Legal Briefing No. 62

Number 62

28 February 2002

Legal Issues in Managing Performance
Problems

Many managers remark that their greatest problems often
arise from dealing with underperforming staff. The purpose
of this briefing is to assist managers by outlining the
legal parameters to keep in mind when dealing with performance
issues.

The State of the Service Report 1999-00 of the
Public Service and Merit Protection Commission makes a
number of pertinent points regarding the Government's changes
to public sector employment, in particular:

  • the underlying thrust has been to shift responsibility
    for performance to individual agencies within the broad
    parameters of the Public Service Act 1999 ('the
    PSA')
  • the Public Service should be run along the same lines
    as the rest of the workforce except where there are public
    policy reasons for not doing so.

IMPLICATIONS FOR CLIENTS

Management decisions relating to underperformance of APS
employees must be carefully made as:

  • successful handling of performance issues contributes
    to the overall health and success of an organisation,
    and
  • not adequately addressing problems may expose agencies
    to litigation, even in some cases where those actions
    are well-intentioned and seemingly well planned.

THE LEGISLATIVE FRAMEWORK

APS Values

The PSA is intended 'to provide a legal framework for
the effective and fair employment, management and leadership
of APS employees' (section 3(b) of the PSA). The APS Value
contained in section 10(k) stresses that an agency focus
on 'achieving results and managing performance'. Clause
2.12 of the Public Service Commissioner's Directions 1999
('Commissioner's Directions') relates to this Value and
provides that Agency Heads establish a 'fair and open performance
management system' covering all employees. Each employee
should be provided with a clear statement of performance
expectations and an opportunity to comment on them. The
detail of how this is done is for the agencies concerned.

Code of Conduct

The APS Code of Conduct in section 13 of the PSA provides,
in effect, for measures of employee performance. The Code
of Conduct is expressed in broad terms and requires APS
employees, to 'act with care and diligence in the course
of APS employment' (section 13(2)), 'to comply with a lawful
direction' (section13(5)) and at all times to 'behave in
a way that upholds the APS Values and the integrity and
good reputation of the APS' (section13(11)).

Section 15(3) of the PSA requires agencies to have procedures
in place for dealing with suspected breaches of the Code
of Conduct. The procedures must comply with requirements
of procedural fairness. The Commissioner's Directions set
out the basic procedural requirements for determining breaches.
For example, an employee must be informed of the case against
him or her and the sanctions that may be imposed and must
be given a reasonable opportunity to respond in relation
to the expected breach (clause 5.2).

Suspension

Regulation 3.10 of the Public Service Regulations 1999
('the PS Regulations') provides an employee may be suspended
where the Agency Head believes on reasonable grounds that:

  • the employee has or may have breached the Code of Conduct,
    and
  • suspension is in the public, or agency's, interest.

Medical Examinations

Regulation 3.2 of the PS Regulations gives a power to
direct an employee to attend a medical examination to assess
fitness for duty. This power may be exercised where the
employee's health may be affecting work performance or
conduct.

Compensation Issues

Where an employee is undertaking, or has completed, a
'rehabilitation program' in accordance with the Safety
Rehabilitation and Compensation Act 1988 (the SRC Act)
the employer is obliged to take all reasonable steps to
provide, or assist the employee to find, 'suitable employment'
(section 40 of the SRC Act).

Where an employee has a medical condition which is a compensible
injury under the SRC Act, liability to pay compensation
under the SRC Act can persist after any termination of
employment. For example, if the employee remains incapacitated
for work by the injury, the employee will continue to be
entitled to compensation under the SRC Act for that incapacity.
The level of compensation payable will be reflected in
the premiums paid by the agency to Comcare. SRC risks should
be assessed by an agency in considering termination of
employment on performance grounds connected with medical
conditions and consultation with Comcare is appropriate.

Dismissal

Section 29(3) of the PSA sets out the grounds for termination
of ongoing employees. The following grounds may be relevant
for underperforming employees:

  • non-performance, or unsatisfactory performance, of
    duties (section 29(3)(c))
  • inability to perform duties because of physical or
    mental incapacity (section 29(3)(d)), and
  • breach of the Code of Conduct (section 29(3)(g)).

