The termination of an employment contract on the ground that the employee’s level of productivity is found to be inadequate is not the subject of any detailed provision in the Labour Act No. 4857. The statute enumerates exhaustively the just causes that entitle the employer to terminate with immediate effect; as regards termination for valid reason, by contrast, it draws only a general framework and leaves room for an assessment according to the circumstances of the particular case.
In practice, inadequate performance is mostly advanced as a valid reason for termination. That heading does not, however, confer on the employer a power to be used at will. Proceeding from the principle of interpretation in the employee’s favour, the Court of Cassation has developed criteria that must be observed in terminations of this kind. Foremost among those criteria are that the measurement rests on concrete data, that an objective assessment system exists, that the employee’s defence is obtained and that termination is the measure of last resort.
In this briefing note we address in detail the conditions for the validity of a performance-based termination, the practice of the courts, the allocation of the burden of proof and the litigation process to be pursued after the termination.
The Concept of Underperformance
For the purposes of employment law, performance denotes the degree to which the employee discharges the obligation to work arising from the contract within the framework of objective criteria set by the employer and of reasonable expectations. That assessment must be made by reference to measurable heads such as the nature of the work, the employee’s job description, the degree of adaptation to the work organisation, the targets set for them, and the volume of production and the standard of quality. An allegation of underperformance must therefore be supported not by personal opinions but by tangible data.
Distinguishing Productivity From Discipline
In practice, inadequate performance and breach of discipline are frequently treated alike. A breach of discipline, however, covers acts arising from the employee’s culpable conduct which in most cases may constitute just cause for termination; absenteeism, disregard of workplace rules or conduct undermining trust are of that kind. In underperformance, by contrast, the employee fails to reach the expected level of productivity despite making efforts in good faith. Because of that distinction, performance terminations are as a rule assessed not under the heading of termination for just cause but under that of termination for valid reason.
The Difference Between Incapacity, Conduct and Fault
Underperformance is mostly addressed under the heading of “incapacity”. Incapacity denotes the employee’s inability to carry out the work as required in terms of knowledge, skill, capacity to adapt or ability. Conduct-related grounds, by contrast, arise from the employee’s conscious and voluntary acts. Fault is voluntary conduct contrary to an obligation which gives rise to legal responsibility.
This distinction is of great practical value, since terminations resting on fault may fall within the scope of termination for just cause, whereas underperformance arising from incapacity is mostly regarded as a valid reason for termination. Correctly identifying the type of termination determines the outcome as regards entitlement to severance and notice pay and the possibility of reinstatement.
Is Underperformance Regarded as a Just Cause for Termination?
Although this ground is frequently advanced in termination files, it does not in every case produce the result of a termination for just cause. The assessment must therefore begin with Art. 25 of the Labour Act No. 4857.
Assessment Under Art. 25 of the Labour Act
Art. 25 of the Labour Act enumerates exhaustively the cases giving rise to the employer’s right to terminate with immediate effect. The article contains three groups of grounds: health-related grounds, compelling reasons, and cases of breach of the rules of morality and good faith. Where there is a termination for just cause, the employer may bring the relationship to an end without allowing a notice period and, as a rule, without paying severance pay.
Inadequate performance, in most cases, reflects not conduct contrary to the rules of morality and good faith but a shortfall in the employee’s capacity. Mere underperformance is therefore not regarded as a just cause for termination within the meaning of Art. 25.
The Distinction Between the Two Types of Termination
Termination for just cause requires serious breaches which, by virtue of the rule of good faith, make it impossible for the employment relationship to be maintained even for a moment. Termination for valid reason arises where circumstances originating in the requirements of the work or the workplace, or in the employee’s capability, make it difficult for the relationship to continue within reasonable bounds.
In a termination for just cause no obligation to pay compensation arises for the employer; in a termination for valid reason the employee as a rule receives severance and notice pay and, where the conditions are met, may bring a reinstatement action. Identifying the type of termination correctly is therefore of critical importance to the parties’ financial and legal position.
Why Is It Mostly Accepted as a Termination for Valid Reason?
The source of underperformance is generally not a culpable act by the employee but an inability to discharge the obligation to work at the expected level. In the practice of the Court of Cassation, terminations resting on this ground are likewise characterised, save in exceptional cases, not as terminations for just cause but as terminations for valid reason.
It is nevertheless required that the incapacity be continuous, that it rest on objective criteria and that the employee has been warned and afforded an opportunity to put matters right. Terminations effected before these elements are complete may be held invalid and may result in an order for reinstatement. The conditions under which inadequate performance constitutes a valid reason for termination must therefore be examined with care.
Conditions Required for a Valid Termination
Whether a performance-based termination may be regarded as valid depends on the employer acting in conformity with certain objective and legal criteria. The decisions of the Court of Cassation set out those criteria clearly. Otherwise the termination may be held invalid and reinstatement may follow.
Objective Criteria Set in Advance
The assessment must be founded on criteria that are set in advance, measurable and consistent with the employee’s job description. Practices devised after the termination, shaped to suit the individual or resting on arbitrary criteria receive no legal protection.
The targets must be intelligible and capable of being applied equally to all employees. That the criteria have been reduced to writing and communicated to the employee is decisive as regards proof.
Measurement Based on Concrete Data
Abstract characterisations such as “inefficiency” or “failure to meet expectations” are not sufficient for a termination. An allegation of incapacity must be supported by data that can be documented and measured, such as error rates, quality reports, sales targets, volume of production or key performance indicator (KPI) outputs.
The practice of the courts further requires that the decline be continuous and marked; temporary fluctuations are not regarded as sufficient for a termination.
Warning the Employee and Obtaining Their Defence
Art. 19 of the Labour Act makes it mandatory for the employee’s defence to be obtained before the contract is terminated on a ground arising from conduct or from capability. Where that step has been omitted, the termination may be held invalid as to form.
In addition, an employee whose performance is found inadequate must be given a written warning and must be clearly informed of the shortcomings. The employee must know in which respects they are considered to fall short and which targets they have failed to meet.
Providing Training and an Opportunity to Improve
Behind a decline in productivity there often lies a lack of knowledge, a difficulty in adapting, or shortcomings originating in the organisation. Before turning to termination, the employer is therefore obliged to provide the necessary training, guidance and process of adaptation.
The decisions of the Court of Cassation emphasise that terminations effected without affording the employee a reasonable period and an opportunity to improve cannot be accepted as valid. The employer is expected to make a genuine effort towards the improvement of performance.
Termination as a Last Resort (Ultima Ratio)
In employment law, termination is positioned as the very last measure to which recourse may be had. Under this principle, known as “ultima ratio”, termination may not be resorted to directly where it is possible to resolve the problem by lighter measures.
Changing the employee’s place of duty, adapting the position to their capacity, placing them on an additional training programme or implementing a performance improvement plan are among such alternatives. Terminations effected without these being considered may not be regarded as valid.
Indeed, according to the features of the particular case, the absence of one or more of these elements may lead to a performance-based termination being held invalid and to an order for the employee’s reinstatement.
Limitation and Preclusive Periods
The period within which an employee whose contract has been ended on performance grounds may exercise their rights is limited. Overlooking the calendar may result in the possibility of bringing an action being lost altogether or in the claims becoming time-barred. The calendar must therefore be followed carefully after the termination.
The Time Limits Prescribed for Reinstatement
Art. 20 of the Labour Act No. 4857 imposes on an employee whose contract has been terminated the obligation to apply to a mediator within one month, running from the service of the notice. That application is a procedural requirement as regards the reinstatement action.
If no agreement is reached in that process, the reinstatement action must be brought within two weeks of the day on which the final minutes were drawn up.
These periods are preclusive periods. If the application is not made in time, the possibility of claiming reinstatement is entirely extinguished. The court has regard to this point of its own motion, without any need for the parties to raise it.
The Statute of Limitations for Employment Claims
Even where a termination on performance grounds is accepted as valid, the employee may as a rule claim severance pay, notice pay, annual leave pay, overtime pay and claims for weekly rest days and public holidays.
The statute of limitations for employment claims is applied as a rule as five years within the framework of the Labour Courts Act No. 7036 and the related legislation. Time begins to run on the date on which the claim falls due.
For severance and notice pay the starting point is the date of termination. For wage-related claims, the start of the limitation period is determined separately for each item.
The Employee’s Rights on a Performance-Based Termination
Since terminations of this kind are as a rule assessed within the scope of termination for valid reason, where the termination rests not on just cause but on a valid reason the employee’s basic employment rights continue to be protected.
Where the termination is held invalid, the protection is wider still; the employee’s claim for reinstatement and their claims in respect of employment entitlements subsist in full.
Severance Pay
Inadequate performance does not constitute a just cause for termination unless it involves conduct contrary to the rules of morality and good faith. An employee dismissed on performance grounds who has at least one year of service therefore becomes entitled to severance pay.
The calculation is made on the basis of the employee’s final gross wage, at 30 days’ wage for each complete year of service.
Notice Pay
In terminations resting on a valid reason the employer is obliged to observe the notice periods. Where termination has been effected with immediate effect without observing the notice period, the employee may claim notice pay.
Where the employer has observed the notice periods or has paid the notice pay in advance, by contrast, no separate notice claim arises.
The Claim for Reinstatement
If at least 30 employees work at the workplace and the employee has at least six months’ service, a termination on performance grounds is subject to judicial review.
The employee goes to a mediator within one month running from the day on which the notice was served; if no settlement emerges, they may bring a reinstatement action. If the court concludes that the criteria were not objective, that the defence was not obtained or that the principle of last resort was not observed, it may rule that the termination is invalid and order the employee’s reinstatement.
Pay for the Period Out of Work
Where, after the action has been won, the employee applies to the employer in time but is not taken back into employment, the court may order the payment of two separate items: pay for the period out of work of up to four months at most, and compensation for failure to reinstate, to be fixed at an amount equal to between four and eight months’ pay. The pay relating to the period out of work is the natural corollary of the reinstatement order; the four-month upper limit may not be exceeded even where the employee is not re-employed.
The Litigation Process Against a Termination on Performance Grounds
Terminations resting on this ground are reviewed both as to form and as to substance. An employee who regards the termination as invalid may have recourse to reinstatement and may also claim their employment entitlements. The process must, however, be pursued correctly and in time; otherwise the running of the preclusive periods and the losses connected with it will adversely affect the fate of the claims.
Mediation as a Procedural Requirement
The Labour Courts Act No. 7036 prescribes recourse to a mediator as a procedural requirement in disputes concerning both reinstatement and employment claims. The application for mediation must be made within one month running from the service of the notice, and, if no settlement emerges, the action must be brought within two weeks of the date of the final minutes.
These periods are preclusive in nature; where the application is not made in time, the right to claim reinstatement is entirely extinguished.
At the mediation stage the notice of termination, the written defences and the assessment documents must be reviewed meticulously. The litigation strategy is most often shaped at that stage.
The Courts With Subject-Matter and Territorial Jurisdiction
In reinstatement actions brought against a termination on performance grounds, subject-matter jurisdiction lies with the Labour Court.
The court with territorial jurisdiction is the court of the respondent’s domicile or the court of the place where the work is performed. Since territorial jurisdiction is not a matter of public order, the objection must be raised within the period for preliminary objections.
The Conditions Required for the Action to Be Brought
Whether a reinstatement action may be heard depends on three conditions: that the contract is of indefinite duration, that the number of employees at the workplace is at least 30, and that the claimant has at least six months’ service.
The notice of termination must be given in writing and the ground of termination must be stated clearly and definitively. Where inadequate performance has been glossed over in abstract terms, or where an attempt has been made to widen the ground during the proceedings, the termination may become invalid.
The court conducts its examination, as to whether the termination rests on a valid reason, both as to procedure and as to substance.
