How to Manage Underperformance Without Ending Up at Fair Work

The performance conversation every employer dreads

You've got an employee who isn't performing. Maybe they're consistently missing deadlines, making repeated errors, not meeting KPIs, or their attitude is affecting the rest of the team. You know something needs to be done, but you're worried about getting it wrong — because you've heard the stories about unfair dismissal claims.

That hesitation is understandable, but it's also dangerous. Avoiding the issue doesn't make it go away. It makes it worse — for the business, for the team, and often for the underperforming employee themselves.

The good news is that managing underperformance lawfully is not complicated. It just requires a fair, documented process. Here's how to do it right.

Step 1: Be clear about what "underperformance" actually is

Before you start a formal process, make sure the issue is genuinely about performance — not something else. Ask yourself whether the employee has been clearly told what's expected of them, whether they've been given the tools, training, and support to meet those expectations, and whether there's something else going on — a medical issue, a personal situation, a workplace conflict — that might be contributing to the problem.

If the expectations were never clear, or the employee hasn't been given a fair go at meeting them, starting a formal performance process is premature and could be seen as unfair.

Step 2: Have the initial conversation

The first step is an informal but documented conversation. Sit down with the employee, explain the specific performance concerns (with examples), and ask for their perspective. There may be factors you're not aware of.

This conversation should be supportive, not adversarial. The goal at this stage is to identify the issue, understand any contributing factors, and agree on what needs to improve and by when.

Document the conversation in a file note — what was discussed, what was agreed, and the timeframe for review.

Step 3: Set clear, measurable expectations

Vague feedback like "you need to lift your game" or "your attitude needs to improve" is not enough. The employee needs to know exactly what they need to do differently, what the measurable standard is, what support will be provided (training, mentoring, adjusted workload), and the timeframe for review — typically 4 to 8 weeks, depending on the nature of the role.

Put this in writing. A performance improvement plan (PIP) is the standard tool for this, and it should be signed by both parties.

Step 4: Monitor, support, and document

During the improvement period, check in regularly — at least fortnightly. Provide feedback on progress (both positive and constructive). If additional training or support was agreed, make sure it's actually provided.

Document every check-in with a brief file note. These records are critical if the matter progresses to a formal warning or termination — they demonstrate that the process was fair and the employee was given a genuine opportunity to improve.

Step 5: Review and decide

At the end of the improvement period, assess whether the employee has met the required standard. There are three possible outcomes.

Performance has improved. Acknowledge it, document it, and continue to monitor. Make it clear that the standard needs to be maintained.

Some improvement but not enough. You may extend the improvement period with revised expectations, or issue a formal warning. The warning should clearly state the ongoing performance concerns, the standard required, and the consequences if performance doesn't improve — including that termination may result.

No meaningful improvement. If the employee has been given clear expectations, adequate support, a reasonable timeframe, and still hasn't improved, you may move to a final warning or, in some cases, termination. At this point, you should seek specialist advice to ensure the process has been fair and the termination is defensible.

What the Fair Work Commission looks at

If an employee lodges an unfair dismissal claim, the Commission will consider whether there was a valid reason for the dismissal, whether the employee was notified of the reason, whether they were given an opportunity to respond, whether they were warned about unsatisfactory performance, whether they were allowed to have a support person present at meetings, and the size of the business and whether it had dedicated HR resources.

A documented, step-by-step process that covers each of these elements will put you in the strongest possible position to defend a claim.

The mistakes that get employers into trouble

The most common mistakes in performance management are not documenting the process (relying on verbal conversations with no records), not giving the employee a genuine chance to improve (rushing to termination), conflating performance with conduct (they require different processes), and making the decision before the process is complete (going through the motions with a predetermined outcome).

Each of these can turn an otherwise defensible termination into a successful unfair dismissal claim.

When to get help

If the underperformance is severe, if the employee has flagged a medical condition or disability, if there's a risk of a general protections claim, or if you've never managed a formal performance process before — get advice early. The cost of a phone call to an IR specialist is nothing compared to the cost of a Fair Work claim.

We support employers through performance management processes every week — from the initial conversation through to termination if it comes to that. If you need guidance, get in touch.

Industrial HR provides practical, precise HR and industrial relations support for Australian businesses. For more information, visit industrialhr.com.au.