Is the minimum performance clause in an employment contract valid as an argument for fair dismissal for poor performance?
Yes, it is possible to dismiss a worker for poor performance according to a clause agreed in the employment contract. A recent judgment of the TSJ of Madrid STSJ MADRID (SOCIAL) OF 14 JULY 2022. EDJ 2022/664931 establishes that in certain cases yes. The legal basis for this dismissal will be that of the disciplinary dismissal provided for in art. 55 of the Workers’ Statute, and it will be treated identically to the cause of dismissal due to a continuous and voluntary decrease in the normal or agreed work performance regulated in section 2 e) of art. 54 of the Workers’ Statute.
The High Court of Justice of Madrid has ruled that it is possible to agree in the employment contract a minimum performance clause that establishes the possibility of terminating the contract -when the employee does not reach a certain percentage of sales, in relation to the average monthly production achieved by all the workers.
This aspect is key and is one more example of the need to prepare ad hoc employment contracts for each company and job with an experienced labor professional.
Expected performance values should not be abusive and should respect normal limits or be in accordance with the principles of good faith, for example, taking into account factors that are completely outside the employee’s control.
In other words, management must take into account factors such as the market situation, the prices offered or competition from other companies or extraordinary situations that may affect the results obtained.
Proof of fair dismissal for poor performance
The company bears the burden of proving that there has actually been a breach of contract by the employee with practices such as:
- Providing the computed data of the dismissed worker and the rest of the team that allow determining and comparing the lower performance.
- Establish an objective system to obtain this data based on comparable work realities, for example by not comparing data from full-time and part-time employees without making adjustments.
- Regularly communicate the results obtained so that the worker can see that he/she is below the agreed performance and correct it.
This ruling opens up the possibility of a human resources management model that effectively rewards workers who offer better results, but it also invites certain reflections:
- The company must decide how results should be defined so as not to prioritize only short-term objectives that may be detrimental in the long term.
- Assess how the objectives and the company’s culture and values interact. This is especially critical in areas such as purchasing and supply.
- What objective performance data collection system will we implement that does not represent an excessive bureaucratic burden but gives us the necessary information to evaluate and, above all, improve.
- How and when will the company review this data to offer underperformers the opportunity and tools necessary to improve their results. We see that the sentence emphasizes that it must provide a way to see that the underperformance exists and give the opportunity to improve it.
- This system must be linked to other dimensions of human resources and legal requirements such as, for example, the mandatory pay register that aims to reduce the gender pay gap.
The specific case of the ruling at hand is clear, the results were agreed in advance, measured and communicated on a regular basis and the worker had the necessary tools and information to improve her performance.
This ruling is not an open door to dismiss without severance pay any employee that management deems to be subjectively underperforming.
If you are considering starting to work by objectives and want to see how to modify employment contracts to reflect this reality, our team of labor lawyers and social graduates can help you. An ad hoc contract addendum and the design of a flexible measures system will allow you to manage your workforce fairly and ensure that resources go to the people who fit into your organization.
We invite you to watch the recording of our webinar on labor law for entrepreneurs which gives a very useful overview of the labor area of a company or business.
Image by Mohamed Hassan, Pixabay
