Managing Low Performers and Related Legal Issues 3

The previous issue of Labor InFocus reviewed the third step of the legal criteria for managing poorly-performing workers: Providing Opportunity for Improvement. This issue will introduce the fourth and final step.

After a performance improvement program, disadvantageous measures should be taken against a poorly-performing worker. However, when reinstating a worker who has achieved a certain degree of improvement, it is recommended to assign jobs of the worker’s choice, considering the degree of improvement and the choices available.

Having stated this, the employer is not obligated to give the same job and the same working conditions to the improved worker, making it possible for a partial adjustment on job position, wages etc., through agreement with the worker. A judicial precedent states that reinstatement is a managerial prerogative, and part of the employer’s discretionary powers, and thus employers can make decisions regarding reinstatement, taking all circumstances into consideration.

Based on evaluation of the performance improvement program, disadvantageous measures can be taken against individuals with no potential for improvement.  Some measures such as discharge and rightful retirement according to the ground rules bring many legal disputes since the measures are similar to dismissal.

These weeding-out measures are similar to dismissal because “efforts to avoid dismissal” as described under “dismissal for managerial reasons” (Labor Standards Act) should be taken in advance. Various efforts are required to avoid a possible dismissal from the disadvantageous measures. One prominent example is providing voluntary early retirement as a method for employment termination. In order for the final disadvantageous measures to be approved, the following legal issues should be taken:

A poorly-performing worker went through all the processes reviewed in previous issues but was chosen to be weeded out at the end. It is highly likely that many disciplinary measures were already taken against the worker and the worker did not show any improvement. Nevertheless, the worker should be provided with enough opportunities to voluntarily terminate employment. Unnecessary legal disputes will be minimized this way.

Financial compensation for voluntary early retirement, outplacement service, and adjusting the amortization schedule for loans provided to employees can also be considered along with the actual employment termination. More protection is also possible if a company has multiple affiliates and HRM is possible within the affiliates. Employers can recommend other jobs or interviews to the worker by finding out about the manpower demand in the affiliates or their subcontracted companies.

If a worker has been placed on probation for a certain period of time but has not been assigned a job (due to the worker’s failure to improve performance), the worker is automatically dismissed according to “rightful retirement” or “discharge” if the ground rules of the company specify the two situations. Nevertheless, employers should be cautious since applying “rightful retirement” or “discharge” can be deemed as dismissal from disciplinary measures, rather than exercising the employers’ discretion over HRM.

Example of Ground Rules

Article 00 (automatic dismissal)   ․ A worker who is discharged from his/her position may be dismissed after deliberation by the HRM committee, if the worker does not show any sign of improvement or willingness to make improvement and the worker is therefore not appointed to a position.

Ideally, juridical precedents would take a broad view of employers’ discretionary authority regarding employment probation or discharge. If the period of employment probation is used to improve ability or to find a new job area for the worker, and the worker is assigned to a new position, this whole process is recognized as a fair HRM process. However, there are cases in which automatic dismissal was recognized as unfair dismissal if the probation was used as a formality before discharge.[3]

In other words, rightful retirement or discharge can be approved if employment probation is carried out within a valid process, and the underperformance recognized at the beginning of the probation measures are not adequately improved during the probation period. Legitimacy of rightful retirement or discharge is approved when the two requirements are met.

② Determination of legitimacy in juridical precedents

To determine legitimacy of dismissal as defined under Article 23-1 in the Labor Standards Act, juridical precedents use the following two conditions: First, dismissal is due to a fact imputable to a worker. Second, the fact disturbs continuing employment relations. In short, juridical precedents indicate that dismissal can be approved if the cause of dismissal is attributed to the worker and the cause is not socially acceptable for the continuation of employment relations.

Considering the intention of the precedents, legitimacy of dismissing low performers is about proving that the low performers have shown no potential to improve their performance. Thus, if a company adequately and fairly carried out all the processes previously stated, such as making provisions for dismissing underperforming workers, identifying underperforming workers, providing opportunity for improvement, and then taking disciplinary measures, it is highly probable that the company meets the high standards of the court for dismissal.

Labor InFocus has been reviewing the legal issues related to HRM of low performers in steps. It is not easy to determine definite standards or conditions to settle legal disputes from HRM of low performers, since each dispute contains unique fact relevance and characteristics. Therefore, it is recommended that employers study the cases of many juridical precedents and court standards in order to learn and be prepared in advance.

The contents previously covered, which aim for a sensible application and legitimacy of performance improvement programs, is summarized as follows: