Legal principles affecting Performance Management


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.

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.


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.

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).


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.

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.

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).

Appraisals should not be used to discriminate against employees on the basis of race, religion, age, gender, disability, marital status, pregnancy, or sexual preference.

Performance appraisals should not be used in a merely punitive or retaliatory fashion. It is grossly unprofessional for a manager or supervisor to use the appraisal process to ‘get even’ with an employee who has displeased or upset them in some way.

Performance appraisal results should be fair, accurate and supported by evidence and examples. For instance, if an employee has poor interpersonal skills and is harming morale and group performance, the supervisor might keep a log of incidents. Co-workers may be interviewed and their views and reactions recorded. The nature and effects of the employee’s behavior should be documented.

Appraisals should be balanced, recording information on both the good and the bad aspects of an employee’s performance (as far as possible).

An employee should have the opportunity to comment on their appraisal result, to express their agreement or otherwise, and to appeal the result or at least request a review by upline supervisors.

Appraisals results should not be used as the sole basis for promotion, remuneration or termination decisions. A broad range of information should be considered, in which the employee’s appraisal results may be significant but not necessarily conclusive.

Provide timely feedback, especially to marginal or poor performers. It is not fair to offer zero feedback to a poor performer for twelve months and then present them with a bad appraisal. Be willing, especially with employees who are having trouble, to offer more frequent feedback and guidance. Tell them if something is wrong and give them a chance to correct the problem in a timely manner.

Employees who receive a poor performance appraisal result should be given a reasonable chance to improve. Generally speaking, it is a bad idea to dismiss, demote of otherwise penalize an employee because of a single adverse appraisal result (depending of course on the nature and seriousness of the conduct that underlies the poor result).

Retain records. If an employee believes they have been dealt with unfairly, they may have rights to instigate legal action years later. In the case of poor performers, or persons dismissed or demoted, or those who resign or leave in less than happy circumstances, we suggest that their appraisal records, together with critical incident logs and other relevant documents, be archived indefinitely. Check with local legal specialists as to required periods of record retention and time limits on the rights of potential litigants, as these vary from one jurisdiction to the next.

Appraisals should avoid inflammatory and emotive language. As far as possible, aim for a detached and dispassionate style. Ensure that criticisms relate to actual job requirements and are not based on mere personal or other irrelevant issues that have little or no connection with actual job requirements.

If an appraisal result is poor (or in any way likely to be controversial or provocative), ask an objective third party for their views on whether the appraisal result seems fair and reasonable. Be prepared to modify your position if the second opinion is not supportive of the result.

Managers and supervisors required to conduct staff appraisals should be trained in appraisal principles and techniques. Conducting performance appraisals is one of the most demanding of all supervisory activities. It is a sensitive and sometimes controversial task which, if mishandled, can cause serious damage to employee relations and morale.

Appraisal results should be treated as private and confidential information. Record storage should be secure and controlled. Only people with an approved need to know should have access to an employee’s performance appraisal information.

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