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performance management

Tanda’s comprehensive legal guide to performance management

10 min read ·  

Most business managers don’t have time to learn Australia’s complicated workplace law. At the same time, sticking to this complex rule book has never been more important, with major penalties in place for businesses that flout the law.

Performance management is no exception. It’s governed by a strict set of rules. At Tanda, we’ve previously written about performance management from a small business perspective, with former publican Nick Braban offering some practical tips for how to manage staff.

In this article, we’ll break down the laws that govern performance management into an easy-to-read summary. After you read it, you should have a great idea of what you can and can’t do when you manage your business.

Three Steps of Performance Management

We’ll break down performance management into three steps to explain what you need to do:

  1. Identifying performance standards.
  2. Providing feedback and reviewing employees’ performance.
  3. Managing poor performance.

Many workplaces forget the first two steps – setting expectations and providing feedback – and often only act at the third step. As you’ll see, communicating with employees and setting standards in the first place are crucial to staying on the right side of the law.

Before you get to these three steps, any performance management must also be done reasonably. Whether or not what you’re doing ction is reasonable depends on:

  • The circumstances that led to the action.
  • The way the action was taken.
  • The consequences that followed.

There are no definitive rules about what is reasonable, and you’ll need to use your judgement. A good way to think about it is to think, “Would a judge think I’m being fair here”. 

Good examples of not being reasonable include yelling at employees, not giving them an opportunity to address issues, or publicly shaming them.

Now that you know how to go about performance management, lets look at what you need to do.

1. Identifying Performance Standards

Clearly identifying performance standards not only makes performance management easier, it reduces the probability of having to take action in the first place. There are three legally recognised ways to set standards in writing:

  1. Providing descriptions to new employees
  2. Providing duty statements for some roles
  3. Using probation periods to assess new employees’ suitability for the role

Position Descriptions

A position description is a document that outlines the key duties, responsibilities and skills that a role requires. If an employee knows what’s required of them, courts are less likely to grant workplace bullying, compensation, or unfair dismissal claims.

Do NOT put a position description in the employee’s contract. This may limit your ability to change the employee’s role later. It also could cause legal issues if you ask an employee to perform a task that’s not in the description.

However, you can change the way an employee does their job, and require them to adapt to new methods of working. This can be done through lawful directions and changes to the position description.

Probationary Periods

Probation periods are an ideal way to test an employee’s suitability for the role. This refers to an initial period of service during which the employer and new employee determine whether they are suitable for ongoing employment.

A simple provision in the employee’s contract can outline a probationary period. Probation lets the employee know they are under review and do not have a guarantee of ongoing employment. 

An employee on probation will expect feedback about their work and know they’ll be assessed on their suitability for the role. Probationary periods are commonly for terms of 3, 6 or even 12 months.

Importantly, while they aren’t guaranteed ongoing employment, probationary employees still have rights and entitlements like annual leave, carers leave, and minimum notice periods.

Can I extend an employee’s probationary period?

Yes, you can extend the probation period, provided the employment conditions during the probation are the exact same as those that would apply once the employee becomes a standard employee.

However, if some employment conditions are less beneficial for the employee while on probation – for example a smaller notice period, you can only extend the probation if:

  • The employee agrees to the extension, or
  • The contract signed at the start of employment allows you to extend the probation period.

We recommend assessing the success of an employee’s probation at the end of the period by using our free checklist document, available here.

2. Providing feedback and reviewing performance

Performance reviews

Now that you’ve identified the standards you’re looking for, and screened out employees that aren’t the right fit for the business through probations, it’s time to move to the next arm of performance management: performance reviews.

Performance reviews are a periodic evaluation of an employee’s performance. Many businesses vary in how often they perform performance reviews, often yearly. For fixing issues, we recommend performing reviews on a more regular basis. 

If this sounds like too much admin, some businesses conduct performance reviews regularly but make them quicker and less formal. The meetings still need to be documented.

Tip: Don’t put how often you’ll have a performance review in the employee’s contract – leave it at your discretion.

If the employee’s contract includes a provision for how many performance reviews there are, and you don’t conduct these reviews, any dismissal you make on performance grounds could be legally challenged.

You should also always follow up the employee’s performance within a week or two of their performance review to ensure the matter has been addressed. If not, further performance management could be required.

Managing poor performance needs to be done by the book. You should create a policy that guides how your business undertakes performance management, and train your managers in following it. 

When managing your employees’ poor performance, including termination, you must comply with any performance management policies that exist in your workplace.

3. Managing poor performance

Counselling employees

Counselling employees is essential to fixing performance issues. This will build goodwill and also protect you legally. Counselling can help the employee recognise a performance problem and develop effective solutions to it.

Step One

Identify the specific behaviour with the employee, and consider when it emerged, why it’s an issue, and whether it has breached policy.

An easy way to consider this is to refer to the employee’s position description or duty statement.

Step Two consider whether any external factors might be contributing to the issue. Basically, look at the cause of the problem:

  • Skill deficiency.
  • Has the employee been able to perform as expected previously?
  • Can the employee fix the issue?
  • Is the employee experiencing temporary issues.

When you’re making this decision, make sure that the problem doesn’t relate to a protected attribute that is illegal to discriminate against.

Step Three 

Hold a meeting with the employee to discuss their performance. In the meeting, you need to allow the employee to bring a support person should they wish.

You should strictly stick to the underperformance reasons and avoid any personality attacks on the employee.

