Getting performance improvement plans wrong can cost your business, as this recent Federal Court decision shows.

There’s no doubt that a performance improvement plan (PIP) can be a fair and effective tool for remedying underperformance. However, the consequences of inappropriate use of a PIP can be devastating – both personally and legally – as demonstrated in a Federal Circuit Court decision delivered on 26 August 2019. 

The employee, an international office manager of Rotary International’s South Pacific and Philippines Office (SPPO) in Parramatta, was awarded $205,342 in damages after the Court ruled in favour of his adverse action claim. 

The employee had been in the position for longer than ten years when, on 30 June 2017, Rotary International terminated his employment, partly because of his failure “to meet the standards set down in the PIP within the time frame specified in that plan”. 

The PIP, sent to the employee by his supervisor, was scheduled for a four month period, from 28 October 2016 to 28 February 2017. It set out four objectives: addressing of staff concerns, updating the company’s Employee Handbook and Practice and Procedures, team building, and recognition.

On 13 December, the employee lodged a bullying complaint about his manager to the general secretary of the company. It concerned how the PIP process was being pursued, the employee felt it was a “cover” for the supervisor’s conclusion that the employee should be terminated.

Despite that, on 28 February, the supervisor addressed the PIP, telling the employee that “three appeared to be completed in a satisfactory manner”. 

This left just one outstanding. Considering the situation between the men, it couldn’t have been more poignant – it was an update to the ‘Conflict Resolution Section’ of the Employee Handbook. 

On 13 March, in a meeting, the supervisor said to the employee “you didn’t need to go to the extent of putting in a bullying complaint against me.”

Regardless, on 15 March, the supervisor confirmed “three out of the four items seem OK and only the last one, the bullying and harassment guidelines, is to be completed”. The employee’s work on that was progressed and it was sent to Rotary’s solicitor on 27 March. 

According to the decision, on 4 April, the employee sent his supervisor a “document identifying the achievements against each of the four deliverables in the PIP. [He] included a column for results to assist a discussion scheduled for the following morning.” 

On 5 April, in the meeting, the supervisor accused the employee of failing to fulfil three objectives of the PIP and asked him to immediately leave the office. The meeting lasted 15 minutes, and the document was not discussed. But it was mentioned. As the employee was leaving, he asked the supervisor if they had seen the document. The supervisor said he had received it, but again asked the employee to leave.

On 11 April 2017, the employee commenced legal proceedings.

Decision

In his judgement, Judge Rolf Driver concluded that Rotary’s concerns about the employee had “some substance” and “that the PIP was justified, at least in the form it was originally conceived.” However, he found that “the goalposts of the PIP themselves changed following the commencement of proceedings. It was as if [the employee] was from that point set up to fail.”

Furthermore, he said, “After the initial process of the PIP, Rotary went looking for additional reasons to dismiss [the employee].”

Ultimately, Driver found Rotary International to have contravened section 340 of the Fair Work Act 2009. This section asserts that “a person must not take adverse action against another person” because he/she has, exercises or proposes to exercise a workplace right. In this case, adverse action refers to dismissal, but can also include refusal to employ, discrimination against or injury of a person. 

Driver concluded that Rotary International had summarily terminated the employee and, under section 545 of the Fair Work Act 2009, was to pay compensation equal to 12 months’ pay. 

According to  Nicholas Vayenas, managing director, Liquid HR, an Australian HR consultancy, the use of a PIP “to simply ‘manage people out of the business’ … is not only ethically reprehensible but effectively adverse action”. 

The Fair Work website states that a business isn’t legally obliged to give an employee warnings before firing them, but “should give the employee a chance to fix any performance issues”. In addition, if a business does give a warning, it should “set clear expectations about what needs to be done differently” and be “fair and reasonable in the circumstances”. 

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How to create a fair plan

“A performance improvement plan should aim to achieve two main things,” says Vayenas. “The first is to ensure that clear short and medium term expectations are articulated and agreed upon by the employee and manager. The second is to create an environment that sets up both the employee and the organisation to succeed.”

So, how can you make sure a PIP is both productive and legally compliant? The first step is a well-planned, transparent process. Vayenas suggests six main stages, as follows:

1. Invite the employee to a meeting and allow them to bring a support person.
2. Clearly explain the concerns that you have with their conduct or performance.
3. Ascertain whether there are any underlying reasons for the underperformance or unexpected conduct.
4. Agree on a series of milestones that you would like the employee to achieve over the following four to six weeks. 
5. Sign the agreed PIP. Send a copy of the minutes to the employee and keep a copy on file. 
6. Support the employee over the following four to six weeks, as required.

When creating milestones, it’s important to set realistic, attainable goals that are within the employee’s capacity and within the timeline planned. 

A support structure is crucial, says Vayenas. For the best chance of success, an employee needs the help of fellow colleagues – be it to ask questions, express self-doubt, discuss obstacles or seek encouragement. 

Ultimately, a PIP’s effectiveness lies in its results. Vayenas advises to look for “attainment of agreed milestones and a sustained improvement in performance or conduct.”