Question: What is the best process for managing an underperforming employee?

This question was recently answered by our workplace advice line.

Answer: Let’s define underperformance to mean an employee is not carrying out their work to the required standard or in accordance with policy and procedure. That non-compliance with policy can also amount to misconduct, but the tips below can be used for managing general misconduct as well as underperformance.

It’s important to note that new employees always start on an initial Minimum Employment Period (MEP) when they join a new employer. Within their MEP, employees are not eligible to claim unfair dismissal if terminated for poor performance or misconduct. This allows employers some time to assess a new employee’s performance and decide whether they are likely to work out long-term. The MEP is the first 12 months of employment with a small business (i.e. less than 15 regular employees) or the first six months for all other businesses.

Note, there is a second category of employee who can’t lodge unfair dismissal claims with the FWC, which is those earning a guaranteed minimum annual remuneration above the High Income Threshold ($162,000 per annum for the financial year ending 30 June 2023) who are in roles not covered by any award or registered Enterprise Bargaining Agreement. Click here for more information on who the law protects from unfair dismissals.

Laying the groundwork for good performance

Prevention is always better than cure, so best practice is for employers to establish and maintain good performance from day one by providing:

  • a detailed Position Description (PD) describing the requirements, duties, and expectations of the role;
  • adequate training, supervision, and resources; and
  • open two-way communication between employees and management that includes both ad hoc talks and regular scheduled meetings where performance goals and results can be discussed, and issues raised by either party.

Informal performance management

A stitch in time saves nine, so best practice is for managers to regularly monitor staff performance on a continuous basis and address any issues that may arise in a timely manner. In most cases, informal performance management is enough to achieve good performance from most employees.

Formal performance management

Where poor performance persists despite the informal management, and presuming the employee has either passed their MEP or the employer would like to ensure they do so, then it’s time for a more formal approach.

There is no particular legislation outlining a formal performance management process. However, there is the Fair Work Act section 387 ‘Criteria for considering harshness, etc’ which the Fair Work Commission uses when hearing unfair dismissal claims to retrospectively assess any performance management process that preceded an employee’s termination. So at the very least an adequate performance management process would avoid falling foul of section 387 and being designated as an unfair dismissal.

A formal performance management process should be documented at each step and would involve:

  • Meetings with the employee and their support person to discuss their underperformance, giving specific examples of the areas of concern.
  • Agreeing on a formal Performance Improvement Plan with specific goals and objectively measurable benchmarks and timeframes, with clear guidelines on how to achieve them and feedback and mentoring from management where appropriate.
  • Consider whether further training would be beneficial and explore other options that may improve performance, e.g. a change in hours.  
  • If performance fails to improve enough during this process, then written warnings may be issued.
  • Typically, two written warnings prior to any termination would be considered reasonable.
  • This formal performance management process would normally take about 3-4 months.

The bottom line: Employers have a grace period (the Minimum Employment Period) to decide whether an employee is going to pass ‘probation’ or not. After that time if an employee is underperforming, employers should follow a proper performance management process to put an employee back on track and keep them there. In most cases, this should avoid the worst-case scenario of termination for poor performance.

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Disclaimer: While all due care has been taken in the preparation of this information, it is believed to be accurate but no warranty of accuracy or reliability is given and no liability is accepted for errors or omissions or loss or damage suffered as a result of a person acting in reliance thereon. This information is not legal advice. If a legal opinion is sought please contact your legal advisor.