In section 29(3)(c) non-performance means a refusal or
inability to perform so as to repudiate the contract.

As to section 29(3)(d), it is important to note that if
the employee is a member of either the CSS or PSS termination
is not legally available unless the relevant superannuation
authority has certified in writing that the employee is
entitled to invalidity retirement benefits under its scheme
(section 54C of the Superannuation Act 1976 and
section 13 of the Superannuation Act 1990 respectively).

Unfair and Unlawful Dismissal

The provisions relating to termination of employment in
the PSA are generally subject to the Workplace Relations
Act 1996 ('the WRA'). An employee can generally make
an application under section 170CE of the WRA to the Australian
Industrial Relations Commission ('the AIRC') for relief
in respect of the termination of their employment on the
ground that the termination was 'harsh, unjust or unreasonable'.

Liability under the WRA for unfair termination will be
avoided if termination is for a valid reason, the employee
was given an opportunity to respond to any reason relating
to their capacity or conduct, and termination was not otherwise
harsh, unjust or unreasonable.

It is unlawful to terminate an employee's employment because
of temporary absence from work because of illness or injury
(section 170CK(2)(a)) or because of physical or mental
disability (section 170CK(2)(f)). An exception is where
termination is based on the 'inherent requirements' of
the position (section 170CK(3)).

A 'temporary absence' is broadly defined. In general,
if an employee provides a medical certificate for the illness
or injury (whether the employee is on paid or unpaid sick
leave), and if the employee's absence has not extended
more than three months, the absence is a temporary absence
covered by section 170CK(2)(a). An absence longer than
three months may also be a temporary absence if the employee
is on paid sick leave for that longer period. (Regulation
30C of the Workplace Relations Regulations.)

Notice

An employer must give the required period of notice where
employment is terminated (section 170CM(1) of the WRA).
An exception is where the employee is guilty of 'serious
misconduct'. This means misconduct of such a nature that
it would be unreasonable to require the employer to give
notice. Regulation 30CA(2) of the Workplace Relations Regulations
gives examples of serious misconduct, namely, theft, fraud,
assault, intoxication at work or disobeying directions.

Disability Discrimination

The Disability Discrimination Act 1992 ('the DDA')
makes it unlawful to discriminate against an employee with
a disability. Section 5 of the DDA relates to 'direct'
discrimination where a person discriminates against another
person on the ground of or because of the other's disability.
Section 6 relates to 'indirect' discrimination and provides
that discrimination includes where the discriminator requires
the other person to comply with a 'requirement or condition
which is not reasonable having regard to the circumstances
of the case'. ]

However, discrimination is not unlawful if the employee
is unable to 'carry out the inherent requirements of the
particular employment' or if to make accommodations to
enable the employee to carry out the inherent requirements
would impose 'unjustified hardship' on the employer. These
exceptions are limited to offers of employment and dismissals
(section 15(1)(b), 15(2)(c) and 15(4) of the DDA. Before
taking action it is necessary to take into account the
person's past training, qualifications and experience,
performance as an employee (with the present employer)
and any other relevant factors (section 15(4) of the DDA).

Administrative Law Requirements

Employment decisions made under the PSA are generally
required to be made in accordance with the requirements
of administrative law. A failure to comply with these requirements
may render a decision liable to be set aside on judicial
review (for example, under the Administrative Decisions
(Judicial Review) Act 1977).

Administrative law requirements include an obligation
of procedural fairness. This generally requires that an
employee be given a reasonable opportunity to comment on
the basis of any proposed decision adverse to the employee.

PRINCIPLES AND PROCEDURES IN DEALING WITH PERFORMANCE
PROBLEMS

Agency Wide Issues

A general framework for dealing with performance issues
should be established. Agencies should ensure that:

  • clear and practical performance management frameworks
    are established and followed
  • the general parameters in the Code of Conduct have
    been supplemented, where appropriate, with agency specific
    directions and policies
  • employees are made aware of these performance management
    procedures
  • APS employees have a clear understanding of what is
    expected of them, their duties, performance standards
    and attendance
  • an explanation is provided to staff as to how underperformance
    may impact on the reputation and operational requirements
    of the agency
  • employees are familiar with APS Values and the Code
    of Conduct
  • employees receive appropriate performance training
  • there are measures in place to ensure compliance with
    anti-discrimination laws.

