When an employee is not performing as expected, what should an employer do? Are there steps an employer should take or, conversely, not take?  This article considers this issue further, including some recommended steps at the start of an employment relationship, during and, if required, the end.

Starting point – the importance of the job description

It is much more difficult to manage an employee’s performance, and for an employee to know what is expected of them, if job descriptions and job expectations are not clear from the start.  What does success look like in the employee’s job?

At a minimum we recommend that all employment agreements have good job descriptions, which not only set out what tasks/jobs an employee will undertake but also what expected performance looks like.  For example, a performance objective might be “deliver projects on time and within budget”.

Probationary periods – are these useful? 

A probationary period is a period of time to enable an employer to “assess the suitability of the employee . . . normally in terms of skills, diligence and personality.”

Unlike 90 day trial periods, probationary periods can be for any length of time, although we often see them set at 3 months.  They can also be used if an employee is changing from one role in a business to another.   However, they must be specifically included in the employee’s employment agreement (whether for a new role or a changed role) in order to be utilised.

While a fair process must still be followed over a probationary period, particularly leading up to any dismissal, that process is qualified somewhat by the fact that the employee is considered to be “on notice” over this time that they are being specifically assessed and that permanent employment will only be confirmed if the requisite standards are met.

That means that the process does not have to be as stringent as it would be once a probationary period ends (or if there is no probationary period), although it does, as noted, still need to be fair. For this reason, probationary periods remain useful as part of the employment relationship.

However, we recommend that, where employers use probationary periods, they run for longer than 3 months, say, for example 6 months.  Sometimes issues with an employee’s performance do not surface straight away and, even if they do, employers are still required, over probationary periods, to do the following, which takes time:

• Advise the employee of any concerns with performance, advise of any necessary improvements, and warn of possible consequences if performance does not improve; and
• If performance does not improve, give fair warning of termination.

In addition, just because an employee is not meeting standards to begin with, this does not mean that, with additional time and assistance, they cannot later do so.  Therefore, it’s important to have sufficient time to assess an employee’s performance and assist them to improve, before the probationary period expires, rather than rush through this process.

When performance falls short – can employer have an informal discussion with their employee? 

Regardless of whether an employee has a probationary period or not, employers have a duty of good faith to bring to an employee’s attention areas where they are not performing as needed.  Raising matters also has the benefit of (more likely) identifying such things as if the employee actually understands what is expected of them, if they might need additional training, or if there are any issues with the employer’s processes, systems or workplace that might be impacting on the employee’s performance.  Further, in some cases, an informal chat may be all that is needed for an employee’s performance to improve.

To start with, raising performance concerns with an employee does not necessarily need to be done in a formal way.   A formal process is needed where there may be a disciplinary outcome, like a warning, to ensure fairness to the employee.  Formal processes are discussed further below.  Employers should also check the employee’s employment agreement and their policies, as these may set out certain steps that need to be followed where there are performance concerns.  In that case, those steps should be followed.

However, where an employment agreement/policy does not prescribe a particular process and an employer just wants to let an employee know, for example, that an employee’s performance is falling short in some way and to assist them to improve, then this can generally be raised in a less formal way.  It is prudent however to let the employee know at the start of any discussion that it is not a disciplinary process.   All discussions should also still be held privately, rather than in front of other employees.

In these discussions, the employer can explore with the employee:

• what the employer’s expectations are, working to be as clear and precise as possible;
• why they consider the employee’s performance is falling short;
• is there anything affecting the employee’s performance, either at work or outside work, that needs to be addressed first;
• does the employee understand what is expected of them; and
• can the employer provide any additional assistance or training to help the employee improve.

A written record should be kept of these discussions.

The employer should then continue to check in regularly with the employee, giving additional feedback on their work and working with them to try and help them meet expectations.

Formal/disciplinary processes – when are these needed? 

Sometimes, however, despite informal chats with an employee, their performance still continues to fall short.  In that case, it is not helpful for either the employer or the employee to let matters drift on.

In these cases, we recommend an employer have one final discussion with their employee, letting them know that, if their performance continues below expectation, the employee may need to start a formal performance management process.  Sometimes this is enough to result in improved performance but it also ensures there are no surprises if an employer does need to move to a formal process.   Again, a written record should be kept of this discussion.

A formal performance management process is a process which involves certain steps to ensure that it is carried out fairly.  This is because the process could end in disciplinary action, including possible dismissal (depending on the circumstances).

At a minimum, the employer needs to:

• Write a letter to the employee outlining the specific ongoing issues with the employee’s performance and proposed next steps and provide the employee with all relevant information (such as any documents which support the employer’s concerns).
• In terms of proposed next steps, this will usually include setting out the further time period the employer proposes to give the employee to improve; the targets or objectives the employee need to meet over this time, and the further support the employer will give the employee. This is often referred to as a Performance Improvement Plan or a PIP.

