How to Manage Poor-Performing Employees?

Introduction

Should companies focus on training present employees rather than investing in the recruitment and retraining process to replace employees?

Studies from the Society for Human Resource Management showed that it is more cost-effective to train and retain current talent than to replace them. Due to the large job seeker pool, most employers don’t realise that losing employees, recruiting and retraining new hires could cost more in the long run and cause further loss in business productivity. In this article, we will explore managing poor-performing employees from a legal perspective.

An employee’s poor performance could be a result of a lack of competency and poor work ethic. In the same breath, it could also be caused by external factors such as poor leadership, bad work environment, lack of resources, unclear or unreasonable expectations, and bad market conditions. To effectively improve an employee’s performance, it is important to accurately identify and resolve the underlying issue, be it an internal or external issue.

Difference between poor performance and misconduct

Sometimes poor performance may be perceived as a misconduct or breach of the employee’s express duties. For example, if a maintenance worker or mechanic fails to properly keep company equipment in good condition, and this results in said equipment causing damage and losses, is it misconduct or a performance issue?

It depends on the specific circumstances of the case and sometimes it may even be argued as either one. Misconducts are breaches to the employment contract, violation to company policy, unlawful conduct (including fraud, dishonesty, theft, insubordination, assault, absenteeism,etc), harassment, and breach of confidentiality just to name a few. It is generally intentionally committed but in some cases is committed by negligence.

Performance, on the other hand, is something that can be measured. Poor performance is a consistent failure to meet the expected standards set. It is generally not intentional but likely a result of a competency issue.

It is important for employers to ascertain if the underlying issue is one of misconduct or performance, as the ways of managing the two are distinct. In Kim Alasdair Lowley Sergeant v Malaysian Philharmonic Orchestra [2015] 1 ILJ 151, the Court held that the company must be specific in making the allegation against the employee as different types of allegations would require a different procedure to be followed. An allegation of misconduct usually warrants a show cause letter being issued which could lead to a finding of guilt, whereas poor performance requires a warning or discussion of the performance, and the employee is given sufficient opportunity to improve.

Processes before dismissing an employee for poor performance

1. The employee must be warned about their poor performance

This warning for poor performance is different from a warning letter issued formisconduct/breach. The purpose of the warning is to put the employee on notice that they are performing below standards and of the employer’s dissatisfaction.

Best practice is to always have said warning in written form. If for sensitive reasons, the warning is given verbally or face-to-face, the company should follow up the discussion with an email or letter to record what was discussed. This would be an important paper trail of the warning given.

Warnings should also be given in reasonable time. Any delays by an employer to warn an employee of poor performance could be seen as condoning the poor performance and waiving their right to take disciplinary action. The warning should clearly state how the employee is performing below expected standards and that there is a risk of punishment including termination if performance does not improve.

2. The employee must be given a fair and sufficient opportunity to improve.

After the warning is given, the employee should be accorded an opportunity to improve. In the past, some companies have been found to set up their employee for failure and the opportunity given is a mere façade. 

Besides sufficient time to improve, reasonable targets should also be set. This depends on the type of job and function of the role in the company. Companies usually implement Performance Improvement Plans (PIPs) to oversee, supervise and review the employee’s performance during this crucial time. There should be 4 things that PIPs cover i.e. the employee’s weaknesses, the period for improvement, the targets set, and the consequences.

In Hong Leong Islamic Bank Berhad v Azhar bin Abdullah & Anor [2020] MLJU 286, the Courts found that the employee was not given a genuine opportunity to improve as the targets set were too unrealistic, there was insufficient time to improve and the company’s branch was understaffed. The Court held that the company knew the employee would fail to achieve the set targets. Hence, the dismissal was unfair.

Some key tips in managing this process are: 1) ensuring the employee’s job scope, targets, and KPIs are clear; 2) providing adequate guidance and supervision to help an employee improve; 3) conducting consistent assessments and periodic reviews as annual appraisals may be insufficient; and 4) keeping proper documentation and record of the employee’s performance and the discussions held.

3. Despite the warnings and opportunities given, the employee still fails to improve.

If and only if the employee fails to improve performance based on the fair and genuine opportunity given, it is lawful to dismiss the employee.

In the event an employer is taken to Court for unfair dismissal, the burden rests on the employer to prove that it has satisfied these elements and that the dismissal was done with just cause and excuse.

Law on probationers

It is a common misconception that probationers can be simply terminated during the probationary period. In actual fact, probationers are accorded similar employment rights as confirmed employees and can take legal action for unfair dismissal.

A probationer is employed on the basis that he is taken in with a view to only being confirmed after the probationary period. This probationary period is where the employer should assess the suitability, competence, and work ethic of the probationer. Even if the performance is substandard, employers must still satisfy that the proper procedure has been followed before terminating a probationer.

What does non-confirmation mean? Generally, to not confirm an employee would mean to terminate their employment. Reasons for non-confirmation should be clearly stated and done in good faith. The employer would have to prove that the non-confirmation was based on genuine dissatisfaction.

In Catherine Law Cheng Gaik v Saiwai Land Sdn Bhd [2018] 4 ILJ 3, the claimant was put on a month-to-month probation period for 3 months which could be further extended. The Company issued a non-confirmation letter and her service was terminated. The Court allowed the claim and found that the company kept relegating various duties and functions to the claimant without fixing a set job description. Hence it was unfair to accuse the claimant of poor performance and terminate her.

Conclusion

Companies should invest more into developing and retaining talent as it may be more cost-beneficial compared to having high turnover rates. Losing employees further grow these costs. 

There are a plethora of reasons an employee could be performing poorly. If it is primarily a result of a lack of competency, bad work ethic, and a skill issue, then the employer should embark on a performance improvement plan. Ideally, employers should already screen and assess candidates before employing them. Having a good selection and talent acquisition process will reduce the issues faced involving poorer-performing employees.

It is important for employers to satisfy the proper processes before taking disciplinary action for poor performance. Otherwise, it could lead to unnecessary legal exposure and losses.