Significantly reduce the risk of unfair dismissal claims by following these 6 rules of effective employee management

A client called us the other day and said they were having a problem in their accounts department. They said that the person they had employed to do their book work was not keeping up with the growth of the company. They saw it as a ‘performance’ issue, in that the employee was not meeting their expectations. They wanted to know how to sack them without ending up with an unfair dismissal claim.

We asked them what the employee had been engaged to do, i.e. what was their job description? We said that they could only ‘performance manage’ the employee against what they had agreed the employee would be responsible to do.

The problem our client faced was that they had not specified the job to be done at the time the person was employed, nor had they clarified expectations, job functions and KPIs along the way as the role developed, and at each periodic employee review.

Terminating an employee because they are not performing as you expected is not easy. However, there are a number of things you can do, starting from when you first employ them, to make this much less painful for both parties.

The good news is that these things are not difficult or expensive, and they align with common sense and sound business management. The even better news is that it is never too late to start, regardless of the stage of your employer/employee relationship. You just need to implement and then follow our 6 simple rules to plan for termination.

Rule 1: Job description – lay the foundation of your employment relationship

Every time you employ someone you do so with a certain job or certain functions in mind. You already know what you want them to do within your business – that’s why you are hiring them in the first place. It is vital that you reduce what’s in your head to writing so that you and your new employee have a record of their job description.

A job description consists of a number of things:

  • The title of the job
  • The tasks that need to be performed by the person holding that title
  • The level to which the tasks must be performed, and thereby the level of seniority within the position (e.g. junior clerk, senior clerk, etc)
  • Any other KPIs that you use either generally within your business, or for that type of employee

The salary and other benefits paid to the employee should match their job description. The factors of the job description will also determine what Award (if any) applies to the employee, and if so the classification of that employee under the relevant Award.

It is almost impossible to determine what your obligations are as an employer without each of your employees having a job description that meets these criteria, and which ties in with a written employment agreement.

Some people are put off by the concept of job descriptions because they think they need to be long and detailed, or follow some particular template. In most cases they can be a simple common sense document of no more than a page or so of bullet points. There are also many examples and standard job descriptions for common roles that you can use as a starting point.

Rule 2: Probationary periods and lock-in dates – keep a diary

Many employment contracts specify a notional ‘probationary period’, and generally these are toothless tigers in that they are legally ineffectual. However, some probationary periods do matter.

For all medium to large employers (15 employees or more on a headcount), a minimum service period of 6 months applies for an employee to become eligible to make an unfair dismissal application. For small business employers (less than 15 employees on a headcount), that period is 12 months. What this means is that there is a built-in probationary period for new employees of between 6 and 12 months in the Fair Work Act. As an employer, you should diarise these dates when you first take on a new employee so that if an employee is not working out you can address the situation before the relevant time. You should also avoid unintentionally shortening these periods by agreeing to a shorter period in your employment agreements.

There are other significant periods that can be imposed by State-based legislation or regulations. For example, if an employee commences a traineeship with you the traineeship may specify a cut-off date after which there are significant and onerous penalties for an employer if they seek to terminate that employee before they complete their traineeship. This operates like a kind of probationary period where, after a certain length of time, the employer is compelled to continue the trainee’s employment or risk financial penalty. Similar cut-off dates may also apply for apprenticeships and other arrangements where employees receive a reduced pay rate in exchange for training or qualifications. The key thing to remember is to carefully review the terms of any trainee or apprentice contract to make sure you know any “lock-in dates” so that you can act before the cut off if needed.

Rule 3: Employee reviews – update your employment relationship

Employee reviews are not just a time for a friendly chat or polite small-talk. They need to be used for their intended purpose: as a way for both employer and employee to reflect on the employee’s progress and performance since the last review. They also serve a very important legal role in that they are a formal time when you and the employee can agree to vary the legal terms of the employment relationship, to the benefit of both parties.

Ideally, reviews will happen at regular intervals throughout the year, depending on key milestones in the employee’s job role. However, we understand that often reviews are relegated to an annual event, in which case it becomes even more important to make them count.

