Companies that abuse PIPs as a way of dismissing staff face serious legal risks |
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Companies that abuse PIPs as a way of dismissing staff face serious legal risks

Published on Thursday, 11 Jun 2015

The situation

In some workplaces, the term performance management often has sinister undertones. Where the process has been used and abused, it becomes associated with employee dismissal.

But performance management – and one of its main methods, performance improvement plans (PIPs) – can be a highly effective way of bringing an underperforming staff member back up to an acceptable standard and avoiding the need for termination.

While PIPs take many forms, they are typically a document which outlines a clear series of measurable goals for employees to strive for to improve their performance, and details on the steps they need to take to reach those goals.

When done properly, PIPs are a great way to put a struggling staff member on notice, and create a realistic pathway to improving their output.

However, there is an element of truth to the workplace paranoia that often surrounds this sort of strategy – some employers will be tempted to use PIPs, and performance management generally, as a means of dismissal by proxy.

For those employers, PIPs can have a great deal of legal risk.

The problems

A poorly drafted PIP, or a disingenuous one, can do more harm than good. Although there are no provisions under the Employment Ordinance regulating PIPs specifically, there is case law in this area.

One recent judgment in Hong Kong’s Court of Appeal exemplifies the risk that employers face in using poorly drafted PIPs.

The court found that the goals set by the employer for a particular employee were “obviously and excessively wide”. It also determined that the employer had no real interest in helping the employee improve her performance, and that the PIP was being used as a tool to legitimise her dismissal.

That is to say, the PIP was essentially being used to set an employee up for failure.

There was a time when this tactic was common and employees wouldn’t necessarily challenge the process through the courts, but that is rarely the case these days.

The solutions

Employers should only put an employee on a PIP with a genuine intention to help them improve their performance. If they are used to justify a pre-determined outcome–like termination–the employee is likely to appeal through the legal system.

The key to creating a useful PIP is transparency with the employee. Avoid unpleasant surprises – if an employee is struggling to meet acceptable standards, be open and honest about the company’s expectations.

Companies that get performance management right are the ones which recognise that performance should be an ongoing conversation between management and the staff member. They avoid shock and awe tactics.

At the commencement of a PIP, employees should be given the opportunity to discuss any impediments to their performance. As well as getting them to ‘buy into’ the process, this may give management valuable insights into broader cultural problems.

From there, the employer and employee should together consider the ways that things can change. For instance, does the employee need additional support from their line manager? Are there clear goals in place that the employee is aware of, and considers achievable? What sort of timeframe does the employee have? A good PIP will take all these into account.

At the same time, management should be preparing for both good and bad outcomes. It is vital that managers document interactions - phone calls and meetings should be summarised and shared in written form with all participants. If the PIP process is unsuccessful, and the staff member fails to improve, this provides a crucial record of the employer’s efforts to assist the employee – and, if required, proof that the employee’s termination was the only option left. 

This article appeared in the Classified Post print edition as Firms that abuse PIPs face serious legal risks.

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