Unfair dismissal for poor performance - the guiding principles

A recent decision by the Fair Work Commission helpfully summarises when a dismissal for poor performance is an unfair dismissal for the purposes of the Fair Work Act.

What happened?

In this case, the employer (a company within the Fortescue Metals Group) did not adopt a formal performance improvement process. Instead, the employer took an informal approach over a period of nearly one year. No formal written warnings were given. This approach included:

• one-on-one supervision and instruction;
• an off-site training session for the entire team, even though the training was specifically targeted at the employee; and
• the setting of specific targets and objectives over a 12 month period.

When the employer spoke to the employee about a formal Performance Improvement Plan, it formed the view that this would not make any difference. Instead, it believed that the employee was 'incapable of perceiving or achieving an acceptable level of work performance' and it decided to terminate the employment.

The employee then made an unfair dismissal application.

Who won?

The employer. 

In considering the absence of a formal written warning or any formal performance management process, the Commission noted:

"While useful from an evidentiary perspective, performance management need not occur in a formal documented manner in order for an employer to rely on it as the basis for the termination of an employee’s employment on the grounds of poor performance."

What principles were applied?

In making its decision, the Commission conveniently summarised a number of important principles that are applied in determining unfair dismissal applications, as follows:

1. An employee protected from unfair dismissal must be provided with an opportunity to respond to any reason for dismissal relating to the conduct or capacity of the person. This criterion is to be applied in a common sense way to ensure the employee is treated fairly.
2. An employer must have a valid reason for the dismissal, although it need not be the reason given to the employee at the time of the dismissal.
3. The employer's reasons for the dismissal should be ‘sound, defensible and well founded’ and should not be ‘capricious, fanciful, spiteful or prejudiced.’
4. The reason must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business.
5. Notification of a valid reason for termination must be given to an employee protected from unfair dismissal before the decision is made, in explicit terms, and in plain and clear terms.
6. Where an employee protected from unfair dismissal is dismissed for the reason of unsatisfactory performance, the employer should warn the employee about the unsatisfactory performance before the dismissal.
7. Where an employee protected from unfair dismissal has requested a support person be present to assist in discussions relating to the dismissal, the employer should not unreasonably refuse that person being present. However there is no positive obligation on an employer to offer an employee the opportunity to have a support person.

Key Takeaways

The case demonstrates that a dismissal will not automatically be unfair, just because a formal performance management process is not implemented or a formal written warning has not been issued.

However, in considering this decision, it is important to recognise that the employer went to great lengths in trying to remedy the situation with the employee. And although it was able to defend its position when challenged, it would have consumed considerable resources in doing so.

You can read the full decision here.