Employee Underperformance

When an employee is chronically underperforming, this presents a problem for their employer. In Australia, there are strict rules under the Fair Work Act 2009 and the Fair Work Regulations 2009 for how employers can handle underperforming employees. It is therefore a complex and sometimes daunting task to performance manage an employee. This article looks at the current legal perspective on the validity of dismissals for underperformance, through reference to a recent case before the Fair Work Commission (FWC).

What is underperformance?

According to the Fair Work Ombudsman, underperformance means that an employee is failing to perform their job properly. It is most often characterised by a failure to meet the required standard, or a failure to perform some or all of the duties of the role. The term underperformance is also used to refer to employee misconduct, such as lack of adherence to workplace rules, policies and procedures.

Underperformance is distinct from serious misconduct, which is unlawful, dangerous or unprofessional behaviour (such as fraud, theft or sexual harassment). These types of behaviours may be grounds for summary dismissal, but it is best to always seek specific legal advice before taking such serious action.

Reasons for underperformance

When an employee is underperforming, one of the first tasks for the employer is to identify the reasons for the underperformance. Common workplace reasons for poor performance include:

• bullying or harassment
• poor workplace culture
• unclear standards and expectations
• lack of knowledge and skills
• poor management and supervision

If the workplace is creating the conditions that are causing the underperformance, then it is important for the employer to focus on addressing these conditions.

Common personal reasons for underperformance include:

• illness of the employee or a loved one
• relationship breakdown or domestic violence
• mental health struggles
• low personal confidence and motivation
• drug or alcohol issues
• financial stress

The employer needs to be careful that any performance management takes into account any protected attributes that may apply to the employee, such as disabilities, pregnancy and mental health.

Performance management

If an employee is underperforming, the employer should manage this promptly, appropriately and sensitively. It is vital that employers give underperforming employees any necessary support and sufficient opportunity to improve before taking disciplinary action.

Ideally, employers should have regular discussions with all employees, but especially with employees who are underperforming, about their progress at work. Employers should have a performance management system in place that conveys expectations, promotes discussion and feedback, provides training, promotes self-review, and rewards employees for progress. Supervisors and managers should communicate clear goals and provide constructive feedback at regular intervals, rather than allowing all performance feedback to occur at an annual review. 

Dismissal for underperformance

If an employee is terminated for underperformance, they might file an unfair dismissal application with the FWC. When considering cases involving underperformance, the FWC considers factors such as the following.

• How much time the employer gave the employee to improve
• The employee’s seniority in the company
• The employee’s experience in the role more generally

Case study

Performance management of an underperforming employee is particularly difficult if they do show signs of improvement but continue to fall behind the minimum standards. In the unfair dismissal case of Taylor v CJD Equipment Pty Ltd [2024], the FWC determined that the employer had a valid reason for dismissing the underperforming employee, despite his overall improvement in his role.

Mr Taylor was employed as a Regional Sales Manager at CJD Equipment Pty Ltd. In February 2023, the employer placed Mr Taylor on a Performance Improvement Plan (PIP) after it was found that he was not keeping up with other sales representatives. The employer particularly noted the employee’s disappointing volume of face-to-face client interactions, quote delivery and uncontacted customers. When the PIP concluded in June 2023, the employer determined that the employee was still underperforming compared to the minimum expectations set out in the PIP. Mr Taylor pointed out the marked improvement in his overall performance and asserted that the KPI targets were unrealistic. Subsequently, the employer met with Mr Taylor several times to discuss their concerns, noting that in the following months the employee had still not met the required standard.

By February 2024, the employer gave the employee a final warning about his underperformance, providing a one-month period to improve. During this period, the employer found evidence that the employee was manipulating data entered into the company system in an attempt to meet his targets. Based on this dishonesty as well as the continued underperformance, the employer dismissed the employee at the end of the final review period.

Mr Taylor made an unfair dismissal application to the FWC on the ground that the dismissal was harsh, unjust and unreasonable. However, the FWC found that the employee’s PIP was reasonable and that the employer had provided him with legitimate warnings. The FWC emphasised that one failure to meet a KPI in an otherwise satisfactory work history would be insufficient grounds for dismissal, but this could be distinguished from consistent failure to meet the minimum standards. The FWC found that an employer could reasonably expect competence, though not perfection, from workers. As the employee had been provided procedural fairness in several opportunities to improve and the two warnings, Mr Taylor’s dismissal was not harsh, unjust or unreasonable. The application was dismissed.

As this Fair Work Commission decision shows, underperformance can be a valid reason for dismissal, but only if the employer gives the employee every opportunity to improve and demonstrates procedural fairness during the dismissal. For advice about managing employee underperformance, dismissal or Fair Work Commission matters, please get in touch with Go To Court on 1300 636 846.