, it is now less of a risk for employers to approach poorly performing employees with a proposed exit strategy, including suggested settlement agreements and termination payments, regardless of whether the employer’s concerns have been communicated to the employee previously. Even if an employee does not agree to exit terms offered, these discussions cannot be relied on by an employee in an unfair dismissal claim. There is nothing preventing an employer from explaining that the alternative to accepting the terms offered would be a formal performance management process and a possible dismissal for poor performance, which could negatively impact an employee’s reference. This, together with a small compensatory payment, is often enough to secure an employee’s swift departure.

A degree of caution must still be applied. The qualification period, the cap on damages and the “protection” over settlement discussions do not apply to “whistle-blowing” or discrimination claims.

As such, before finalising a performance management strategy, it is, therefore vital to consider:

  • whether an employee made “protected disclosures”. Complaints relating to health and safety, failure to comply with regulatory requirements or other allegedly unlawful acts could qualify. Historically, complaints regarding breaches of contract or bullying by line management also amounted to “protected disclosures”. However, recent changes to whistle-blowing legislation now require “protected disclosures” to be made in the “public interest”, a concept which the courts are yet to define.
  • if there is a potential discrimination angle? The obvious example would be an employee who previously raised allegations of discrimination. However, it is important to be sensitive to other potential risks, such as the only female employee in an otherwise all male team.

It is not always easy to identify a potential discrimination issue, for example where an employee is disabled in a way that is not immediately obvious. Accordingly, common practice amongst employers remains to follow a full performance management process in nearly all circumstances, regardless of an employee’s length of service. Practically, what is really important is to ensure you have evidence of poor performance that justifies dismissal, and you adopt a consistent approach to all employees in any given set of circumstances. As such, for employees without unfair dismissal protection and where whistle-blowing/discrimination risk is low, a full performance management process could be viewed as overly cautious.

Where a performance management process is implemented, the following guidance should be adopted:

  • Issues of conduct, rather than performance, such as persistent lateness or rudeness to colleagues, should be separately identified at the outset. A disciplinary process in respect of failure to improve such conduct can be progressed far more swiftly than a genuine “performance” process.
  • Clear, reasonable and (as far as possible) objectively measurable performance targets should be set.
  • Performance review periods should be fairly short (somewhere between 6 and 12 weeks) and meetings held at the end of each period to decide whether targets have been met or if a further warning/dismissal is appropriate.
  • Evidence of poor performance (such as examples of inadequate work, customer/colleague complaints, etc.) should be retained and shared with the employee at each stage of the process.

Performance and sickness

Poor performance and sickness may overlap in two ways. In some cases (for example, a pre-existing condition such as dyslexia), an employee’s medical condition may be a contributing factor to performance difficulties. An employee should, therefore, be encouraged to discuss whether they believe there is a medical explanation for their performance shortcomings at the earliest possible stage. If they suggest this is the case, an appropriate medical report should be obtained to identify the extent to which the apparent difficulties are (1) genuine and (2) may be overcome by making “reasonable adjustments” to that employee’s duties, role and or working arrangements.

The second and more common situation occurs when an employee responds to attempts to manage their performance by taking time off for “work related stress”. In such circumstances, the stress is not the cause of the poor performance and, therefore, reasonable adjustments to the employee’s role generally need not be considered. However, the employee’s absence makes it trickier to progress a performance management process. In such cases, employees tend to return to work fairly rapidly upon the expiration of their sick pay entitlement. As such, this type of absence represents a greater challenge for employers who operate more generous sick pay arrangements. The best way to deal with this situation is to involve an appropriate independent medical specialist at an early stage (a well drafted employment contract will make sick pay conditional on agreeing to meet such a specialist). Rather than going to Occupational Health, the better route is nearly always to involve a medical professional who is an expert in the relevant condition. This will generally flush out those employees whose purported symptoms are not genuine and provide appropriate information on which to base longer term decisions (including, potentially, dismissal on the grounds of medical incapability) in relation to those employees who really are unwell.

Ultimately, there is no magic solution and each case has to be assessed on its own facts. However, applying the approach outlined above should assist in establishing an efficient, pragmatic response to the performance management challenge.

Article by Matthew Howse and Nick Thomas, Partners in the Employment group at the London office of global law firm Morgan Lewis

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3 Comments - Write a Comment

  1. Paragraph 3 states “The starting point is whether the under-performing employee has sufficient length of service to qualify for unfair dismissal”
    In my opinion the starting point is find out what has caused the change in performance (assuming HR did not employ an under-performing individual).
    Recruitment, HR personnel and employee absence/presenteeism all cost money so perhaps the best place to start is to ask what the key issues are and do any of them come under the 6 HSE Risk Factors of Control. Support, Demands, Relationships, Role and Managing Change.
    If issues fall under these headings then the organisation has a duty of responsibility to support the individual as well as encourage self responsibility to deal with the cause to find a ‘win/win’ outcome.
    The result is a fully working employee (or not depending on the result) and staff who see that situations are dealt with in a humane manner.
    Legislation should not be the first port of call – asking the right questions and listening carefully in a non judgemental manner are the way to start.
    I speak from experience having supported various organisations to train Managers to take the advanced communication approach, identify the issues then work together with the employee to create a solution.

  2. I have to confess at being slightly confused by this article. On the surface the title ‘The importance of the performance management procedure’ is about, how to manage performance, with the underlying suggestion being improvement of. However the narrative quickly directs the reader to how to successfully exit an employee and avoid the potential legal pitfalls. Surely a title that would better describe this article would be ‘How to manage employees out of the organisation legally’?! I struggle to find any reference here to the importance of genuinely helping people improve there performance including the well researched and documented business case and financial imperative for doing so. Measures such as additional training and development, reconsideration of the strengths and abilities of the individual in question and how these can be utilised including any potential for different work that the individual might be better suited to within the organisation. These things should all be considered prior too any notion of how to force an employee out of the door, at the very least one would expect such an article to mention setting smart objectives over the short, medium and longer term to incrementally improve performance supportively. It might be worth reminding the authors that the H in HR stands for Human not hatchet.

  3. Agree with Ann’s comments. I would add that in my view people are not disabled, they have disabilities as defined by the Equality Act. What usually causes a person with a disability to be disabled is other people and the environment, particularly the built environment and inaccessible products and services. It’s this kind of approach that perpetuates the disgraceful employment statistics among people who have disabilities, excludes people from participating fully in society and the workplace, and ultimately, hampers business by restricting the diversity of their teams and their collective and collaborative diversity of thought.

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