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Improving Employee Performance

Even in at-will organizations, employers may have an implied responsibility that hampers their ability to terminate a worker without cause. For performance issues, HR leaders should ensure that employees are promptly informed of deficiencies so they are not blindsided by the news, which offers a greater chance of a lawsuit. Documentation is also crucial.

Monday, June 13, 2011
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Question: Is there a set amount of time a company should provide an underperforming employee with an opportunity to improve before terminating or demoting him? Also, what actions should we take to protect the company, while still giving him or her sufficient time to improve? We want to retain a recently promoted employee and have placed him on a performance-improvement plan, but have to act soon as his workload is substantially increasing.

Answer: As a general rule, the law does not require employers to wait any "set amount of time" before terminating an employee for performance issues (or for anything else for that matter). In the absence of an employment contract specifying to the contrary, most states adhere to the at-will employment doctrine.

"From an employer's perspective, the 'at-will' doctrine means that the employer may terminate an employee for good cause, for bad cause, or no cause, provided that the termination does not violate the terms of a statute, an employment contract, or result from an employee's refusal to commit an illegal act." Mott v. Montgomery County, Tx., 882 S.W.2d 635, 637 (Tex. Ct. App. 1994) (citing Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985)); see also, e.g., Enquist v. Or. Dept. of Agriculture, 553 U.S. 591, 606 (2008) ("The basic principle of at-will employment is that an employee may be terminated for a " 'good reason, bad reason, or no reason at all." (internal quotation marks and citation omitted)).

Of course, there are exceptions to every rule, and your attention is rightfully focused on the actions that you, as a human resource professional, can take to minimize your company's risk of becoming involved in post-employment litigation with this underperforming employee.

These exceptions depend heavily on the facts in each case and on the law in your particular jurisdiction, but there are some general guidelines to which employers should adhere to help avert issues.

Even in the absence of a formal written employment contract, some employees have successfully argued that employee policies and practices create an implied contract that limits the ability of the employer to terminate employees without cause. See, e.g., Toussaint v. Blue Cross & Blue Shield of Mich., 408 Mich. 579, 598 (1980) (finding that a "just cause" employment relationship may arise from employee expectations based on employer policies).

Where implied contracts are said to exist, courts look to various factors, including "written or oral negotiations, the conduct of the parties from the commencement of the employment relationship, the usages of the business, the situation and objective of the parties giving rise to the relationship, the nature of the employment, and any other circumstances surrounding the employment relationship which would tend to explain or make clear the intention of the parties at the time said employment commenced." Dickens v. Snodgrass, Dunlap & Co, 255 Kan. 164, 174 (1994) (finding no implied contract where the only explicit contract specified that employment was at-will).

As these exceptions demonstrate, if an employer affords its employees too many chances to improve their performance, it may create an expectation -- real or perceived -- that employment is other than at-will. Accordingly, employer handbooks and practices should be carefully reviewed to ensure that they will not give rise to implied contracts.

Adherence to well-drafted handbook policies and procedures will surely reduce the risk of incurring lawsuits from employees who are placed on performance improvement plans, demoted or terminated due to poor performance.

It is equally important, however, that the employer communicates all performance-related problems to the underperforming employee long before review, performance-improvement plan, demotion or termination occurs.

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No employee should ever be legitimately surprised by a poor review as poor performance should be brought to the employee's attention in a timely fashion in order to avoid blindsiding the employee as well as to increase the chances for that employee to improve.

Also, employees who feel blindsided often become resentful and distrusting -- and resentful, distrusting employees are more apt to sue their employers.

Communicating poor performance to employees as it occurs also helps protect the company in the event of a lawsuit.

At the heart of an employer's proof that the performance-improvement plan/ bad review/ discharge or demotion of an employee was legitimate and non-pretextual is the existence of supporting documentation and information demonstrating a justifiable basis for the discharge.

While employers have obligations to preserve records pursuant to law -- having clear documentation of ongoing performance problems is crucial when defending such actions.

In my practice, I have personally witnessed plaintiffs' counsels capitulate completely after receiving a packet of poor-performance memos and reviews from me in response to a demand letter. Therefore, even if it seems to you that there is no basis for an employee to sue, it is wise to carefully document the employee's performance issues leading up to the decision to place that employee on a performance-improvement plan/terminate or demote.

Your documentation may include formal performance reviews or reprimands signed by the employee, but may also include complaints by customers, co-workers and/or supervisors, and memoranda written by human resource personnel summarizing interactions, meetings and discussions with the employee.

Keisha-Ann G. Gray is senior counsel in the Labor & Employment Law Department of Proskauer in New York and co-chair of the Department's Employment Litigation and Arbitration Practice Group.

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