In Ireland, a performance – related dismissal can often become a long and burdensome process for employers. While performance management procedures are designed to get an underperforming employee back on track, adherence to such processes also provides an employer with a stateable defence to any potential unfair dismissal claim.
As businesses seek to streamline and speed up their internal processes, there has been increased appetite to explore the ‘PIP or Go’ model. This involves a calculated-risk approach, arguably “skipping” the fair process element of the dismissal and simply offering the employee the option of an exit instead of a performance process. While this approach can speed up internal processes, it comes with a “price tag” of (i) an ex gratia termination payment; and (ii) potentially significantly increased risk exposure for the employer should a waiver agreement not be secured.
The traditional approach to performance management in Ireland
Under Irish law, when it comes to termination of employment the key mantra is “fairness” – i.e. a dismissal is only lawful if there is:
- a fair reason for the dismissal; and
- a fair process conducted during which the employee is afforded full and fair procedures.
A dismissed employee may claim unfair or discriminatory dismissal (depending on the circumstances) before the Workplace Relations Commission (“WRC”). Accordingly, when carrying out a performance-related dismissal, the starting position is that an employer must carefully follow company procedures and policies.
Employees who are subject to a performance management process should have clarity on the improvements required, be offered appropriate support and/or training to assist them with improving their performance and given adequate time to demonstrate an improvement in performance. Irish law also requires that disciplinary procedures follow a stepped process. Generally, this consists of an informal discussion and initial investigation, successive formal disciplinary meetings and, if performance does not improve to the required standard, potential dismissal. These requirements can make performance-related dismissal an onerous and time-consuming option for employers.
A new alternative? The ‘PIP or Go’ / opt-out method
Employers have recently taken a riskier approach to performance management by utilising the ‘opt-out method’, sometimes referred to colloquially as ‘PIP or Go’. This method involves a direct conversation with the underperforming employee in which the following two options are outlined:
- The employer will commit to a performance management process in line with their relevant policy during which the employee will be afforded full and fair procedures; or
- The employee can ‘opt out’ of this process and ‘go’, after entering into a mutually-agreed exit and severance package with the business.
What are the legal risks for employers associated with ‘PIP or Go’?
The ‘PIP or Go’ model can clearly expedite internal processes and reduce administrative strain on businesses, but it is not without its downsides. If an employer offers an underperforming employee the option to exit the business with a package rather than undergo a performance management process, an employee who opts not to avail of such a “quick exit” may be considerably better placed to assert that any subsequent performance management process is a “sham“; i.e. that the employer has clearly demonstrated a preference to exit the employee from the business without adhering to a full and fair process. The employee may look to allege they felt “forced” out and even the suggestion of an exit eroded the trust and confidence they had with their employer.
Consequently, any employer choosing to apply the model should be aware of the following potential liabilities under Irish employment law:
- The primary employment law concern regarding the ‘Pip or Go’ model is a constructive dismissal claim. This may occur where the employee refuses the option of an agreed exit, but rather than entering into the performance improvement process, the employee then chooses to resign. It is important to flag that in order to succeed in a constructive dismissal case, an employee must have exhausted all relevant internal procedures, such as a grievance procedure, before resigning, and an employee must be able to show that the employer’s conduct was so unreasonable that they had no choice other than to resign from their employment.
- Constructive dismissal cases generally arise under the Unfair Dismissals Act 1977-2015. Under this Act, employees are generally required to have at least 1 year’s continuous service in order to make a claim. If the employee is successful in their constructive dismissal claim, they can be awarded a maximum of two years’ remuneration, reinstatement or re-engagement.
- A constructive dismissal claim can also arise under the Employment Equality Act 1998 (as amended), where the employee seeks to argue that they are being discriminated against by their employer on one or more of the nine protected grounds, and consequently, have no option but to resign. Crucially, there is no length of service requirement to bring a discriminatory dismissal claim. Remedies available to employees who bring a discriminatory dismissal claim also include up to two years’ remuneration, reinstatement or re-engagement. Additional awards can be made in respect of any victimisation or the effects of discrimination. Unlike in an unfair dismissal claim, an employee is not required to seek to mitigate their loss, and compensation is not linked to actual financial loss.
- Finally, where an employee opts to go through a performance management process rather than taking an exit package, and is ultimately dismissed, the fact that an exit was suggested at the beginning of the process may increase the likelihood of an employee succeeding in a subsequent unfair dismissal claim or, for high-earning individuals, seeking to bring an application for injunctive relief to restrain their dismissal, as the employee may argue the employer had effectively pre-judged the outcome by offering an exit in advance.
Practical implications of ‘opting out’
To mitigate potential exposure to the foregoing litigation, it is important to emphasise that ‘opting out’ of a performance improvement process should be presented as a voluntary option. This is especially important for employers to keep in mind as exit discussions between employers and employees in Ireland are generally considered to be ‘on the record’.
In the recent WRC decision of Danica Gutierrez v Cafico Corporate Services Limited, the WRC held that the offering of an exit package three days into a PIP was sufficient to ground a constructive dismissal claim. The Adjudicating Officer noted that “any reasonable person would consider this to be so serious or significant that it goes to the root of the contract of employment between the employer and employee”.
Exit packages: what employers should consider
Given the high level of risk the ‘Pip or Go’ method involves, it is important for employers to offer an appropriate exit package to the employee. However, employers should note that this may need to be reviewed or adapted based on any relevant factors (e.g. the seniority of the individual) before making an offer. As mentioned above, conversations between employer and employee about a potential exit will not be ‘off the record’, and therefore can be referred to by the employee in a subsequent legal claim.
Separately, where an employee claims that they were dismissed in connection with raising a protected disclosure, unfair dismissal compensation can reach up to five years’ remuneration, and there is no requirement to have 12 months’ service prior to bringing the unfair dismissal claim. Employers should therefore always take steps to inform themselves of the surrounding circumstances regarding a specific employee before engaging in the ‘PIP or Go’ process.
Employers should always be cognisant of the potential for the employee to lodge a data subject access request, which may be more likely in these scenarios.
‘Pip or Go’: is it the right approach for your company?
Ultimately, it is up to each employer to weigh up the risk versus reward of a ‘PIP or Go’ approach. The risk of any potential claim (or claims in a collective scenario) and their respective significance should be always be kept in mind, and weighed accordingly against these possible benefits. We also strongly recommend that legal advice is sought by any employer considering this approach.
Contact us
Matheson’s Employment, Pensions and Benefits Group is available to guide you through the complexities of navigating the new trends and legal developments of relevance to employers with Irish workforces.
For more information please contact Employment, Pensions and Benefits partner, Ailbhe Dennehy or your usual Matheson contact.
