6 Legal Principles Affecting Performance Management
Six important principles often come into play in the case of litigation related to the implementation of a performance management system: employment at will, negligence, defamation, misrepresentation, adverse impact, and illegal discrimination.
Employment at will
In employment at will, the employer or employee can end the employment relationship at any time. This type of employment relationship gives employers considerable latitude in determining whether, when, and how to measure and reward performance. Thus, an employer could potentially end the employment relationship without documenting any performance problems.
There are two exceptions regarding an organization’s ability to terminate an employee under these circumstances:
- There may be an implied contract derived from conversations with others in the organization or from information found in the company’s documentation (for example, employee handbook) indicating that employees would be terminated for just cause only.
- Decisions about terminating an employee should consider a potential violation of public policy.
Many organizations outline a performance management system in their employee manual, employment contract, or other documents. When the system is described in such documents and not implemented as described, legal problems arise.
For example, there may be a description of how frequently appraisals take place, or how frequently supervisors and employees are to meet formally to discuss performance issues. If an employee receives what she believes is an unfair performance evaluation and the system has not been implemented as was expected, she may be able to challenge the system based on negligence on the part of the organization.
Defamation is the disclosure of untrue, unfavorable performance information that damages an employee’s reputation.
An employee can argue that the organization defamed her if the employer states false and libelous information during the course of the performance evaluation, or negligently or intentionally communicates these statements to a third party, such as a potential future employer, thus subjecting the employee to harm or loss of reputation.
The definition of defamation includes the disclosure of untrue information. Defamation can take place when an employee is evaluated based on behaviors that are irrelevant and not job-related, when an evaluator doesn’t include information that would explain or justify poor performance, or when an evaluator revises a prior evaluation in an attempt to justify subsequent adverse action taken against the employee.
Defamation doesn’t exist when information regarding poor performance is clearly documented.
Whereas defamation is about disclosing untrue unfavorable information, misrepresentation is about disclosing untrue favorable performance, and this information causes risk or harm to others.
When a past employer provides a glowing recommendation for a former employee who was actually terminated because of poor performance, that employer is guilty of misrepresentation.
Adverse impact/unintentional discrimination
Adverse impact, also called unintentional discrimination, occurs when the performance management system has an unintentional impact on a protected class, such as sex or race.
Contrary to a common misconception that “class” refers to ethnic minorities or women only, adverse impact also happens when, for example, men receive consistently lower performance ratings than women. In other words, a protected class is a group of people with a common characteristic who are legally protected from discrimination on the basis of that characteristic.
So if a group of white men consistently receives lower performance scores, then there is adverse impact because these individuals share the same characteristic (male) of a class that is protected (that is, sex).
Illegal discrimination/disparate treatment
Illegal discrimination, also called disparate treatment, means that raters assign scores differentially to various employees based on factors that are not performance related, such as race, nationality, color, or ethnic and national origin. As a consequence of such ratings, some employees receive more training, feedback, or rewards, than others.
Illegal discrimination is usually referred to as disparate treatment because employees claim they were intentionally treated differently because of their sex, race, ethnicity, national origin, age, disability status, or other status protected under the law.
The majority of legal cases involving performance management systems involve a claim of disparate treatment. What can an employee do if, for example, she feels she was given unfairly low performance scores and skipped over for promotion because she is a woman?
To make such a claim, an employee can present direct evidence of discrimination, such as a supervisor making sexist comments that may have influenced the performance management process. Alternatively, she needs to provide evidence regarding the following issues:
- She is a member of a protected class.
- She suffered an adverse employment decision as a result of a performance evaluation (was skipped over for promotion).
- She should not have been skipped over for promotion because her performance level deserved the promotion.
- The promotion was not given to anyone, or it was given to an employee who is not a member of the same protected class (that is, another woman).
If an employee provides this kind of evidence, the employer must articulate a legitimate and nondiscriminatory reason for not having given the promotion to this female employee. Usually, this involves a reason that is clearly performance related.
This is the point at which employers benefit from having designed and implemented a system that is used consistently with all employees — the golden rule. Such a system is legally defensible, and any decisions that resulted from the system, such as promotion decisions, are also defensible.
Let’s distinguish illegal discrimination from legal discrimination. A good performance management system is able to discriminate among employees based on their level of performance, and this is legal discrimination. In fact, a system that doesn’t do this is not very useful. But a good performance management system doesn’t discriminate illegally. Illegal discrimination is based on variables that should not usually be related to performance, such as sex, national origin, ethnicity, and sexual orientation.