Termination after refusing performance improvement plan not unfair

The Fair Work Commission’s  recent decision in Vuong An v Glass Expansion Pty Limited (Glass Expansion) serves as a reminder of the good management practices that can be implemented when conducting performance management and terminations of employment. In the event of an unfair dismissal application, these good practices will mitigate the risk of the Commission, which has a broad discretion, making findings adverse to the employer.

The Glass Expansion case facts

Glass Expansion involved an employee who did not accept that his performance was deficient in the way that was characterised by the employer and who refused to participate in a performance management plan as directed by the employer.

After his employment was terminated, he commenced unfair dismissal proceedings and, in deciding his application, the Commission considered the following facts:

• The employment was subject to a contractual six-month probationary period.  
• From as early as a month after the employment commenced, the employer held several meetings with the employee to discuss issues with his performance.
• Toward the end of his probationary period, a Probationary Review Meeting was held. During the meeting the employee was provided with a Probationary Review Document, which outlined the areas in which the employer required improvement. At the conclusion of the meeting, the employee enquired about whether, in accordance with a term of his employment contract, he would be receiving a salary increase. In doing so he exercised a workplace right.
• The employer reviewed the employment contract terms and informed the employee he would not receive a salary increase unless his performance improved. 
• The employer encouraged the employee to read and sign the Probationary Review Document.
• Over the next fortnight, subsequent attempts were made by the employer to ensure the employee understood the content of the Probationary Review Document and that he was not performing to the required standard. The employer expressly directed the employee to sign the Probationary Review Document. However, the employee continued to deny there were issues with his performance and instead alleged that the Probationary Review Meeting was concocted to prevent him taking legal action (presumably a breach of contract or adverse action claim) against the employer for denying him a pay increase.
• Slightly more than six months after the employment commenced, a meeting was held with the aid of an interpreter. During the meeting the employer decided the employee’s conduct amounted to a refusal to improve his performance and, as a result, his continued employment was untenable. The employment was terminated effective immediately.

Access to unfair dismissal

To have access to the unfair dismissal jurisdiction an employee must have provided at least six months service to the employer (or 12 months if the employer employs fewer than 15 employees). In Glass Expansion, the employee’s performance was reviewed as part of a probationary review close to the end of the six-month probationary period. The employment was terminated for performance reasons shortly after the employee had completed six months service and after the probationary period ended. The timing of this review and the subsequent discussions which afforded the employee procedural fairness, meant that, at termination, the employee had completed the minimum employment period and had access to bring an unfair dismissal claim.

The terms of the employment contract were not examined in the subsequent unfair dismissal application. However, it is noteworthy that the employment was terminated for cause and not as a result of a decision not to continue beyond the probationary period.  This is because many contracts have differing terms relating to termination within probation and after completion of probation. As such, employers that are conducting probationary reviews where under-performance is an issue ought to be mindful of any differences in its rights and obligations during and after the contractual probationary period.

Valid reason

In deciding the case, Deputy President Hamilton agreed the employee’s conduct (in refusing to sign the Probationary Review Document, denying his performance was lacking, and alleging there was an ulterior motive behind the performance management process) amounted to a refusal to improve his deficient performance. DP Hamilton accepted this was a valid reason for the termination of employment.

DP Hamilton’s finding of a valid reason accords with a decision by DP Dean in Ramakrishnan v Dargan Financial Pty Ltd [2020] FWC 1839. In that matter, Mr Ramakrishnan was subjected to a series of performance management processes that outlined his performance targets, including a “performance agreement plan” (PAP). Mr Ramakrishnan refused to engage with the PAP and his employment was terminated. The Commission agreed with Dargan Financial that Mr Ramakrishnan’s failure to follow company procedures, as set out in his PAP, and his continued poor performance was a failure to comply with a lawful and reasonable direction and thus a valid reason for dismissal.

Procedural fairness

But a valid reason for dismissal does not, by itself, protect an employer in an unfair dismissal application. The Commission will continue to determine whether the dismissal was nevertheless harsh or unreasonable. As such, in conducting a performance management process, employers should afford procedural fairness including by:

• holding performance meetings with employees on a regular basis
• communicating in plain and clear terms any performance issues and the standards of performance required including the assistance available to meet those standards, and
• affording opportunity for the employee to address the concerns and improve their performance.

DP Hamilton was satisfied the employer had taken these steps and had fairly put the employee on notice of its performance requirements.

Lessons arising

Can an employee be required to sign a performance management document?

Employers may give directions to an employee, provided they are lawful and reasonable.  An employee’s failure to comply with such directions may provide a valid reason for termination, as was in Ramakrishnan. We frequently see employees refusing to sign performance management documents as occurred in Glass Expansion and Ramakrishnan. In both cases, the Commission did not take any issue with the respective employers directing its employees to sign performance management documents.

The following lessons may be drawn from our examination of these decisions:

• In asking employees to sign such documents, employers should understand what signing the document means. For example, is it an acknowledgement of receipt, of understanding of the requirements to be met or an acceptance of past under-performance.
• Employers need to take steps to enable the employee to understand the document’s content and why they are being required to sign it.
• If an employee refuses to sign, the employer should consider all the surrounding circumstances before determining whether that conduct warrants disciplinary action and undertake disciplinary processes before implementing such action.

In Glass Expansion, the employer arranged for an interpreter to attend the final performance meeting. This step satisfied the Commission that the employee understood what was required of him and enabled the employer to come to the conclusion that, with the employee’s refusal to agree to improve his performance, his continued employment was untenable.

However, in both these matters the respective employee’s refusal to sign the performance management document was not the sole reason for the termination of their employment and employers looking to follow suit should proceed with caution if considering termination of employment on this basis only. 

Documenting performance meetings

The underlying facts of a termination process can be crucial because they guide the Commission’s determination. In both Glass Expansion and Ramakrishnan, the facts of the termination process were in dispute. Ultimately, in both cases, the Commission preferred the employer’s recall of the facts because they were able to present evidence, which included business records that were contemporaneously documented and internally consistent. This highlights the importance of documenting every step taken in managing performance and disciplinary action. This then allows the employer to substantiate their version of events should proceedings be commenced.

Key points for employers

To recap, in order to mitigate risk of legal claims arising from performance management and disciplinary actions including terminations, employers can:

• conduct performance discussions regularly and probationary reviews with sufficient time to enable the processes to conclude before the completion of the probationary periods
• be clear on the performance standards, the steps required to be taken to meet those standards and any directions issued by the employer
• afford the employee procedural fairness, including a right of response and time and resources to improve, and
• routinely document performance discussions contemporaneously.