Handling Particular Cases

What are the legal issues to keep in mind where a manager
is considering how to handle a case of underperformance?
The following approach is suggested, not just because it
is in line with good management, but also because it makes
actions by managers more able to be justified legally.

Be Objective

There are often personal factors or issues in the workplace
that may distract the manager. However, it is important
to be fair and to act on the basis of facts. It may well
be appropriate to seek advice at an early stage from an
outside human resources expert or a lawyer.

Counselling/Warnings Be Specific

The manager should find that a performance management
system has been established that is 'fair and open' and
that the agency is focussing on results. Thus the manager
must ensure that the expectations for the job are made
known to the employee.

In discussing performance issues it is critical that the
manager be specific in addressing the perceived remedies
and necessary changes required. This should be done in
such a way which gives the employee an opportunity to comment
and if possible, redress the shortcoming. A specific review
date should also be included giving the employee a 'reasonable'
time frame in which to rectify any problems.

The review should address each issue raised in the counselling
or warning, giving the employee the opportunity of detailing
what action he or she has taken. Additional underperformance
issues, or issues that arise during the review process
may need to be considered as a separate matter. It may
be unfair to the employee if they are simply added to the
current warning. Avoid, of course, the 'cloak and dagger
approach'.

The Paper Trail

Actions by managers in managing the underperformance of
an employee must be well documented. The manager should
check to see what records exist relating to the employee's
performance. Many cases are received by lawyers with the
instruction that an employee has been a problem for years,
but on examination there is no documentary record of this.
It may be relevant for a manager to record any informal
discussions with the employee which have alerted the manager
to the problem.

Records of attempts by managers and the employee to address
the underperformance, such as counselling or training should
similarly be recorded. Records should be placed on the
employee's personal file where they relate to formal processes
such as counselling. It may also be appropriate for a copy
of the record to be provided to the employee for reasons
of procedural fairness. In other cases it may be enough
for the manager to keep a copy of the document.

Breaches of the Code of Conduct

In many cases, an underperformer will, in some way, be
in breach of the Code of Conduct. Not every suspected breach
must be dealt with formally. Indeed, it may be considered
poor management practice to initially adopt this approach.
A more effective way of initially dealing with possible
breaches of the Code of Conduct may well be counselling.
However, there will be other cases where formal action
is appropriate and where the suspected breach is more serious
or the employee has a pattern of misconduct, this should
be considered.

Redeployment

Where an employee is incapacitated or not coping, redeployment
within the agency should be considered.

Medical Issues

It is critical that any medical issues be considered and
taken into account. It may be necessary to obtain a report
from an appropriate medical practitioner. In some cases
this may form the basis of a 'graduated return to work'
plan.

If an employee is consistently absent from work agencies
should check, as far as is reasonable, whether there are
any mitigating factors contributing to the absences (for
example, stress and anxiety disorders).

If the employee is acting in a dysfunctional way in the
workplace this may be the manifestation of a medical condition.
It may be appropriate for the employer to take steps to
find out the nature of the condition. As noted above there
is power under the PS Regulations to direct the employee
to attend a medical examination. It should not be immediately
assumed that the employee is a 'misconduct' case.

Where an employee is incapacitated it should generally
be suggested the employee use available leave, at least
in cases where this may enable the employee to overcome
the difficulty.

Termination Where Medical Issues

If medical opinion is obtained and the nature of the condition
brings into question whether the employee is able to do
the job, it is necessary to consider the availability of
any termination grounds (unsatisfactory performance, non
performance or inability to perform). If a disability is
involved, it is also necessary to consider the 'inherent
requirements' of the position and the possibility of reasonable
accommodation of the disability. To determine this the
employer may need a written opinion from a person who has
detailed knowledge of what is needed to do the job. The
employer is then in a position to make a proper decision
about termination of employment. This, of course, is a
procedure which calls for skill and judgment. Further,
it is necessary to ensure that any termination is not otherwise
harsh, unjust or unreasonable. If the employee is in the
CSS or PSS schemes the need for a certification by the
relevant superannuation board as to invalidity benefits
must also be remembered.