Employees should be asked to reflect and prepare for the review by undertaking a self-review of their progress and performance. It can be helpful to ask an employee to prepare a list of things they felt they did well, mistakes that they made and how they fixed them, and areas where they feel they need to improve. The employee should be given a copy of their job description and KPIs, and asked to consider their performance against these criteria. Most importantly, the employee should be asked to consider whether they believe they are meeting the job description and KPIs, and whether they are doing anything above and beyond those criteria, i.e. if their role has changed in a material way.

Employers should also do their homework and come to the review well prepared. This means you have to give some serious thought to the question of the employee’s performance, aptitude and attitude well in advance of the review. We suggest preparing some feedback to give the employee an idea of how they are really performing in the context of the organisation. Many people develop wishy-washy ideas about this, but it is critical for you to actually review the job description and KPIs and determine whether the employee is meeting these criteria, and whether these criteria still represent what you require of the employee. You should provide formal feedback against these criteria – that is the real core of a performance review from a legal and HR management perspective.

Lastly, a performance review is the perfect time to record if the parameters of an employee’s job role have changed. An effective way of doing this (without taking you forever) is to ask the employee to prepare a brief updated ‘job description’ for their current role to bring along to the review. You and the employee can then discuss the job description they have prepared, and compare it to the last version. This is also an opportunity to ascertain whether you and the employee view their job role in the same way, or whether your expectations of their main duties vary from their expectations. If necessary, the job description can be updated following the review by each party (you and the employee) signing the job description and updating their employee file. If you are giving the employee a salary raise because they have taken on or are expected to take on more responsibility, then this needs to be documented in the updated job description. In fact, if you are giving a raise above CPI then this should indicate that something has changed from an expectation point of view – and this needs to be documented.

Rule 4: Workplace policies – record and revise your expectations

Your business likely has a number of internal rules and practices that keep the place running harmoniously. To the extent possible, those rules and practices should be reduced to writing in the form of workplace policies.

The purpose of a policy is to communicate to all employees the expectation regarding certain aspects of both work performance and the work environment. Policies are also important to satisfy legal requirements, such as policies regarding work health and safety. The benefit of having a clear and concise set of policies is that they can be updated and, if necessary, expanded over time to address new issues, new technologies and new procedures. This makes policies much more flexible than an employee’s employment contract or an Enterprise Agreement.

For policies to operate effectively as a performance management tool, they must specify the consequences of a breach of each term of the policy (i.e. formal warnings or other disciplinary action, or even termination of employment). The policies must also be circulated to employees when created or updated, and must be easily accessible by employees at other times. We suggest having a central electronic directory of policies, and also placing a hard copy of each current policy in the lunchroom or other discreet communal place.

We also suggest that as part of your periodic employee reviews you have the employee sign a statement that they are aware of the current policies of the business, and that they agree that the terms of their employment include adhering to the terms and intent of those policies.

It is important that policies are applied consistently throughout your organisation, and any policy breach should be dealt with promptly, formally and in accordance with the policies. This allows you to hold accountable, on a day-to-day basis, any employees who are not meeting the expectations or operating in line with the values of the organisation.

Rule 5: Written warnings – create a culture of deliberate communication

It’s never nice to get to the point where a written warning is necessary, but as an employer it is one of the few ways to send a clear message to your employee that their performance or conduct is not satisfactory.

The written warning should take the form of a letter addressed to the employee. The letter should be prepared discreetly by the appropriate manager, and should be given to the employee in private at a meeting where the contents and effect of the letter can be discussed. The meeting should be attended by at least two people representing management, and the employee should be given the opportunity to bring someone along – particularly if the issue is of a serious magnitude.

We recommend that a written warning letter should canvass 6 main points:

  • Details of the performance or conduct issue
  • What has been discussed previously with the employee about the issue
  • An action plan of what steps the employee needs to take to remedy the issue
  • What the employer will do to assist the employee to remedy the issue
  • The timeframe within which the changes or improvements need to occur
  • Invite the employee to respond in writing to the letter if they wish

A copy of every written warning letter must be kept by you on the employee’s file, together with minutes of the meeting where the letter was given to the employee. This creates a contemporaneous record for you of the steps taken to discipline the employee in the event that the employee is subsequently terminated.

