Maintaining a productive and harmonious workplace is important for both employees and employers. One of the situations that can challenge this harmony is the termination of employment due to poor performance. In India, this topic is particularly sensitive, because there is a lot of taboo attached to this type of termination. Moreover, the exact legal process emerges from court cases and company policies.
In this blog, we shed light on the critical aspects of employment termination for poor performance, as held by courts in India. We will explore the legal background, the processes involved, the concept of Performance Improvement Plans (PIPs), and the rights and responsibilities of both the employee and the employer. Whether you are an employee trying to understand your rights or an employer seeking to comply with best practices, this guide will provide you with the essential information you need.
Table of Contents
When can employer fire employees for poor performance?
There can be circumstances where it becomes a necessity, such as when an individual consistently fails to meet the expected performance standards. However, an employer needs to adhere to proper procedures, such as providing sufficient opportunity for improvement and making exit payments.
What do Indian courts say about performance-based terminations?
Indian courts do acknowledge the termination of an employee’s service due to performance-related problems. However, it is worth noting that the procedure for termination due to poor performance has been shaped through judicial precedents, rather than being explicitly outlined in law.
Courts have frequently noted that poor performance is a subjective evaluation and that an individual deemed a poor performer in one organization could be a good performer in another. Moreover, courts have clarified time and again that such a termination is not the “fault” of the employee, but a mere mismatch in their skills compared with the job requirements.
Given this perspective, it is generally understood that a termination due to unsatisfactory performance is a termination simpliciter, and not a stigmatic termination (which is carried out as a punishment).
What is meant by Poor Performance?
The concept of ‘unsatisfactory performance’ is ambiguous as there is no clear-cut legal definition. However, by relying on previous court cases, ‘poor’ or ‘unsatisfactory’ performance can be broadly interpreted as:
- a clear gap in understanding the job requirements while performing their responsibilities, or
- not meeting the required skill level, or
- the job output not being commensurate with the experience level of the employee.
What responsibilities does an employee have regarding performance?
As an employee, it is one’s responsibility to contribute to a productive and positive work environment. Sometimes, however, it can be challenging if one is not meeting the expected performance levels.
The responsibilities include:
- Understanding and adhering to company policies
- Regularly updating skills and knowledge
- Communicating with superiors regarding any difficulties faced
Which law covers performance terminations?
In India, there is no specific statute that covers performance terminations. Instead, the legal framework for such terminations is primarily shaped by judicial precedents. The courts have played a significant role in developing guidelines and principles for handling performance-based terminations.
This means that employers and employees need to refer to past court rulings and case laws to understand the procedures and requirements involved in termination due to poor performance. The absence of a specific law underscores the importance of legal precedents and highlights the need for employers to ensure that their termination decisions align with fair and consistent practices established through these precedents.
Is the termination considered the employee’s fault?
When it comes to termination based on poor performance, it is important to note that it is not generally considered the employee’s fault. The concept of poor performance is often seen as a ‘mismatch’ between the expectations of the employer and the capabilities or suitability of the employee for the specific role or organization. Courts in India have recognized this perspective in various cases.
What is the procedure for employee termination?
The procedure for termination due to poor performance generally follows the principles of natural justice. These principles include providing the employee with a fair and reasonable opportunity for improvement, along with the necessary support to do so.
The specific steps involved in the procedure may vary based on the circumstances and the organization’s policies. However, some common elements include:
- Clear performance criteria must be established by the employer – these criteria should be specific to the nature and level of the employee’s job,
- Regular feedback – any incidents of under-performance should be highlighted and communicated clearly to the employee.
- Reasonable chance to improve – the employee should be given a reasonable opportunity to improve their performance. If there is a Performance Improvement Plan (PIP) Policy already in place, the employer is required to follow this. In the absence of such a policy, a 3 to 6 month’s time period is considered reasonable for improvement. Furthermore, this also involves providing regular assistance and guidance to the employee for improvement.
- If, despite these measures, the employee fails to improve their performance, the employer can proceed with the termination.
What steps should employer take before such a termination?
However, if you do face a termination on the grounds of poor performance, be aware that there are certain steps that a company needs to take before carrying out such a termination. These steps are based on principles of natural justice, and if not followed properly, the employee can later file a claim of wrongful termination against the employer.
It is crucial for employers to handle performance-related terminations with fairness and transparency, ensuring that employees are given a reasonable opportunity to improve and address any performance issues.
A company should consider the key steps:
- Clear Communication: The first step in dealing with performance issues is to ensure clear communication. The employer should initiate a one-on-one meeting with the employee to discuss performance concerns openly and honestly. During this meeting, the employer should provide specific examples of where the employee’s performance is lacking and give constructive feedback on areas that need improvement. The purpose is to ensure that the employee understands the performance expectations and the specific areas that require attention.
- Establish Performance Goals: After understanding the performance issues, it is crucial for the employer to collaboratively set clear performance goals with the employee. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART goals). Setting such goals will provide the employee with a clear understanding of what is expected for improvement and will allow the employer to track the employee’s progress effectively. Regular check-ins and feedback sessions should be scheduled to monitor the employee’s performance against these goals.
- Document Performance: It is essential for employers to maintain thorough documentation of the employee’s performance issues and the steps taken to provide support for improvement. This documentation serves as evidence of the employer’s efforts to help the employee succeed and demonstrates that any potential termination was solely related to performance concerns. It is recommended to document performance discussions, coaching sessions, warnings, or any other relevant actions taken to assist the employee.
- Understand the Performance Improvement Plan (PIP) Policy: Many companies have a Performance Improvement Plan (PIP) policy in place to address performance issues before considering termination. The employer should ensure that both the employer and the employee are familiar with the PIP policy. This policy outlines the process, timelines, and expectations for improvement. It is important for the employee to understand the steps involved, their rights, and the support that will be provided to help them meet the required performance standards. The PIP policy should be communicated clearly to the employee in writing and be easily accessible for reference.
- Handle Termination Meeting Respectfully: If the performance issues persist and it ultimately leads to a termination meeting, it is a significant step in the process and should be handled with respect, sensitivity, and professionalism. During the meeting, the employer should clearly communicate the reasons for the termination, referring back to the documented performance issues and the steps taken to address them. It is essential to avoid being defensive or overly critical and instead focus on facilitating open dialogue. The employee should be given an opportunity to ask questions, seek clarification, and provide their perspective. The termination meeting should be conducted in a private setting, ensuring confidentiality and respect for the employee’s dignity.
By following these steps, employers can demonstrate their commitment to fair and transparent procedures in addressing poor performance. This approach fosters a constructive environment that encourages improvement and provides employees with an opportunity to rectify their performance issues.
What is the process of a Performance Termination?
When it comes to facing termination for poor performance in India, it is not as straightforward as being told “You’re fired!” as one might see in a reality TV show. Certain conditions must be met by employers to ensure the termination is fair and lawful. Here are a few main points from an employee’s perspective:
- First, your employer must provide a notice period before the termination takes place. This is usually outlined in your employment contract and can vary based on your length of service. In some cases, the notice period may also be set off against the Performance Improvement Plan (PIP) time period if a PIP has been initiated and the employee fails to meet the required performance standards within that timeframe. It is crucial for the PIP policy to clearly state this provision, ensuring transparency and clarity for both the employer and the employee.
- Second, your employer must have a performance evaluation process in place to assess your work. You should know what is expected of you and be given a chance to improve if you are not meeting those standards. The PIP, if implemented, should outline the performance expectations, the specific areas for improvement, and the consequences if the employee fails to meet the set goals within the designated timeframe.
- Third, proper documentation is vital. Your employer should keep track of your performance, including any disciplinary actions or warnings issued during the PIP period or prior to it. Documenting the performance issues and the steps taken to support the employee’s improvement is crucial for establishing a clear record of the performance evaluation process.
- Fourth, due process is essential. Your employer must follow a fair process when terminating you, giving you a chance to respond to any allegations of poor performance. This includes providing feedback and support during the PIP period, conducting regular check-ins, and offering guidance to help you meet the performance goals. If, despite these measures, the employee fails to meet the required performance standards, the employer may proceed with termination. However, this decision should be based on a thorough evaluation and should follow the principles of natural justice.
It is crucial to remember that the conditions for termination due to poor performance can vary based on the employment contract, applicable laws, and the specific provisions outlined in the PIP policy. As an employee, you should carefully review the terms of your contract and the PIP policy, seeking legal advice if necessary, to ensure that any termination is carried out correctly.
So, when it comes to facing termination, it is best to make sure all the necessary steps are taken, and the PIP policy clearly outlines the rights, expectations, and consequences related to the performance improvement process.
Where and how can employee challenge such a termination?
If a termination based on performance is contested in court, by an employee, then the procedure broadly plays out like this.
The challenge can be initiated by filing a legal claim against the employer, asserting that the termination was unjust or handled improperly. However, it is important to note that the burden of proof rests with the employee, meaning you would need to provide evidence to support your claim that you have met the expected performance levels and that the termination was unfair.
As an employee, you have the right to challenge a termination based on poor performance if you believe it was unjust or handled improperly. You can initiate the challenge by filing a legal claim against the employer, before a Labour Court in case you were an individual contributor and did not perform any managerial, supervisory or administrative roles.
These specialized courts are equipped to handle disputes related to employment matters, including terminations based on performance. However, it is advisable to seek legal counsel to determine the specific court or tribunal that has jurisdiction over your case, as it may vary depending on the region or state.
The procedure for challenging a termination based on poor performance can vary depending on the specific circumstances and applicable laws. However, there are general steps that may be involved in the process:
- Clear performance criteria must be established by the employer. These criteria should be specific to the nature and level of your job. The employer should have clearly communicated these criteria to you and ensured that they are objective and reasonable.
- Any incidents of under-performance should have been highlighted and communicated clearly to you. The employer should provide documentation or records demonstrating the instances of under-performance, including any warnings or disciplinary actions taken.
- You should be given a reasonable opportunity to improve your performance. The employer should provide support, guidance, and any necessary resources to help you enhance your performance. This may include additional training, coaching, or performance improvement plans.
- If, despite these measures, you fail to improve your performance, the employer can then proceed with termination. However, it is essential to ensure that the termination decision is fair and based on objective evaluations of your performance. The employer should maintain proper documentation throughout the process to demonstrate that they followed a fair and reasonable procedure.
Some reasons why you, as an employee, might face termination due to poor performance:
- Consistently falling short of expectations: If you are consistently underperforming and failing to meet the expectations outlined in your job description, termination might be a consideration.
- Failing to improve despite feedback and support: If you have received feedback and support to help improve your performance, but still fail to meet expectations, termination might be necessary.
What is a Performance Improvement Plan (PIP) and how does it work?
In some cases of poor performance, employers may choose to implement a Performance Improvement Plan (PIP) as a proactive measure before considering termination. A PIP is a structured approach that outlines specific performance expectations and provides an opportunity for employees to improve their performance within a defined timeframe.
Is PIP necessary for all companies?
While a Performance Improvement Plan (PIP) can be an effective tool for addressing performance issues, it is not mandatory for all companies to have a PIP policy in place. The decision to implement a PIP may vary depending on the organization’s size, industry, and internal policies. Some companies may choose to handle performance concerns through alternative approaches such as informal feedback sessions, coaching, or disciplinary procedures. However, the absence of a formal PIP does not negate the employer’s responsibility to address performance concerns and provide employees with an opportunity to improve.
What if my Company does not have a PIP?
If your company doesn’t have a PIP, it does not mean that performance issues will go unaddressed. In such cases, your employer should still follow fair and consistent practices when addressing performance concerns. This may involve clear communication of expectations, providing feedback and guidance, and documenting any performance-related discussions or actions taken. The goal remains to support employees in improving their performance and contributing positively to the organization.
In the absence of a PIP, courts have considered 3 to 6 month’s time period to be a “reasonable” timeline for improvement. Furthermore, it is also essential to provide regular assistance and guidance to the employee for improvement.
If you find yourself facing performance challenges and your company doesn’t have a formal PIP, it is recommended to proactively engage with your supervisor or manager to discuss your concerns and seek guidance on how to improve. Request regular feedback and establish clear goals and expectations. By actively addressing performance issues and seeking support, you can demonstrate your commitment to growth and improvement.
Remember, the absence of a PIP does not absolve employers of their responsibility to address performance concerns. Companies should still follow fair and consistent procedures to ensure employees are given a reasonable opportunity to improve their performance.
However, if performance issues persist despite efforts to address them, or if you believe that you are not being given a fair opportunity to improve, it may be advisable to seek legal advice or explore other avenues for recourse to protect your rights and interests.
A PIP typically involves the following steps:
- Identification of performance issues: The employer identifies the areas where an employee is falling short of expectations and clearly communicates the deficiencies.
- Development of an action plan: Together, the employer and the employee collaborate to develop an action plan that outlines the necessary steps to improve performance. This plan should include specific goals, timelines, and measurable indicators of progress.
- Ongoing support and feedback: Throughout the PIP, regular check-ins should occur between the employee and their manager or supervisor. These meetings provide an opportunity to provide constructive feedback, address concerns, and offer support and guidance.
- Monitoring progress: The employee’s progress is closely monitored during the PIP period. This may include periodic evaluations, additional training or resources, and ongoing feedback to ensure that the employee is making the necessary improvements.
- Decision-making: At the end of the PIP period, the employer assesses whether the employee has successfully met the performance goals outlined in the plan. Depending on the outcome, further actions may be taken, such as the continuation of employment with improved performance or, if performance remains unsatisfactory, considering termination.
It’s important to recognize that a PIP (Performance Improvement Plan) is not meant to punish employees but rather to provide an opportunity for growth and improvement. It’s a collaborative process aimed at helping employees reach their full potential and make positive contributions to the organization. By actively engaging in a PIP, employees show their commitment to improving their performance.
From a legal standpoint, employers must follow fair and consistent practices when implementing a PIP. The terms and conditions of the PIP should be clearly communicated in writing, including performance expectations, timelines, and potential consequences. Employers should ensure that the PIP is not discriminatory or targeting specific individuals based on protected characteristics.
Employees should approach a PIP with a positive mindset, viewing it as a chance to address performance gaps and grow professionally. Actively participating, seeking support, and making progress can significantly increase the likelihood of turning things around.
However, it’s important to note that if an employee is unable to meet the performance goals outlined in the PIP or if performance issues persist despite adequate support, termination may still be considered by the employer. In such cases, employees should be aware of their rights, including notice periods, severance benefits, and the option to contest the termination if it’s deemed unfair or unjust.
What challenges can arise when facing termination for Unsatisfactory Performance?
When facing termination for unsatisfactory performance, two common challenges often arise: either you, as the employee, contest the assertion of your performance being below par, or the employer is found to have not followed the correct termination protocol. The exact steps required for termination can vary depending on your classification as a workman or non-workman and the specific reason for termination.
When termination is contested based on allegations of unsatisfactory performance, it is vital for your employer to have precise and detailed records documenting the subpar performance and any communication about it.
In the case of Dr. Mrs. Sumati P. Shere v. Union of India and Ors. 3 April 1989 [AIR 1989 SC 1431], Dr. Sumati was appointed as an Assistant Surgeon on an ad hoc basis and had her service terminated without being informed of any performance issues beforehand. She challenged this termination in court. The appellate court ruled in her favor, stating that there is a moral obligation for employers to communicate any dissatisfaction with an employee’s performance before terminating them. Consequently, the court set aside the termination order but clarified that Dr. Shere would not be considered a regular employee unless her services are regularized according to the law.
What payments and benefits are due upon termination for Unsatisfactory Performance?
Upon the termination of your employment for unsatisfactory performance, certain payments and benefits may be due to you. It’s important to understand these entitlements to ensure that you receive what you’re owed. Here are some key considerations:
- Leave Encashment: Leave encashment refers to the payment for any accumulated, unused leave days that you are entitled to receive. Whether leave encashment is payable upon termination for unsatisfactory performance depends on the company’s policies and applicable laws. It’s essential to review your employment contract or company policies to determine if you are eligible for leave encashment in such circumstances.
Leave encashment = number of days of leave to the employee’s credit * average daily wage.
- Notice Pay: One important aspect to consider is notice pay. Notice pay refers to the compensation provided to an employee when their employment is terminated. It is intended to give the employee advance notice of termination or provide them with payment in lieu of notice. In cases of unsatisfactory performance leading to termination, employers may still be required to provide notice pay unless there are specific provisions in the employment contract allowing for immediate termination without notice. The notice period and its payment should be in accordance with the terms stated in your employment contract. Unless your Performance Improvement Plan (PIP) policy explicitly states that the notice period will be adjusted from the PIP timeline if the employee fails the PIP. For workmen, the payment in lieu of notice has to be made on or before the last day of employment.
- Retrenchment Compensation: Retrenchment compensation, also known as redundancy or severance compensation, is typically provided to employees whose positions are eliminated due to organizational restructuring, technological advancements, or economic reasons. It is calculated as 15 days’ average wage for every year of continuous service or part thereof in excess of 6 months. It is essential to ensure that retrenchment compensation is paid to the workman on or before the date of retrenchment. It is also essential to note that retrenchment compensation is only applicable if you are a “workman”, i.e., an individual contributor without a managerial, supervisory, or administrative role.
Retrenchment Compensation = (Average Pay/30)* 15 * years of continuous service, where the average pay is the average of the monthly wages in the last three calendar months prior to the termination.
- Statutory Benefits: Depending on the labour laws and regulations in your jurisdiction, there may be certain statutory benefits that you are entitled to upon termination. These benefits can include items such as gratuity, provident fund contributions, or any other legally mandated payments. The specific entitlements will vary based on the applicable laws and your employment contract.
Gratuity is payable on cessation of employment to employees who have completed 5 years of continuous service (usually interpreted as 4 years and 240 days) or more.
Gratuity = (Monthly Wages/ 26) * 15 * completed years of service, where 26 is the number of working days in a month.
- Unpaid Salary: Your employer is obligated to pay any outstanding salary owed to you up until the date of termination. This includes any regular wages, as well as any pending bonuses, commissions, or other forms of compensation that you have earned but not yet received.
Can an employee deny allegations of Unsatisfactory Performance?
The Industrial Disputes Act 1947, and the proposed Industrial Relations Code, 2020, both prohibit employers from engaging in unfair labour practices, including unjust or arbitrary termination of employment. As a result, if you as an employee challenge your termination for unsatisfactory performance, the court will review the records to determine if the termination was valid.
Wrapping it up: How can employees and employers navigate Performance-Based Terminations?
Termination due to poor performance is a challenging and often disheartening event for any employee. However, it’s essential to recognize that it’s not the end of the road. Through understanding the reasons behind the termination, reflecting on performance, and exploring opportunities for growth and development, one can turn this setback into a stepping stone for a more fulfilling career.
For employers, it is important to handle terminations with fairness, clarity, and respect. This involves clear communication, adequate documentation, and adherence to legal requirements and company policies.
Employees should be vigilant about their rights and, if necessary, explore legal recourse in cases of unjust termination. Moreover, by leveraging networking, upskilling, and a positive mindset, employees can effectively navigate the job market post-termination.
In an ever-evolving work environment, both employers and employees should aim for a culture that values continuous learning, open communication, and mutual respect. This ensures that even in cases of termination, the process is transparent, and fair, and provides avenues for growth and new beginnings.
If you do find yourself in such a situation, you can speak to our Legal Team here.
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