How Performance Management Can Protect Businesses When Firing an Employee

Firing employees is never easy. As managers, we’re often painted as the bad guy, but it’s our responsibility to establish an efficient, happy, and talented workplace. We have to look out for the business and each individual employee, balancing the needs of both to bring about positive growth.

Sure, the "sorry, we have to let you go" conversation can be emotionally-charged and difficult to initiate, but it can also lead to consequences if not handled properly. Thankfully, performance management can help spread the burden of responsibility when it comes to terminating employment, both legally and emotionally. It’s a way of ensuring employees are aware of their goals and duties, so that should they fail to meet them, appropriate steps can be taken to address the situation.

First, What is Performance Management?

Performance management is an organized, ongoing process that involves making sure employees continuously contribute toward business goals, and if they are not, provides a process for letting them know and helping them improve.

According to management consultancy ACAS, good performance management ensures that everyone knows:
  • What the business goals are
  • How they can help the business achieve these goals
  • The skills they need to do this
  • The standards required of them
  • How well they’re doing
  • How they can improve
  • When there are problems

To be successful, performance management requires regular meetings between managers and team members so that they can discuss all of the above issues. This should happen both informally and formally, and detailed documentation should be made as both types of meetings occur.

What Risks Do Businesses Take when Firing Employees?

Firing employees should be a last resort and should only be necessary when other steps taken to resolve performance issues have failed. This is because businesses assume a number of risks when they make the decision to fire someone. These include:

Security risks

Firing employees can leave them feeling hurt and angry, and unfortunately this can lead to security breaches or retaliation. Terminated employees often have access to company resources (including digital ones) which could be abused and result in business interruption, sabotage, embarrassment, lost productivity, and other financial costs.

Unfortunately, it’s also a sad fact that termination can result in injury and even death. In September 2012, a former employee of a Minneapolis signage company allegedly shot and killed five people at his workplace the day after he was fired, before taking his own life.

A lawsuit was later brought against the employer by the family of one of the victims. It stated that the shooting was reasonably foreseeable based on the shooter’s former behavior, and was later settled out of court.

This highlights the need for proper pre-employment screenings, regular criminal background checks, and constant monitoring for high-risk employees, as it's our responsibility to provide a safe work environment that abides by OSHA standards.

Legal risks

A number of different factors determine whether or not employees have the right to pursue a lawsuit against their employer, including the type of contract they’ve signed, union membership regulations, and the length of their service.

For example, employees who feel they were dismissed unfairly can file wrongful termination lawsuits. This often happens when employees aren’t given a reason for being fired, when they’ve been led to believe they’re good workers, or when their dismissal coincides with a complaint that they’ve made against an individual or the company.

In addition to this, employees may also cite discrimination as the reason for their termination. Discrimination based on race, color, religion, sex, national origin, age, disability, or genetic information is illegal, and it’s also illegal to retaliate against a person because he or she complained about discrimination to the Equal Opportunities Employment Commission (EEOC). It's surprisingly easy to unintentionally encourage or practice discrimination in the workplace, so when firing employees we need to be able to prove that the decision had nothing to do with any of these factors.

So, How Does Performance Management Protect Our Businesses?

It minimizes losses

When it comes down to it, we need to protect our business and our jobs. Performance management can help us do that. It gives us a clear process for making underperforming employees aware that they need to improve, and outlines the potential consequences if they don’t.

What's more, this systematic approach can help us find employee inefficiencies faster. Why the haste? Apart from the direct effects that poor performers have on business objectives, holding onto disengaged, unfocused employees can result in a ripple of negativity across the organization. It’s demotivating for others to see other employees not pulling their weight and this can lead to low morale and reduced employee engagement across the board. And poor morale and engagement can result in actual financial losses, since disengaged employees are estimated to cost the U.S. economy $450 billion to $550 billion annually, according to a survey by Gallup.

In a way, performance management is putting the ball in underperforming employees' court. By setting clear goals, giving them the right tools to achieve them, and offering performance reviews along the way, we’re giving them a fair chance to improve, while also ensuring that we won’t sustain further losses if any issues continue.

It provides fair warning, which reduces legal risk

When performance evaluations are a consistent part of an organization's processes, employees are made fully aware of their responsibilities and growth (or lack thereof) on a regular basis. It means we're giving employees plenty of chances to fix issues and to ask for help.

Employee turnover costs money, as much as 150% of each lost employee’s annual salary to be exact. Remember, having a performance management strategy not only saves us money from an operational standpoint, it also saves us from expensive legal fees due to wrongful termination or discrimination lawsuits filed against us. Thus, we want to make sure we only terminate someone after a series of straight-talking discussions, performance improvement plans, and documented actions.

Effective performance management is also a way of putting a human face to the dismissal process, which is a softer way to reduce the risk of someone filing a lawsuit after termination. If our employees feel that we’ve done everything we can to help them succeed, by the time dismissal occurs it won’t come as a surprise. They should leave feeling as though they’ve been consulted throughout the process, not victimized.

It creates a trail of evidence

If employees are let go and they file a lawsuit, we want to make sure we can provide evidence that they were fired with just cause. Performance management is a way of preparing ourselves to do just that.

Effective performance management involves keeping accurate and up-to-date personnel files on all employees. These serve as a historical timeline of their employment from hire through to termination, including evidence of all goals set, training undergone, and feedback given.

These files are invaluable should a court case arise, and having them on-hand can save time and money when defending ourselves against a claim of unfair dismissal. So we need to make sure that our organizations have an employee performance review process that gathers documentation, such as through the help of employee evaluation software like Small Improvements and detailed "recap" emails sent to employees by managers after every one-on-one meeting.


Performance management is by no means a silver bullet; it takes a lot of work to maintain an effective, user-friendly, ongoing program, and it must be applied consistently across the board for it to be a success.

However, when implemented properly, the benefits far outweigh the costs, both in developing a performance-driven culture and in protecting our business from legal disputes. As managers, we’re protectors of the workplace. Our employees are the key to our success and it’s down to us to do what's best for the majority of them.

Are you having issues with under-performing employees? If their poor performance is due to lack of engagement, check out these five proven employee engagement ideas for motivating employees.

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This Information Is Not Legal Advice


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