Managing Substandard Performance – A Quick Guide for N.Z Employers
Managing substandard performance is one of the highest-risk and most contentious employment processes for employers to manage.
Performance issues often develop gradually, involve subjective judgement, complex metrics to measure performance deliverables, allowing reasonable timeframes for improvement and can intersect with other issues such as health, workload imbalances, or organisational change.
It is a process designed to address an employee’s substandard performance where it is impacting business operations in a material way. Either the employee’s performance improves, or they are managed out following the conclusion of the process.
Employer Pro has a comprehensive Employer Toolkit available for managing a ‘Performance Management Process’, including step-by-step guidelines, practical walk-throughs, legal commentary, a draft PIP template, various employer-focused template letters for scheduling formal meetings and managing formal warnings for substandard performance and more to implement the correct process.
A termination based on substandard performance will only be lawful if it is:
Substantively justified – There are established reasons based on evidence to prove an employee has not met the requisite standard of performance, including progressive warnings at the end of a Performance Improvement Plan, or PIP.
Procedurally justified – The employer follows a fair and reasonable process, including a documented performance management framework and progressive warnings issued based on clear performance objectives set out in a PIP. An employer must also consult with an employee before implementing a PIP.
Failure on either limb exposes the employer to significant legal risk by way of financial remedies and orders for personal grievance claims, e.g. unjustified dismissal.
Core Legal Obligations
Justification Test
Under section 103A of the Employment Relations Act 2000, an employer must show that:
The employer’s actions were what a fair and reasonable employer could have done in all the circumstances at the time.
In performance cases, this test focuses heavily on process rather than the employer’s frustration with the employee’s performance results. The employer is required to implement a series of formal and consultative steps over a reasonable timeframe prior to terminating employment for substandard performance. Typically, a performance management process can take weeks, or months to complete properly.
Good Faith Obligations
Employers must comply with ongoing good faith obligations, including:
Raising concerns openly and early.
Providing relevant information relied upon.
Giving genuine opportunities to respond.
Not predetermining outcomes.
Failure to meet these obligations frequently can undermine otherwise legitimate concerns about performance.
What is ‘Substandard Performance’?
Substandard performance generally arises where an employee:
Consistently fails to meet the requirements of their role.
Produces work of inadequate quality.
Fails to meet reasonable productivity or behavioural expectations.
Does not achieve agreed performance objectives despite support.
Importantly, performance concerns must be clearly linked to the role, not personal dislike, or unrelated conduct issues.
High Risk of Legal Disputes
Performance management processes are often contentious, complex and involve legal disputes, particularly where employees who are subjected to them subsequently engage representation, so due diligence, planning and preparation are important.
Direct Employer Management
A performance management process requires direct management by the employee’s employer, supervisor or manager who has the responsibility to fairly manage the employee’s performance. The management time involved should not be underestimated since the process is intensive to manage end-to-end.
It is a process that aims to drive improvement to an employee’s performance and is not designed to be punitive. However, it may involve adverse implications for an employee’s employment where performance fails to improve.
Key Employer Obligations When Managing Performance
Identify and Clearly Articulate Concerns
Employers must clearly define:
What aspects of performance are deficient.
How expectations have not been met.
How performance will be assessed and measured.
Vague concerns (e.g. “poor attitude”, “not a good fit”, “not engaged enough”, etc) are insufficient and legally very risky.
Early and Genuine Engagement
Performance concerns should be raised as soon as practicable. Allowing issues to persist unaddressed, followed by sudden escalation, is a common and criticised error.
Early conversations should focus on:
Clarifying performance expectations.
Understanding the employee’s perspective.
Identifying barriers to performance.
Offering measures of support such as coaching or training.
Use a Structured Performance Improvement Plan (PIP)
Where concerns persist, employers should implement a formal Performance Improvement Plan, or PIP.
A defensible PIP should include:
Consultation with the employee about the PIP before it is implemented.
Clear, measurable performance standards.
Timeframes for improvement.
Identified support measures.
Formal review timeframes and possible outcomes including the relevance of progressive warnings for continued substandard performance up to and including termination of employment on notice.
Clear consequences if improvement is not achieved.
Allow a Genuine Opportunity to Improve
The Employment Relations Authority frequently criticises employers who:
Set unrealistic targets.
Shorten review periods unjustifiably.
Shift performance expectations mid-process.
Fail to correctly address performance concerns through the correct legal process.
Employees must be given a genuine and reasonable opportunity to succeed.