Ideally performance expectations should be holistic to ensure that it is clear that performance needs to be achieved across the board.  This means that, even if an employee improves in one area, the PIP (if it proceeds) does not need to start again if the employee is not performing in another area.

• Advise the employee that, if the proposed next steps proceed and the employee does not sufficiently improve, disciplinary action may be taken, up to and including possible dismissal (if this is a possibility).|
• Give the employee a reasonable opportunity to consider the concerns raised and proposed next steps, including time to obtain independent advice, before the employer meets with the employee again.
• Ensure the employee knows that they can have a support person with them at all meetings.
• Arrange a meeting with the employee (and their support person) to give them an opportunity to respond to the concerns raised and the proposed PIP.

The employee’s response should then be considered and, if it does not address the concerns raised or raise other matters which reasonably need to be addressed first (e.g. issues with the workplace that may be affecting performance), then the next step would be to proceed with the PIP.

However, employers should take on board any comments the employee raises about the PIP, particularly about the length of time the employee has to show improvement, and amend the PIP if necessary.

The finalised PIP should then be confirmed with the employee, including any changes made as a result of the employee’s feedback.

During the PIP, the employer still needs to continue to give feedback and provide any additional training or support that is reasonably necessary.

However, if the employee is still not improving, progressive warnings can be provided by the employer. These warnings should be clear as to the issues and what could be the consequences if performance does not improve or if performance improves but then regresses again.  Further, warnings should be confirmed in writing, to reduce confusion about the warning given, and future expectations.

Unless an employment agreement and/or policies set out how many warnings should be given, it’s prudent to at least provide one written warning and one final written warning in the case of possible dismissal.

Even if an employee’s performance improves significantly, the PIP can continue to its conclusion, although no warnings would be given along the way.

Where a PIP meets these requirements, the employer may be justified at the end of the PIP in taking disciplinary action, up to and including dismissal, if the employee has still not met the required standard. The employer does have to show however that reasonable alternatives to dismissal were explored.

Alternatively, an employer may only issue a warning or extend the PIP, if, for example, the employee has shown improvement such that, with further time, it’s possible that they might meet the employer’s expectations.

Along the way we recommend that, as much as possible, the same personnel deal with performance issues, to help ensure consistency across the process.

Finally, a PIP can also be undertaken with or without a disciplinary process running alongside, such as where an employer considers there is a good likelihood the employee’s performance will improve without possible disciplinary action.  In that case, the PIP won’t refer to possible disciplinary action.

Case example – correct process

A case of where an employer used a fair and reasonable process is Yan v Commissioner of Inland Revenue:

• Reasons for dissatisfaction were provided and were discussed with the employee;
• Detailed explanations were provided regarding improvements required;
• Performance management periods were defined;
• There was comprehensive and objective assessment against targets;
• The employee was allowed opportunity for feedback;
• Feedback was considered before the employer took action; and
• Alternatives to dismissal such as possible redeployment were considered.

Case example – incorrect process

The case of Trotter v Telecom Corporation of New Zealand provides an example of where a performance management process fell short:

• The employee was given two weeks to improve for matters that the employer considered were severe performance issues;
• No support or education was given;
• The employer predetermined the dismissal, evidenced by them writing a letter of dismissal prior to the final interview. The final interview should have actually enabled the employee to demonstrate what steps he had taken to improve his performance and any further action he planned to take.

But doesn’t this all take too much time?

Following the correct process, does take time.  Sometimes employers ask us if there is a quicker way?  Can’t they just have an “off the record” discussion with their employee?

In some instances, employers and employees do, in the context of performance issues, reach a mutual agreement to end the employment relationship.  However, these sorts of discussions need to be handed very carefully because they can lead to legal liability.  Simply calling a discussion “off the record” is not enough.  We always advise employers to seek legal advice before they engage in any such discussions.

Takeaways

Having good performance processes not only improves the likelihood of having well performing employee but also helps ensure employees are treated fairly.  Make sure performance expectations are clear from the start and the employee is ‘set up’ to succeed as much as possible.  Where concerns arise, address these early and clearly and provide support and feedback along the way. Also make sure you follow your employment agreements and/or policies.   If performance still does not improve, this may ultimately be a justifiable reason to dismiss an employee, however, a fair and reasonable process still needs to be followed first to give an employee a fair chance to improve and to fairly warn the employee of what the consequences might be, if performance remains below par.  If an “off the record” discussion is being contemplated, make sure you get legal advice first.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

• Hannah Carey, Senior Counsel – hannahcarey@parryfield.com

Sometimes a situation arises where an employee has built up a large annual leave balance.  Not only might this be a potential financial liability for an employer, given annual leave needs to be paid out at the end of employment, but health and safety concerns might arise, such as is the employee having adequate breaks from work?  An employee might conversely want to use their leave but find that their employer will not agree.  What can employers and employees do in this situation?