Be specific, retain a record of the comments, and give the employee a change to respond to your comments.

Do not make the conversation casual. It needs to be a focused discussion that makes expectations clear.

Step Four

Develop a performance management plan. A performance management plan should be in writing and outline the performance goals an employer expects the employee to achieve.

The purpose of a performance management plan is to set out the goals for the employee and provide benchmarks for assessing their performance.

Tanda has a document you can download with these steps in point form.

Discipline Employees

If counselling an employee hasn’t worked, it may ultimately be time to discipline the employee. This typically occurs when the employee has committed serious misconduct or has failed their performance management plan.

There are three key steps to disciplining an employee.

Step One

Issue a written warning. The warning should explicitly tell the employee what they have done wrong and what the future consequences will be.

Tanda has a formal warning letter template you can use as a guide.

Step Two

Issue a final warning. This should make it explicitly clear that if their performance doesn’t improve, you terminate them. 

Step Three

If the employee still isn’t meeting standards, you may dismiss them and explain your reasons for doing so.

Use Tanda’s employment termination letter template as a guide to this step.

It’s important that the poor performance is a valid reason for dismissal. Dismissing employees is difficult in Australia, and you may want to weigh the consequences of the employee’s poor performance for your workplace. Sometimes it can be appropriate to give the employee an opportunity to resign.

Other tips when dismissing an employee:

  • Ensure you can prove the poor performance.
  • Ensure you can prove you took all the necessary steps before deciding on dismissal.
  • Communicate the performance issue to the employee, and state why you believe there are grounds to dismiss them.
  • Give the employee the opportunity to have a support person present.
  • Consider getting advice from an employment lawyer.

How to minimise the risk of unfair dismissal claims

In the event of an unfair dismissal claim being made against you, the Fair Work Commission will look at your performance management practices, and how closely they have been followed.

Fair Work will decide whether there is a valid reason for dismissal related to a person’s conduct or capacity based off the evidence available. Fair Work needs to be satisfied that the employee’s performance was deficient. This is often unclear, and having strong documentation and processes will assist.

Inappropriate Performance Management 

Unclear performance management of an employee, or performance management that includes input from a wide range of people that don’t directly work with the employee risks being ruled as illegitimate by Fair Work.

An employee can also bring a general protections claim if they believe adverse action has been taken against them based off a protected attribute.

How to minimise the risk of general protection claims

Remember, for an employee to make a complaint that is protected under the general protection provisions, they need to find a fault with the way they’ve been investigated or redressed and report it.

To minimise the risk of a claim, make your objectives and expectations clear from the outset of the performance management process. Inform the employee of the reasons they are being performance-managed. Make sure the process is conducted by a supervisor or individual who has worked closely with the employee.

Here are some other practical tips to mitigate your legal exposure to claims:

  • Train management so managers know when their performing adverse actions.
  • Review your processes for adverse management action.
  • Review your processes for managing employee complaints, and whether they will be seen as impartial.

The importance of “inherent requirements”

If an employee is unable to fulfill the inherent requirements of a role, they can be dismissed following the usual 

The inherent requirements of a role are the essential tasks and defining characteristics of a job, rather than the preferred capabilities you might have.

A good way to test if something is an inherent requirement would be to ask yourself, if the requirement were to be removed, would it make the employee’s position different?

Likewise, an inherent requirement is something that can’t simply be put in a contract, it’s defined by what the employee actually does, not what the contract says they’ll do.

Frequently asked questions

  • In Australia, workplace laws relevant to performance management primarily stem from the Fair Work Act 2009. These laws outline the rights and obligations of both employers and employees concerning performance management processes, including disciplinary actions and termination.

Performance management aims to ensure that employees meet their job expectations and contribute effectively to the organization’s goals. It involves setting clear objectives, providing feedback, addressing performance issues, and supporting employee development.

Employers should address poor performance or misconduct through fair and transparent processes, which may include counseling, performance improvement plans, and disciplinary action if necessary. It’s essential to follow procedural fairness and comply with relevant laws and workplace policies.

The typical steps in a performance management process include setting clear performance expectations, providing regular feedback, addressing performance issues promptly, offering support and training as needed, and recognizing and rewarding good performance.

Yes, there are legal risks, particularly if performance management processes are not conducted fairly or lawfully. Risks include claims of unfair dismissal, discrimination, or breaches of employment contracts. Employers must ensure compliance with relevant laws and seek legal advice if unsure.

Employers can ensure compliance by familiarizing themselves with relevant laws, implementing clear and consistent performance management policies and procedures, providing training to managers and employees, documenting performance discussions and actions taken, and seeking legal advice when necessary.

Non-compliance can lead to legal disputes, financial penalties, damage to the organization’s reputation, and loss of employee trust and morale. It’s crucial for employers to prioritize compliance to maintain a positive work environment and avoid legal liabilities.

Yes, employers can terminate employees for poor performance, but it must be done in accordance with fair and lawful processes. Termination should be a last resort after attempts to address the performance issue through counseling, training, or other measures have been unsuccessful.

Businesses can foster a positive performance culture by promoting open communication, providing regular feedback and coaching, recognizing and rewarding achievements, investing in employee development, and ensuring that performance management processes are fair, transparent, and compliant with relevant laws and regulations.

Australian businesses can access resources such as the Fair Work Ombudsman website, industry associations, legal advisers specializing in employment law, and professional development programs for managers to stay informed about compliance requirements and best practices in performance management.

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