Termination on Other Grounds

Again a careful review of the case is necessary before
this is done. The circumstances of the case must be reviewed.
Important questions will include:

  • what is the reason for the proposed termination, how
    serious is it, and is there evidence of problems over
    a period?
  • has the employee been given a 'fair go', in particular,
    has the reason been made known to the employee who has
    then had a reasonable opportunity to respond?
  • have formal warnings been given to the employee?
  • have the above matters been well documented and is
    the evidence reliable?

CASE EXAMPLES

A selection of decisions is given below. Many are from
the private sector. However, the general principles are
of guidance.

Medical Issues: Disturbed Behaviour by an Employee

A vexed area is where an employer does not know of an
employee's disability but is aware of disturbed, often
aggressive behavior, resulting from the disorder.

X v McHugh (1994) 56 IR 248 was heard by Sir Ronald
Wilson as President of the Human Rights and Equal Opportunity
Commission. X was an auditor with the Auditor-General for
the State of Tasmania. His employment was terminated because
of an unsatisfactory probation report. During his probationary
period he showed great difficulty working with clients
and with other staff members. Before the end of the probationary
period, X's supervisor became convinced that X's employment
should be terminated and, it appears, persuaded the Auditor-General
of this view. Some two months later a medical report was
submitted by X's general practitioner which referred only
to a serious medical condition that the practitioner said
was not likely to re-occur. (X had requested that his practitioner
not mention the nature of his medical condition.) The Auditor-General
terminated X's services. Some time after that, further
medical opinion from a psychiatrist became available which
indicated that X had paranoid schizophrenia of a mild type
and that this could be controlled with medication.

An important issue was whether or not the discrimination
could be excused on the basis that X was unable to perform
the 'inherent requirements' of his employment. Sir Ronald
found that the onus rests on the employer of persuading
the Commission of this. He found that after X's problem
became apparent his employer went out of the way to ensure
that he had limited exposure to clients. Sir Ronald concluded
that X had not been given a fair chance to prove his capacity
to carry out the inherent requirements of the job and in
fact there was evidence that he could. He noted that it
was 'most regrettable' that X had not been 'more frank'
with his employer with respect to his medical condition.

The Auditor-General was found liable and ordered to pay
$20,000 compensation to X for loss of income.

However, in the recent decision of Tate v Rafin & Wollongong
District Cricket Club Inc [2000] FCA 1582, Wilcox
J in the Federal Court took a narrower interpretation
of discrimination. Mr Tate was a Vietnam veteran who
suffered from Post Traumatic Stress Disorder. This caused
him to behave in an unacceptably aggressive way leading
to his expulsion from a cricket club after he was not
selected for a team. The club had no knowledge of his
disorder and had not asked him to undertake duties which
were not reasonable. The court found it had not discriminated
against him.

It should be noted, however, that this case was not in
an employment context. An employer may often have more
reason to be aware of an employee's condition and thus
the precedent should be treated carefully for present purposes.

Medical Issues: OHS Considerations

In Melville v Cumnock No. 1 Colliery (13 October
1999, AIRC, unreported), the employer, following advice
from a medical specialist, terminated Mr Melville's employment
based on his unfitness for work. Mr Melville was a mine
maintenance fitter and welder. He had been transferred
from underground maintenance to mine surface work after
having being assessed as unfit to safely work underground
following a number of incidents in which he had become
disoriented and had to be rescued. Years later Mr Melville
suffered several further work-related injuries.

The employer sought a medical opinion from a medical specialist
who had the relevant experience and reputation to assess
Mr Melville for continued employment in the industry. The
medical specialist assessed Mr Melville as being unfit
for work. Mr Melville was given many months to provide
a specialist medical opinion stating that he was fit to
work but did not. The employer subsequently terminated
Mr Melville's employment. The AIRC concluded that the dismissal
was justified.