In our view you should not hold back on giving written warnings – in fact you should make it part of your organisation’s culture. We call this a ‘deliberate communication’ strategy. The more you formally communicate performance issues with your employees, the easier it is to impose and maintain open and effective communication. If you only give written ‘warnings’ when you are performance managing someone you have clearly identified as “on their way out”, then other employees will see the receipt of a written warning as the beginning of the end. Whereas if you document all of your performance management practices on a consistent basis, including for those employees who are not close to termination, the practices will not be seen as merely a process to go through to get rid of someone beyond hope but rather part of an effective performance management culture within the business. This will also assist employees develop in a constructive way, rather than be left guessing how things are going.

Rule 6: Termination procedure – nail the exit

Last in the sequence, but certainly not least, is the termination itself. You should not delay planning a termination procedure – it is important to have a clear process in place well before the need arises. If you have implemented a deliberate communication strategy with all of your employees, then termination should never come as a surprise to either party.

Termination should always occur face-to-face and in private, away from the prying eyes of other employees. We recommend that a termination meeting is best scheduled a day or two in advance. In our experience an early morning timeslot is best if you intend for the termination to take immediate effect (i.e. if you do not require the employee to work during their notice period). However, if you intend the employee to continue working until the end of their notice period then an evening meeting will give the employee time to compose themselves before their next day at work.

The employee should have the opportunity to have a support person at the meeting, although many employees will choose not to. You should have two appropriate, senior representatives from your organisation at the meeting, which should include the person ordinarily responsible for managing the employee.

A termination letter setting out the formal details of the employee’s termination must be provided to the employee at the meeting. We recommend that the termination letter should include the following information:

  • The reason for the employee’s termination, which should be brief and direct
  • The steps taken previously to discipline or correct the employee (including details of any written warnings)
  • The length of the notice period that the employee is entitled to
  • Whether the employee is required to work during their notice period, or whether they will be paid in lieu of notice
  • The effective date of the employee’s termination (either immediately or the day after the last day of the employee’s notice period if they are required to continue working)
  • The amount of any unpaid accrued entitlements that will be paid to the employee on termination

You may also include in the letter other information relevant to your organisation, such as who the employee should speak to about termination matters and what reference (if any) the employee can expect.

When you sit down with the employee, you should give them (and their support person) time to read the termination letter so that they understand the situation. It is important to keep any subsequent discussion concise and factual. The message should be simple and consistent: the employee is being terminated because they have failed to address long-standing problems of which they were well aware. Notes should be taken during the termination meeting to create a record of what occurred in the event of future action by the employee.

In the meeting, logistical issues should also be discussed. You should instruct the employee when and how to:

  • Clear out their office or workstation
  • Hand back keys and access passes
  • Return business property (i.e. work mobile phone, work laptop/computer, business cards, etc)
  • Handover jobs/files
  • Notify customers or clients of their departure

Depending on the personality of the employee and the nature of their role within your organisation, it may be appropriate to take steps to ensure security of yourself, other employees and business property. At a minimum, we recommend that you remove the employee’s access to computer systems and disable their access to work buildings and vehicles when their termination takes effect. If you are concerned about the employee’s likely reaction, you may also wish to have security personnel available to intervene if necessary.

Summary: What to take away

In summary, terminating an employee is never easy, both for the employer and the employee. The sad truth is that, as an employer, you will know when an employee is not meeting the standard that you employed them for – this will be a ‘feeling’ you get. Whether acting on that feeling will end you up in court or the Fair Work Commission will depend on how well you have planned for and documented the employee’s job description and the evolution of their role along the way. Start now.

We admit that planning how to terminate someone’s employment when you are first taking them on seems a bit pessimistic. But it also has a certain ring of reality to it. We have spoken to many employers who wish they had planned more carefully from the outset. If you plan ahead you can reduce the risk of unfair dismissal claims, and make what is a very difficult and emotional process that bit easier.

Next steps

Call us on 1300 654 590 to put in place an end-to-end solution for your employment matters.


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Published by

Andrew

Lawyer to entrepreneurs and investors