Low Performance: Dealing with Poorly Performing Employees

Almost every employer has them: employees who do not meet expectations. They can be a serious burden to other employees as well as the employer's business and financial interests. But how should one deal with so-called low performers? Can the employer terminate the employment relationship for the employee’s failure to meet expectations? Where the German Protection Against Dismissal Act (Kündigungsschutzgesetz – KSchG) applies – i.e. in a company’s site with more than ten full-time employees – certain requirements must be fulfilled for such termination.

Termination because of low performance

In order to terminate the employment contract of a low performer who falls under the Protection Against Dismissal Act, it is not sufficient for the employer to merely claim that the employee does not perform well. The employer must rather demonstrate that the relevant employee's actual performance deviates substantially from the performance of comparable employees. To determine whether this is the case, one must distinguish between two main types of low performers, each of which is subject to a different test according to the applicable case law: the low-quality performer on the one hand and the low-quantity performer on the other hand.

Low-quality performance

Low-quality performance is given, where the employee's work results are deficient. As nobody is perfect, low-quality performance justifying termination requires performance that is “significantly below-average” in relation to the performance of comparable employees. Even though there are no clear rules as to when exactly work results are “significantly below-average”, it shall typically be deemed as an indication for low quality performance if the work results of the employee in question are three times more deficient than the work results of comparable employees. Of course, the less measurable the quality of the performance and/or the smaller the group of comparable employees, the greater the evidence required. Furthermore, the employee's work results must be significantly below average for a “longer period of time”. What constitutes a "longer period of time" must be decided on a case-by-case basis, depending on the complexity of work and the training period usually required for the relevant job. In most cases, a period of about three to six months is sufficient though. Furthermore, the employer must give at least one formal warning before the employment relationship can be terminated. Also, after a formal warning is given, an improvement period has to be granted. The improvement period must be guided by a training period as well.

Low-quantity performance

Low-quantity performance is given, where the employee's work results are of decent or even good quality, but the quantity of the work results is much lower than the quantity of the work results of comparable employees. According to the applicable case law, the quantity of the employee's work results is considered much lower, within the meaning of low-quantity performance, if the quantity of the work results is only 1/3 or less of the quantity of work results of comparable employees. Furthermore, such a lack in quantity of the work results must persist for a certain period. Once again, this must be determined on a case-by-case basis. And once again, in most cases, a period of about three to six months is sufficient. And yet again, the employer must give at least one formal warning before the employment relationship can be terminated, considering a subsequent improvement period as mentioned above.

Other potential labour law measures?

• Reducing the employee's salary just because of her or his low performance is not an option under German law. However, low performance that results in damages to the employer might, depending on the degree of the employee’s culpability, mean the employer is entitled to compensation.

• An employer might think of assigning a new role or different tasks to the low performer, hoping he or she will then be able to perform in a more satisfactory way. However, such reassignment is not always permitted under German Law. It depends on the provisions of the employment agreement and whether the transfer is reasonable, taking into account all relevant interests of the parties.

Practical suggestions on how to deal with low performers

• The employer should provide clear and comprehensible instructions. For evidentiary purposes, those instructions should be recorded.

• Where possible, the employer should also record the work results of the relevant employee, as well as those of any comparable employees, including their failures. Solid preparation for termination due to low performance is essential.

• It is required by law and, of course, an example of good personnel management for everything reasonable to be done before giving notice of termination. Performance reviews are therefore indispensable. Those reviews should be recorded as well.

• The employer should take a twin-tracked approach: on the one hand, the employer should talk with the low performer and should offer assistance with improvement. On the other hand, the employer should give written warnings as a preparatory action for a possible future termination.

• Last but not least: the employer might limit financial exposure and build a performance-friendly work environment by implementing a performance-based compensation scheme.

If you have any questions related to this topic, please feel free to contact
Daniel Hund (Lawyer, LL.M., Licensed Specialist for Labour Law) and Elisabeth Weiss (Lawyer).