Career Advice Legal Case studies for employers

Avoid perils and pitfalls in getting rid of under-performers

The Problem
Virtually every business will admit that establishing or maintaining a high-performance culture is critical to its success. Clearly, every organisation has its own criteria for working out what that success actually looks like and how each individual can be a key contributor. What is then sometimes puzzling is how frequently companies fail to manage their staff – even their most senior leaders – in line with their own stated performance indicators.

Every HR professional will have tales to tell of the business unit that wants a swift exit of an apparently serious under-performer, but whose most recent performance-review form shows a rating of at least “satisfactory” and who is often said to have “exceeded expectations”.

Organisations that are serious about having a high-performance culture have a clear vision of what is expected of each individual and a clear process that kicks in when those expectations are not being met. However, policies and processes are only as good as the managers and leaders who apply them, and having difficult conversations with under-performing employees is perhaps one of the hardest parts of any leader’s role.

Some might say that this is even more complex in places like Hong Kong, where cultural nuances mean conversations may be avoided in the hope that the individual will see the writing on the wall and choose to exit with his or her reputation fully intact. But there are times when an under-performer shows no sign of leaving of their own accord. If so, what options are available within the constraints of employment law?

The Legal Context
In Hong Kong, terminations are straightforward – as long as all contractual and statutory payments are made, there is little risk to an employer except in relatively limited circumstances. This contrasts with jurisdictions such as the mainland and Japan, where terminations are very difficult to achieve lawfully and the individual can be re-instated with full back pay. It is easy to see how strong the individual’s bargaining position is if re-instatement is a real legal option.

There is also no need to go through a particular process in Hong Kong before deciding to terminate the contract of an under-performer. Employers, however, need to ensure that they have not taken on contractual obligations over and above those required by local law.

Again, this differs from most jurisdictions, which may require employers to spend time reviewing and coaching individuals before any decision to terminate due to poor performance. This can take at least six months of intense performance management, often leading to firms trying to agree an exit on favourable terms with the employee to avoid wasting time and money.

The Action Required
Asking and addressing several questions may help identify and mitigate legal risks surrounding the exit of an under-performing employee.

First, what law governs the employment of the individual? This is not always a simple question in Asia, with many individuals having regional roles and working within complex employment structures.

Second, having established what law applies, what does this law impose on an employer to lawfully remove an under-performer? Gaining an idea about how poor performance is approached locally is very important.

Third, has the firm committed to anything over and above the local minimum legal obligations through its arrangements or policies? If so, what is needed to comply with these commitments?

Fourth, what payments will be triggered if the individual must be terminated and no deal can be achieved? Again, unexpected costs may emerge. In Hong Kong, contractual annual bonuses are payable if the termination happens more than three months into the bonus period. This only applies to contractual bonuses, however, not discretionary ones.

Fifth, will a termination have an impact on stock, share or bonus plans?

Finally, can the decision be justified on objective criteria and without exposing the company to any allegations that it was unfair, or that the decision was based on discriminatory criteria such as sex, race or any other protected characteristic?

A company that has sufficiently addressed these points stands in a much stronger position should a potentially damaging situation involving an under-performing employee arise.

DLA Piper is a global law firm with 4,200 lawyers located in more than 30 countries throughout the Americas, Asia-Pacific, Europe and the Middle East.

Pattie Walsh is a partner and head of DLA Piper’s Asia-Pacific employment practice. She writes extensively for legal and HR publications, with a particular focus on multi-jurisdictional employment work.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.