Failing to Meet Agreed Outcomes

In Crozier v Palazzo Corporation Pty Ltd (2000)
98 IR 137 the AIRC found that the decision to terminate
Mr Crozier's employment was justified. He had accepted
a job on the basis that he was to acquire new business
in a difficult market. Mr Crozier was unable to do so and
in six months of employment he had only succeeded in generating
new sales of $1300. The decision was upheld by the Full
Federal Court on 1 August 2001 [2001] FCA 1031.

Warnings not Sufficiently Specific

In Rouse v Minit Australia Pty Limited (2 September
1997, AIRC, unreported) Mr Rouse had been employed by the
respondent for six years as a shoe repairer/engraver/key
cutter. He operated a one person outlet within a shopping
centre. Employees in his position were required to follow
the steps in a customer services handbook designed to maximise
sales. His employer alleged that he had been dismissed
as he was unable to meet company sales standards and that
there had been ample warnings about this.

The AIRC found that the employer had issued written warnings
about the performance which mentioned unacceptable sales
performance and failure to achieve company sales standards.
During the hearing the real reasons for his dismissal became
clearer. Representatives of the employer gave evidence
that Mr Rouse was not trying to sell to every customer
and was abrupt with customers. However the written warnings
which had been given to him did not state the particular
shortcoming which needed to be corrected. The AIRC considered
that Mr Rouse had not been given opportunity to address
what management considered were his shortcomings. It found
that the dismissal had been unfair and ordered that he
be reinstated to his former position.

Counselling Procedures

In Anderson v Groote Eylandt Mining Company Pty Ltd (2000)
102 IR 5, Mr Anderson who was not well-educated and had
poor literacy skills, was absent on a number of occasions
without explanation or prior advice. His employer dismissed
him. This was set aside by the AIRC which found that the
employer had not fully advised him as to the disciplinary
procedures to be followed, especially his right under the
procedures to have a union delegate involved.

Singh v Australian Taxation Office (15 July 1998,
AIRC, unreported) is an example of a thorough approach
by an employer. Mr Singh had been employed by the Australian
Taxation Office ('the ATO') as an information technology
officer. His letter of appointment specified a six month
probationary period which could be extended if the ATO
had any doubts. Mr Singh's three month report recommended
a continuation of his probationary period as his performance
was said to be unsatisfactory. His six month report recommended
he be made permanent. However very shortly thereafter unsatisfactory
aspects of Mr Singh's employment came to attention. In
particular, reports indicated that his work rate was below
the standard required and he had difficulty in understanding
the duties involved. Counselling took place evidenced by
a proper record. Mr Singh was moved to a different team
and his performance monitored. A further report recommended
that Mr Singh's probationary employment be terminated.
Mr Singh was given an opportunity to comment on this. He
initiated a grievance procedure as he believed he was being
treated unfairly. A thorough investigation was carried
out and none of Mr Singh's grievances were found to be
established. A final opportunity to persuade management
not to accept the recommendation of termination was offered
to Mr Singh but he declined this opportunity. The Commission
found that termination of his employment was not harsh,
unjust or unreasonable. It held Mr Singh had been informed
of the areas of his work that were unsatisfactory and given
an adequate opportunity to improve. Further, Mr Singh had
been warned prior to the recommendation of termination
about his poor performance.

For further information please contact

Stephen Lucas of our Melbourne office on
telephone (03) 9242 1200 or e-mail stephen.lucas@ags.gov.au,
or any of the following lawyers:

Canberra

Paul Vermeesch

(02) 6253 7428

Joan Bonsey

(02) 6253 7406

Sydney

Jim Heard

(02) 9581 7477

Brisbane

Maurice Swan

(07) 3360 5702

Perth

Graeme Windsor

(08) 9268 1102

Adelaide

Sarah Court

(08) 8205 4231

Darwin

Rick Andruszko

(08) 8943 1400

Hobart

Peter Bowen

(03) 6220 5474

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

For enquiries regarding supply of issues of the Briefing,
change of address details etc, tel: (02) 6253 7052 or fax:
(02) 6253 7313 or e-mail: ags@ags.gov.au.

The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the basis
of any of the material in this briefing.

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