Evidence and the Strategy of Proof
In performance-based terminations the burden of proof lies with the employer. The employer is expected to prove the ground relied on by objective and concrete evidence.
The principal questions on which the courts focus are these: were the criteria set in advance; were those criteria notified to the employee; are the measurement results objective; was a written warning given; was the defence obtained; was an opportunity to improve afforded; was the termination genuinely applied as a last resort?
Witness accounts alone are most often not regarded as sufficient. Written performance reports, KPI results, target tables, letters of warning and written defences play a decisive role.
On the employee’s side, the defence is generally built along the following lines: that the criteria were subjective and were not applied equally; that the real ground of termination originated in another motive (a trade union ground, mobbing or discrimination, for example); that no improvement process was ever put in train; and that the defence was not obtained.
The courts place particular weight on the principle that “termination is a last resort”. Where recourse has been had to termination directly, without any consideration of alternative measures, the termination may attract the sanction of invalidity.
In the result, these files are technical in nature and evidence-driven. The absence of objective criteria or the omission of procedural rules may give rise to a reinstatement order against the employer. The process must therefore be conducted meticulously within the legal framework by both parties alike.
How Performance Termination Differs From Disciplinary Termination
One of the mistakes most frequently encountered in practice is to treat a performance-based termination and a conduct-based disciplinary termination as one and the same. The two institutions differ from one another, however, in their legal nature, in the allocation of the burden of proof and in the consequences they produce.
Conduct-Related Grounds
At the foundation of a disciplinary termination lie the employee’s voluntary and culpable acts. Acting contrary to workplace rules, absenteeism, attitudes undermining trust directed at the employer or at colleagues, and the conscious breach of the obligation to work are assessed within this scope.
In such terminations Art. 25(II) of the Labour Act No. 4857 mostly comes into play, and where the conditions are met the employer may exercise the right to terminate with immediate effect. Where a termination for just cause has taken place, the employee may as a rule claim neither severance nor notice pay.
Cases of Incapacity
A performance termination, by contrast, arises not from culpable conduct but from the capacity to work falling short of the expected level. The employee’s failure to meet targets, to reach the standard of production or to adapt to the work organisation despite working in good faith is assessed under the heading of incapacity.
Underperformance is therefore accepted, exceptional cases aside, as a valid rather than a just reason for termination. Where the termination is for a valid reason, the employee receives severance and notice pay; where the conditions are met, they may also have recourse to reinstatement.
The Element of Fault
The most fundamental criterion separating the two types of termination is fault. A disciplinary termination rests on fault, whereas a performance termination generally rests not on fault but on incapacity.
If the decline in productivity emerges in the form of a conscious failure to work, neglect of the work or non-compliance with instructions, one is no longer speaking of incapacity but of a breach relating to conduct.
In identifying the type of termination, the courts have regard to whether there is voluntary conduct, whether intent or gross negligence is present, and whether what has occurred renders the employment relationship unsustainable.
In conclusion, drawing the distinction between the two types of termination correctly is decisive as regards the employee’s entitlement to compensation and the possibility of reinstatement. The legal character of the ground of termination must be assessed within the circumstances of each case.
Independent Legal Assessment
In performance terminations the fate of the dispute is most often determined well before the moment of termination, by the quality of the assessment system the employer has established. Targets never reduced to writing, criteria never communicated to the employee, or reports resting solely on a manager’s opinion render the termination indefensible at the litigation stage. On the employee’s side, the mistake most frequently encountered is overlooking the time limits.
In a particular file, the following heads should be addressed first:
- Whether the performance criteria were set in writing before the termination and served on the employee
- Whether the measurement results rest on documents and whether the decline was continuous
- The presence on the file of the papers relating to the written warning, the request for a defence and the improvement process
- Showing that lighter measures such as a change of duties or training were genuinely considered
- Giving the notice of termination in writing and not widening the ground afterwards
- Entering in the calendar the one-month mediation period prescribed for reinstatement
Independent Legal advises on and conducts employment law disputes, from the design of the performance management system through the conduct of the termination process to the pursuit of reinstatement proceedings.