Only if an employee’s performance is proven to remain substandard following fair and formal review periods, can an employer consider implementing progressive warnings based on substandard performance, up to and including termination on notice.
Implementing a performance improvement plan, or PIP is an effective tool for addressing performance-based concerns. Where an employee fails to meet the performance standards, or requirements, then following a structured and formal process, an employee’s employment may be justifiably terminated on grounds of continued substandard performance.
Practical Risk Examples
Confusing a disciplinary process with a performance management process. They are not the same.
Not providing training or support to the employee to do their job properly.
Conflating performance issues with other unrelated concerns or ulterior motives.
Failing to adequately draft and consult on a PIP before implementing it.
Failing to clearly articulate the measurables and standards the employee’s performance is to be assessed against.
Not understanding the process required to address performance concerns.
Case Law Snapshot – What Recent Decisions Tell Employers
DBM Medical Limited v Gaarkeuken [2025] NZEmpC 209
A sales manager was placed on a Performance Improvement Plan (PIP) after concerns were raised about under-achieving sales performance. The employer’s approach to performance management lacked clear consultation and appropriate communication (e.g., failing to provide requested written information, sending a PIP to be signed without prior discussion). The employee went on stress leave and subsequently resigned, claiming constructive dismissal and a personal grievance due to the employer’s breach of good faith in the performance management process.
Initially, the Employment Relations Authority found the employer breached its duty of good faith by failing to engage constructively and responsively in the performance management process. Although the parties disagreed on whether prior meetings had established fair consultation, the Authority held that the employer should have foreseen the negative impact of its conduct and that its process was unfair. The Authority awarded over $55,000, (excluding the employer’s own legal costs) to the employee, finding that he had been constructively dismissed.
However, the employer challenged the Authority’s determination in the Employment Court. The Court held that Mr Gaarkeuken’s resignation was voluntary and not a constructive dismissal because there was no breach of duty by the employer that foreseeably compelled him to resign. The fact that he was unhappy or stressed about the prospect of a PIP and feedback on poor sales performance did not make the employer’s actions a constructive dismissal. A robust and genuine performance appraisal process, including discussion of a proposed PIP, is permissible and did not by itself amount to an actionable breach to trigger constructive dismissal. Furthermore, the employer’s conduct did not unjustifiably disadvantage the employee, as the Court determined the level of support and communication provided was appropriate for someone in his senior position.
Employer Takeaway: This case highlights the contentious nature of performance management to result in protracted legal disputes and controversial outcomes. The employee was successful in the Authority with his claims and awarded substantial remedies. However, the employer successfully overturned the Authority’s ruling in the Employment Court. Best practices towards performance management should always be followed by employers to help reduce the risk of related arguments and costly legal disputes.
Austwick v Tauranga Veterinary Services Limited [2024] NZERA 659
A long-serving employee of a veterinary practice (employed since 2010) was initially told that performance concerns might lead to a performance improvement plan (PIP), after differences emerged over diagnostic, treatment approaches and client complaints. However, once a senior director became involved, the issue escalated abruptly into a serious misconduct investigation, with the employer alleging gross negligence or serious misconduct on numerous matters it had not previously raised in performance discussions. The shift from performance review to serious misconduct was sudden and lacked appropriate prior notice or fair consultation and the employee was summarily dismissed.
The Authority found the dismissal was unjustified, finding that the employer did not sufficiently raise concerns with the employee, failed to investigate properly, and unjustifiably elevated what began as performance issues into serious misconduct without fair and transparent process. The Authority noted that none of the alleged incidents amounted to misconduct or serious misconduct sufficient to justify dismissal, especially considering the employee’s previously unblemished record and long service.
The Authority ordered the employer to pay the employee over $35,000 in financial remedies (excluding the employer’s own legal costs).
Employer Takeaway: This case emphasises the importance of following the correct legal process to address concerns – a performance management process for performance-based concerns, or a disciplinary process for conduct-based concerns. Both formal employment processes require adherence to legal obligations, including procedural fairness considerations and proportionate outcomes when terminating an employee’s employment for related concerns.
Compliance Warning
Failure to follow a fair, structured and well-documented performance management process exposes employers to significant legal risk. Employers who rush performance processes, fail to provide adequate support, or predetermine dismissal outcomes frequently face findings of unjustified dismissal, resulting in lost wages, injury to feelings compensation, reinstatement and legal costs. Careful planning, genuine engagement, and disciplined adherence to process are essential to managing performance lawfully.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if unsure about managing a performance management process, including termination of employment for poor performance. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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