Managing Low Performers & Legal Issues 1

The necessity for Company HRM teams to increase productivity becomes more important as extension of the retirement age to 60 will take force soon and employment inflexibility still exists. To help companies in efficient management of poorly-performing workers, we would like to introduce here a 4-step look at the legal criteria which were key issues in many judicial precedents.

Step 1: Make Appropriate Provision for Taking Action

When a company has provided a low-performing worker an opportunity to improve, but the employee still does not show adequate signs of improvement, the company may then apply disciplinary action such as pay cuts or dismissal. Ground rules for such action must be prepared in advance, as they are required for ensuring the legitimacy of the action if there is a legal dispute at a later date. Implementing ground rules is also advisable in terms of legitimacy and acceptance by the employees, since such rules enable the company to acquire the employee’s consent or agreement during the procedure.

Setting HRM regulations is part of an employer’s right to supervise and manage personnel and exercise authority over human resources. Therefore, while there is a possibility for dispute over the validity of the regulations or an exercise of those rights, there are no legal limitations over the regulations themselves.  Problems are related to specific interpretations of the regulations. For example, cases with no criteria concerning the determination of low-performance, time-frames and procedures for training, and determining dropouts, could be problematic.

Precedents state that making changes through specifying the existing HR policies in detail shall not disadvantage the employees.  Companies should take a close look at specifying the existing HR policies in detail. Although the precedents are not clear, it can be assumed that if the existing HR policy indicates that ‘placed on employment probation’ equals to dismissal if there is no adequate improvement after a certain period, then a company has clarified its regulation in advance. Therefore, companies do not need to receive consent from the trade union or the employees to add more specific criteria if the conditions for dismissal or placed on employment probation are indicated in their HR policies or if they have been in the practice of offering an improvement program.

However, it is advisable to get consent from employees and re-organize all the regulations if ‘failure to improve after employment probation’ is not included as a reason for dismissal. It is recommended to have a thorough consultation with employees to facilitate their understanding the procedures and measures and prevent any misunderstandings or conflict. Precedents also determine the legitimacy of the way HRM rights are exercised, based on whether the company has gone through those processes which are required according to the principle of good faith.

Step 2: Fair and Reasonable Process for Identifying an Underperforming Worker

Determination of low performers should be done in fairness and reasonableness because of the disadvantageous measures which can be taken against the worker if he or she is determined to be a low performer. Without fairness and reasonableness in the process, any HRM measures taken after such a determination may be considered invalid. Regarding criteria to determine low performers, the following should be considered:

Job relevancy should be considered the first criterion. Note that different working conditions can be applied throughout a single workplace. Not only an individual’s performance, but also that of the team should be considered. Nevertheless, propriety is denied if differing assessment systems are applied to disadvantage workers in particular jobs.

If possible, it is advisable to discuss and determine criteria about determining low performers with trade unions or a labor-management council. The fact that the workers, who are the direct stakeholders, participated in the process for determination of low performers can be an important legal argument for the fairness and reasonableness of the action. Many judicial precedents, when deliberating the propriety of the determination , also positively consider the fact that a worker’s consent or consultation was acquired during the process.

Nevertheless, determining low performers does not require the approval of the trade unions or employees. The determination under the ground rules is an exercise of authority over human resources, which is valid in itself, unless there are special circumstances such as an abusive exercise of that right. Therefore, while the determination requires consultation with employees, it is not true that the determination takes effect only upon agreement of those employees.

Regarding the means of assessment, a multidimensional evaluation by a mix of colleagues and superiors, used in conjunction with a relative evaluation, rather than the use of only a relative evaluation, increases the fairness of the procedure. The use of a mixed evaluation system will work more positively in considering the propriety of the determination process. However, the multidimensional evaluation may be deemed unfair if there is the possibility that the evaluation result was administered by evaluators who are not very relevant to the subject of evaluation (abusive use of right).

Using absolute evaluation should also be considered, although an absolute evaluation may present more or fewer low performers than a relative evaluation. However, absolute evaluation is likely to be recognized as an objective procedure since it verifies whether or not a worker is underperforming according to pre-defined criteria. Precedents also take note of this aspect of absolute evaluation, seeming to consider absolute evaluation as more precise and objective than relative evaluation, which defines a certain proportion of workers as being low performers.

Two or More Evaluations Recommended with Different Time-frames and Evaluators

In order to apply disadvantageous measures to an employee as a consequence of low performance, the employee should have maintained the period of low performance for a while. The appropriate period of low performance will vary in each instance, considering circumstances such as ⅰ) business conditions, ⅱ) position of the worker within the job force, and ⅲ) unique characteristics of the job.

It is better to have a specified determination process if possible. In general, the primary assessment is done by working groups, with the secondary assessment done by board members or a special committee. Two or more assessments with different evaluators not only suggest the company’s prudence, but also imply a sense of propriety without bias.

Instructions for Making Improvements and Giving Notice to Low Performers

After identifying a low performer, the company should actively instruct the employee to make improvements and provide personal interviews. It is recommended that the company provide written records and instructions and notify low performers through a formal procedure such as an HRM committee. If there is a dispute later, the written records and formal procedures will be acknowledged as the company’s efforts to make improvements and also support the idea that the worker rejected the company’s efforts. Written evidence will help document the propriety of the HRM measures.

Step 3: “Providing Opportunity for Improvement”, and Step 4: “Reinstatement and Disadvantageous Measures” will be reviewed in the next issue of Labor InFocus.