What employment law and compliance issues should businesses be looking out for when it comes to performance management? Senior solicitor Toby Pochron from Freeths outlines what you need to consider when it comes to appraisals and performance management more generally.
Both performance management and performance appraisals are essential management tools. Although they fall under the same umbrella, they are not the same.
Performance management describes a set of arrangements used by employers to maintain and improve the performance of their workforce. That is, where an employee or other worker's performance has been identified as unacceptable, the employer will put in place goals and monitoring to seek to improve that employee's performance or, ultimately, dismiss them on the grounds of capability.
Learn more: What is performance management?
Performance appraisals are a regular formal meeting set up by an employer with their employee, usually every 6-12 months, to enable them to evaluate and discuss the employee’s past work performance. Whilst there is no legal requirement to carry out appraisals, it is good practice to do so as they enable employers to monitor and feedback on all employees' performance (not just those who are underperforming). They can also be used to evaluate pay increases and bonuses.
Legal issues in performance management
Claims may arise out of any stage of a performance management process.
The most common claim arising from the management of poor performance is an unfair dismissal claim from an employee with at least two years’ service who is dismissed on grounds of incapability.
In order to avoid a potential unfair dismissal claim, an employer will need to demonstrate they had:
- A reason for dismissal that falls within one of the categories of potentially fair reasons. In this case, poor performance (capability) is one of the potentially 'fair' reasons for dismissing an employee.
- An honest and reasonable belief in the employee's incapability to do the job to the level required.
- Carried out the performance management and dismissal process in a fair and reasonable way.
In assessing whether or not an employer has acted reasonably, an employment tribunal will look to whether the employer complied with the ACAS Code of Practice on Disciplinary and Grievance matters (ACAS Code). Not only will a failure to follow the ACAS Code be considered when determining if the dismissal was fair, if the employee then wins the unfair dismissal claim the tribunal has the ability to increase the employee’s compensation by up to 25%.
Other legal risks associated with performance management include a potential discrimination claim – for instance, if an employee claims that the only reason they were subjected to a performance management process was because of their age, sex, religion, or other protected characteristic against which discrimination is unlawful.
There is also a potential breach of contract claim in relation to any failure by the employer to comply with their contractual obligations. For instance, if the employer has a contractual disciplinary or capability procedure, which they failed to follow. The employee may then allege a breach of contract, and potentially that the employer’s conduct gives rise to a constructive dismissal claim.
Learn more: An employer’s guide to unfair dismissal
How to approach performance management
Employers should make sure that the requirements of the job and the performance level expected are set out to the employee from the start of their employment. They should also keep their employees informed as and when performance requirements change. Not only will this help them to minimise performance issues arising to begin with, but it will also assist the employer with managing any poor performance issues that may arise by allowing them to point to their previously set out expectations.
Dealing with poor performance
If issues do arise, employers should make the employee aware of the shortfall in their performance as soon as possible. The employee should then be given a reasonable timescale to improve.
Employers should provide their employee with any relevant support and training in order to reach the required performance standard. They should then monitor and review the employee’s progress throughout the period assigned for improvement.
If, after this process, the employee fails to show any/sufficient improvement in their performance, they should be invited to a dismissal meeting in accordance with the ACAS Code. If it is decided that they should be dismissed for poor performance, the employee should also be given the opportunity to appeal.
Ultimately, they should ensure that all performance management processes are dealt with consistently in order to avoid other employees claiming that they have been singled out (or possibly discriminated against). Implementing a flexible disciplinary or capability procedure and setting out how performance issues are dealt with will help employers ensure that they are following a consistent procedure that allows them to deal with each situation according to its particular circumstances.
Legal issues in performance appraisals
As with the performance management process, similar legal considerations apply when conducting performance appraisals.
In order to reduce the potential of claims arising, employers should aim to provide feedback throughout the period of employment, not just during the appraisal itself. It would be unfair to provide no feedback to an employee who is underperforming for 6-12 months prior to the appraisal, and then present them with a bad appraisal on the day.
Employers should be willing to offer frequent feedback and guidance throughout, in particular to those struggling to meet performance expectations. This will allow them to potentially address the problem in a timely manner before it becomes a significant concern.
How to approach performance appraisals
Appraisals should be balanced and should record (as far as possible) both the good and the bad aspects of an employee's performance.
Appraisals should not be used to discriminate against an employee on the basis of their age, sex, religion, or other protected characteristics.
Appraisals should be fair, accurate and supported by evidence and examples. For instance, the employee should be presented with a log of incidents to demonstrate any areas of poor performance or conduct.
If the appraisal result is poor (or potentially controversial), it would also be good practice to ask an objective third party or others who have worked with the employee for their views on whether they think the result is fair and reasonable. You should be prepared to modify the review if the third party views are not supportive of the result.
Depending on the seriousness and nature of the conduct underlying any poor result, those employees who receive a poor performance appraisal result should also be given a reasonable timeframe to improve before they are penalised for it.
The employee should also be given the opportunity to comment on their appraisal result, and appeal or request a review of the result if they particularly disagree with anything.
It is crucial for employers to retain records of the appraisal meetings. For instance, if an employee later down the line feels that they had been dealt with unfairly, they may still have the right to bring a claim. Having a performance record on the employee’s file, together with any examples of the areas of concern (incident logs and other relevant documents), will help an employer demonstrate that the process and result of the review was fair.
Find out how performance management software can help you document and track your performance process and any issues with timeliness and accuracy.
Finally, you should ensure that all appraisal results are treated as private and confidential. The storage of any appraisal information should be kept secure. Only those with prior authorisation should be granted access to the employee’s performance appraisal information.
Overall, at some stage most employers will have to deal with misconduct or poor performance by an employee. By following a fair, transparent, and consistent process when monitoring performance, and dealing with any potentially difficult issues promptly, employers can go some way to reducing the risk of unfair dismissal, discrimination, and breach of contract claims.
Written by Toby Pochron
Toby Pochron is a Senior Associate in the Freeths LLP Employment Law department. He was a Partner in the Employment Law department of Ironmonger Curtis.