Annual leave rights and obligations are covered by the Holidays Act 2003.  The Act provides several ways in which accumulated annual leave can be addressed.

When can an employee take leave?

The Holidays Act 2003 states that “An employer must allow an employee to take annual holidays within 12 months after the date on which the employee’s entitlement to the holidays arose”. This does not create a positive obligation on an employer to ensure an employee actually takes the leave but it does mean that an employer must make it possible for an employee to be able to take leave within the 12 months it falls due.  Failure to do so could, for example, open up employers to action by the Labour Inspectorate; the imposition of a financial penalty; and/or a personal grievance claim.

Separately, employers can ask an employee to use their annual leave which has fallen due (e.g. within 12 months of employment starting and every 12 months after) and, if agreement is not reached, direct the employee to use their leave on no less than 14 days’ notice. However, employers cannot direct an employee to take annual leave in advance (e.g. annual leave which has not yet fallen due).

In trying to reach agreement, consultation and negotiation should be genuine.  While the following case was based on the employee’s employment agreement, the wording was not dissimilar to the requirements of the Holidays Act.

In the case, the agreement provided that timing of leave was to be agreed between the parties but, where agreement was not reached, was at the employer’s discretion. The employee, a urologist, accrued an abundance of annual leave over his employment. Following the employer locating a locum, they discussed with the employee the possibility of him taking leave for six months, commencing the following month. The employee was not keen on this idea due to timing and, after some discussion, the employer fixed the leave to be taken over the following five months. A claim for unjustifiable disadvantage was made out in the (then) Employment Tribunal because the employer failed to meet their obligation to consult and negotiate.  This was because they had not allowed the employee input into the timing of the locum’s visit and, in the circumstances, they had not genuinely consulting with the employee when fixing the timing of the leave.

Further in terms of agreement, if an employee suggests a proposal for when they will use their leave, such as one week now, one week in a month, and one week a month later, the employer must not unreasonably withhold consent.  In other words, if an employer declines, they must have reasonable grounds to do so.  In one case, an employer was found to be in breach of this where they declined consent to an employee who asked to take leave in 3 months’ time because the employer did not yet have an employee to cover the employee requesting leave.  In that case, the employee had been employed for over 12 months and had taken no leave to that point.  While this was not stated expressly, the Authority appeared to consider that the employer’s lack of staff cover was, in this case, not sufficient to reasonably decline the leave request.  However, in other circumstances, possible grounds could include when an employer cannot reorganise work among existing staff, the employer cannot recruit additional staff, or there is a planned structural change.

Finally  if an employee wants a longer break at one time, employers must allow employees to take at least 2 weeks’ leave as a continuous block in every 12 month period.

Paying out leave in cash

An employee can ask for one week’s annual leave to be cashed up but an employer cannot force an employee to do so.  Any request by an employee can also only occur once within one 12-month period. The employer does not have to agree to this, so long as they have considered it within a reasonable time and advised the employee of their decision in writing. There is no obligation on employers to provide a reason for their decision.

Can annual leave expire?

Annual leave entitlements do not expire if they are not taken.  The Holidays Act provides that an employee’s entitlement to annual holidays remains in force until either the employee has taken the entitlement as paid holidays or the leave has been paid out, such as on termination of employment. Thus, even if annual holidays are not taken within a 12 month period, employees are still entitled to the leave. This is despite what an employment agreement states; employers cannot contract out of the Holidays Act.

After employment ends

Where the employee’s employment ends, the employer will have to pay that employee:

• 8% of their gross earnings since their last entitlement date, less any amount paid for holidays taken in advance; AND
• The value of any annual holidays which have already fallen due but not taken, paid at the rate of the greater of ordinary weekly pay as at the date of the end of the employee’s employment or average weekly earnings during the 12 months immediately before the end of the last pay period before the end of the employee’s employment.

Why taking leave is important

Both employers and employees have a duty to take steps to protect employee(s) health and safety.  Taking breaks away from the workplace is one way to help safeguard employees against the effects of overwork, as well as to reduce the likelihood of fatigue related mistakes or incidences.  Employers and employees should therefore work together to make sure that regular breaks are taken, utilising some or all of the above mechanisms.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

• Hannah Carey, Senior Counsel – hannahcarey@parryfield.com