An underperforming  employee was given the opportunity to improve and reach his KPIs, but the lack of training and direction meant dismissing him was unfair.

Last October, a motor services company dismissed a technician for failing to meet his key performance indicators (KPIs). The company said he fell short of selling batteries to customers at a minimum of 24 per cent of the jobs he attended and that this low sales rate differed from his colleagues.

The employer also said he failed to reduce the time he was taking at each callout (he spent longer than the 17 minutes target set for each job) and had an “exceptionally high” rate of replacing batteries under warranty. For example, the company said in August 2021 he replaced 20.6 per cent of batteries under warranty, whereas his peers replaced only 3.9 per cent.

The employer maintained that its performance expectations were in line with industry standards, and that the technician consistently failed to meet KPIs for almost 22 months.

In May 2020, the technician was placed on a performance improvement plan, but once the plan ended in October of that year, he received a formal written letter noting that due to his “continued failure to meet expectations… his ongoing employment was at risk”.

The following August, the technician was issued a show cause letter noting that while there had been some improvement in the three identified areas, his performance remained below KPI standards.

The technician was dismissed a few months later and then took the matter to the Fair Work Commission.

While Deputy President Boyce noted that KPIs “might be an acceptable tool to measure general performance comparatively amongst [technicians]”, he said the technician’s underperformance did not justify his dismissal. Among other reasons, this was in large part because the KPIs set were deemed unfair measures of his performance and there was minimal guidance provided to help him achieve those KPIs.

The FWC ordered the employer to reinstate the employee to his previous role, stating that there is a “sufficient level of trust and confidence [that] can be restored between the parties to make their relationship viable and productive going forward”.

James True, Practice Group Leader at LegalVision, highlights the order for reinstatement as being “notable by its rareness”.

“It’s quite uncommon to see an order for reinstatement,” says True.

“But the employee in this case just wanted his job back to do the best he could for his customers. Although the employer said there’d been a breakdown in the relationship and it wouldn’t be appropriate that the employee comes back to the workplace, the FWC sided with the employee on that point and said it was possible to ultimately repair the relationship.”

The KPIs in question

A major factor weighing into the FWC’s decision was the absence of a document clearly outlining the technician’s KPIs, with specific information to support the employee in achieving those targets.

This could have included details about “how each KPI has been derived, what definitions are associated with the KPIs, how the KPIs are assessed, what variables are accepted as impacting upon KPIs, or how such variables are dealt with in terms [of] ultimate KPI outcomes”, said Boyce.

He also noted the performance improvement process was “neither a well-structured, nor assistive one” and that “no training or direction was given” to the technician.

True says the FWC’s finding is particularly interesting because an employer could typically be fairly confident in dismissing an employee where they have been set consistent KPIs, failed to meet those KPIs, been warned their employment is at risk, and been given an opportunity to improve.

“That would ordinarily be the building blocks for a very strong case for an employer, but I think this decision demonstrates how the detail in those KPIs and in the employer’s approach was lacking. That was the determining factor for unfair dismissal.” 

The FWC also found that many of the KPIs set by the employer were not reasonable or fair measures by which to assess the employee’s performance.

For example, Boyce noted how “average working time and time on job measures were a perverse incentive to not complete work properly or professionally”.

“If those jobs were complex or difficult, they should necessarily spend more time on them,” said Boyce.

Being able to achieve many of the KPIs set was also highly contingent upon factors outside the employee’s control.

“The KPIs rely on things like whether the battery is or isn’t under warranty and if the employee has to change it over. This isn’t necessarily something they can improve upon,” says True.

The technician argued that a fairer and more accurate KPI that he could’ve been judged against was ‘jobs per hour’, and True says it appeared as though “the employee was actually doing fairly well on that… There were other KPIs that could have been looked at instead of the ones used”.

Denied opportunity to respond

The show cause letter covered an asserted failure to meet KPIs in relation to the three improvement areas identified. But the employer failed to include allegations about the employee’s “assertedly poor attitude” and assertions that he was replacing allegedly sound batteries under warranty, the FWC found. The employer said these issues weighed into its decision to dismiss the technician.

This factored into the FWC’s decision because the employee could not have had the opportunity to respond to issues that were only raised after termination.

“The employer relied on the employee’s poor attitude as a basis to justify the termination. The fact that there were points omitted from the correspondence with the employee, including the final formal letter, the show cause letter and the termination letter, made it difficult for the employer to suggest that these were considerations they were relying on when they made the termination,” says True.

On the latter point, Boyce noted that “knowingly replacing batteries under warranty when they were not under warranty is plainly misconduct and was a matter that was never raised with [the technician] which he could have responded to”.

“That’s quite a serious issue, and one that should have been brought up with the employee at a much earlier point,” says True.

Setting KPIs

The issues in this case raise questions around how employers should set KPIs, and how best to communicate these to employees while giving them the opportunity to improve.

True highlights four key points for HR to keep in mind:

1. Communicate KPIs in writing: “Being short on detail hurts the employer because it makes it harder for the employee to know what’s required of them to achieve a reasonable level of performance.”
2. Make sure the KPIs are reasonable: “They need to genuinely reflect the performance that you’re trying to achieve from the employee.”
3. Cover all your bases: “There’s a lesson here to be thorough in your correspondence and make sure that you are comprehensively dealing with all the issues. There was some criticism from the Commission that major allegations about the employee’s attitude and behaviour were not flagged until after termination.”
4. Provide the opportunity to improve: “When you’re going to tell someone that their performance is not up to scratch, you need to identify what is required in order for them to approve.”
5. Be specific to help them improve: “You need to be really clear in what you’re asking of someone. If you’re vague and say something like, ‘You need to make the required improvements,’ then the employee can turn around and say, ‘I didn’t really know what you wanted from me.’ It’s hard for the performance issues to then be on the employee because it was never made clear what they needed to do to improve.”

Employers have a responsibility to not only set performance standards, but to provide guidance and support to help employees achieve them. This case shows the fall-out that can result if clear and detailed processes aren’t followed when setting performance improvement plans.

Managing an underperforming employee isn’t as simple as just putting them on a performance improvement plan. Get across your legal obligations through AHRI’s short course on Performance Management. Book in for the next course on 19 September.