Here’s how to manage underperformance and employee dismissal

Employee underperformance can have a devastating impact on small business. It can affect the productivity and performance of the entire workplace, reduce revenue and affect business reputation. In this article, we outline best practice approach for Australian small businesses when managing underperformance and employee dismissal.

The Fair Work Ombudsman describes underperformance as being:

– unsatisfactory work performance, that is, a failure to perform the duties of the position or to perform them to the standard required
– non-compliance with workplace policies, rules or procedures
– unacceptable behaviour in the workplace
– disruptive or negative behaviour that impacts on co-workers.

There are many reasons that can lead to an employee performing poorly. Some of the most common reasons include:

– an employee doesn’t know what is expected because goals and/or standards or workplace policies and consequences are not clear (or have not been set)
– interpersonal differences
– there is a mismatch between an employee’s capabilities and the job they are required to undertake, or the employee does not have the knowledge or skills to do the job expected of them
– an employee does not know whether they are doing a good job because there is no counselling or feedback on their performance
– lack of personal motivation, low morale in the workplace and/or poor work environment
– personal issues such as family stress, physical and/or mental health problems or problems with drugs or alcohol
– cultural misunderstandings
– workplace bullying.

What to do about underperformance?

Employers should address issues relating to underperformance promptly, so as to avoid things becoming more serious over time. It’s also often the case that employees are unaware they aren’t performing well, and could improve given the opportunity.

The Fair Work Ombudsman outlines a clear, best practice process in addressing employee underperformance. This approach is designed to deliver the best outcome for both the business and its employee:

Step 1 – Identify the problem

It is important to understand the key drivers of performance or underperformance within the workforce.

It is also important to correctly and specifically identify the problem. Some common reasons for underperformance are identified later in this guide.

Step 2 – Assess and analyse the problem

The employer should determine:

– how serious the problem is
– how long the problem has existed, and
– how wide the gap is between what is expected and what is being delivered.

Once the problem has been identified and assessed, the employer should organise a meeting with the employee to discuss the problem. The employer should let the employee know the purpose of the meeting in advance so they can adequately prepare for the meeting. The employee should be allowed to bring a support person of their choice or a union representative to the meeting. Employers working at best practice will inform the employee that they can bring a support person as a matter of process.

Step 3 – Meet with the employee to discuss the problem

It is important that the meeting takes place in private and in an environment that is comfortable and non-threatening, away from distractions and interruptions.

The employer should begin by holding a discussion with the employee to explain the problem in specific terms. From this conversation, the employee should be able to clearly understand:

– what the problem is
– why it is a problem
– how it impacts on the workplace, and
– why there is a concern.

The employer should discuss the outcomes they wish to achieve from the meeting.

The meeting should be an open discussion and the employee should have an opportunity to have their point of view heard and duly considered. The employer should listen to the explanation of why the problem has occurred or to any other comments the employee makes.

When having this type of meeting, it may be useful in facilitating discussion to refer to recent positive things that the employee has done to show them that you also recognise and appreciate their strengths.

Key points for employers to remember when holding the meeting are to:

– talk about the issue and not the person
– explore the reasons why there is an issue
– clarify details
– stay relaxed and encouraging, and
– summarise to check your understanding of the situation.

And, when discussing shortfalls in any area, it is important to check that the employee:

– is aware that it is a task that is required of them
– has been shown what is required,
– understands the gap between what is happening and what is required.

Step 4 – Jointly devise a solution

Where possible, it is important that a solution is jointly devised with the employee. An employee who has contributed to the solution will be more likely to accept and act on it.

When working out a solution, the employer should:

– explore ideas by asking open questions
– emphasise common ground
– keep the discussion on track
– focus on positive possibilities, and
– offer assistance, such as further training, mentoring, flexible work practices or redefining roles and expectations.

A clear plan of action should be developed with the employee to implement the solution. This can be in the form of a performance agreement or action plan. A performance agreement or action plan can:

– reflect an understanding of performance expectations and what is to be achieved over the specified time period (performance improvement milestones)
– clarify roles and responsibilities of the employee
– include strategies for training and career development
– include timeframes for improvement (these may vary depending on the issue and needs of the business, however it is important to give an employee adequate time to improve their performance)
– reinforce the value and worth of the role being performed.

A date should be set for another meeting with the employee to review progress and discuss the employee’s performance against the agreed action plan.

The employer should keep a written record of all discussions relating to underperformance in case further action is required. Generally, it may also be used as evidence if legal action is taken about the matter.

Hint: When devising a solution, make sure it is clear and easy to follow and does not rely on ‘performance-management speak’. Use everyday language to avoid alienating both managers and employees. For example, if terms such as ‘KPIs’ (Key Performance Indicators) aren’t part of everyday language, don’t use them in performance discussions and agreements.

Step 5 – Monitor performance

The employer should monitor the employee’s performance and continue to provide feedback and encouragement. A meeting to review and discuss the employee’s performance should be held even if there is no longer an issue. This enables both parties to acknowledge that the issue has been resolved. The employer should provide both positive and negative feedback to the employee and should work with the employee to ensure that performance improvements are sustained.

More serious action may need to be taken if the employee’s performance does not improve including further counselling, issuing formal warnings and ultimately if the issue cannot be resolved, termination of employment.

Termination of employment

If an employee’s performance does not improve to an acceptable standard, termination of their employment may be an option. Employers cannot dismiss their employees in circumstances that are “harsh, unjust or unreasonable”. What is harsh, unjust or unreasonable will depend on the circumstances of each case. However, it is important to be fair to employees particularly when it comes to termination of employment. They should be given reasons for dismissal and an opportunity to respond to those reasons.

Importantly, employers with fewer than 15 employees (based on a simple headcount) will be covered by special dismissal arrangements which are different to those that apply to larger businesses.

The special arrangements that apply to employers with fewer than 15 employees are:

– employees will need to have worked for the business for 12 months in order to be eligible to make a claim for unfair dismissal, and
– if a small business employer strictly follows the Small Business Fair Dismissal Code and the dismissal of their employee is not harsh, unjust or unreasonable, then the dismissal will be deemed to be fair. It is best practice to follow the code and fill out the Small Business Fair Dismissal Code Checklist at the time an employee is dismissed and you should keep the Checklist with your records as it will assist you if an employee makes an unfair dismissal claim.


A link to the Small Business Fair Dismissal Code and Checklist is available here.

For information on the entitlements you may owe after termination, visit the Fair Work Ending employment page or contact the Fair Work Infoline on 13 13 94.

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