By Karen Roche
Recently, there has been a growing trend of employers eliminating the annual performance review. Some companies have shifted to an informal frequent “check-in” while others have eliminated the performance review entirely. This article discusses the legal risks associated with both conducting and eliminating the performance review.
Why Are Companies Eliminating the Performance Review?
Other than for some government and union employees, there is no legal obligation to conduct performance reviews. Historically, however, employers have used the performance review as a method to document and communicate an employee’s strengths and weaknesses, make compensation decisions, and support termination decisions. More recently, commentators have begun advocating for the elimination of the performance review and employers have stopped conducting them. Those who advocate for their elimination argue that the annual review is an ineffective tool for evaluating employees for several reasons. First, annual reviews are often not conducted in a timely and consistent fashion and, even when they are, the review often focuses only on the last month or two months of work. Second, supervisors are not trained to effectively provide feedback and therefore often provide poor written comments without meaningful content. Third, and perhaps related to the lack of supervisor training, supervisors often provide less-than-honest feedback to their employees. The result is that, in many cases, performance reviews have become ineffective and unpopular for all parties involved. Thus, some argue companies are better off eliminating the review or moving to an informal review process.
Risks Associated with Performance Reviews
From a legal standpoint, performance reviews are often crucial in employment disputes. The performance review can be an extremely effective tool in deterring or winning litigation, but it also has the potential to increase the likelihood of litigation and make it more difficult for an employer to be successful in litigation. The impact a performance review has on litigation depends on how it is conducted and documented.
When reviews are conducted consistently and employers provide thorough and objective written feedback, the reviews may provide evidence of poor performance, inappropriate behavior, or other bases for termination. Such documentation has the ability to increase the likelihood of early dismissal or deter litigation entirely. If, for example, an employer terminates an employee for poor performance and his performance reviews reflect the many ways in which the employee has continuously failed to meet the employer’s expectations, it becomes much more difficult for that employee to claim there was no lawful basis for his termination.
However, as discussed above, too often reviews are not conducted consistently and when they are conducted, evaluators do not honestly evaluate the employee or properly document the evaluation. Supervisors may be reluctant to give an employee – especially an employee with whom the supervisor works on a daily basis or has supervised for many years – a negative review, even when warranted. The result is that an employer may eventually terminate an underperforming employee who has mostly positive feedback in his or her reviews. This discrepancy gives credence to wrongful termination claims and will make it more difficult for the employer to succeed in defending such claims. Further, already busy supervisors may not take the time to document why an employee’s performance needs improvement. This leaves the employer without any written explanation for its decision, again making it more difficult to prove the termination wasn’t unlawful.
Case in Point
In Johnson v. Ohio Casualty Insurance Co., the plaintiff worked for Ohio Casualty for 28 years. Throughout her tenure, she was promoted twice. No. 1:05-CV-742, 2008 WL 2387270, at *1 (S.D. Ohio June 11, 2008). Prior to 2004, the plaintiff had never received less than a “good” evaluation and, in the prior two years, had earned scores of “meets expectations, “effective,” or “extremely effective” in each category of evaluation. Id. at *1-2. In 2004, Ohio Casualty gave her a “marginal” performance evaluation and then placed her on probation. Id. at *1. Approximately three months later, Ohio Casualty terminated the plaintiff on the basis of “unsatisfactory performance.” Id. at *2. The plaintiff then brought a claim for age discrimination. Id. The court, in denying summary judgment, focused on the fact that in the plaintiff’s 28-year tenure, the plaintiff was never disciplined, was promoted twice, and had nothing in her record that would support a termination until 6 months before she was fired. Id. at *4. Ultimately, the court found that her record supported her argument that the poor performance review at the end of her tenure was not warranted and was a pretextual basis for termination. Id. at *5-6.
Likewise, in King v. Enterprise Leasing Co. of Detroit, plaintiff Sandra Bell sued Enterprise for failure to promote her based on racial discrimination. King v. Enter. Leasing Co. of Detroit, No. 03-71778, 2007 WL 1806208, at *18 (E.D. Mich. June 21, 2007). The court found unpersuasive the argument that she was passed over for promotion to due to weaknesses identified in a performance review, noting that “although Bell was found in her performance evaluation to be lacking in certain areas, she was rated over all as meeting requirements.” Id. at * 19 (internal quotations and alterations omitted).
Thus, in both these cases, the record of good or satisfactory reviews ultimately undermined the employer’s argument that the employee was terminated or passed over for promotion due to poor performance.
Given These Risks, Should Companies Continue to Eliminate the Annual Performance Review?
Not necessarily. As noted above, an honest and thorough evaluation can significantly decrease the risk of litigation. If companies commit to conducting reviews in a thoughtful manner, the reviews can remain a helpful tool to the employer. Employers who continue evaluating their employees should do so in a timely and consistent manner. This can be done yearly or more frequently. If yearly, supervisors should be encouraged to keep notes throughout the year to ensure the evaluation addresses the entire review period. Employers should also commit to training their supervisors to properly conduct these reviews and should encourage their supervisors to provide honest feedback, even when it is uncomfortable. As part of this training, supervisors should be instructed to provide examples and accurately document any discussions with the employees they evaluate. Doing so creates the kind of record most likely to assist employers in litigation.
However, to the extent an employer does not conduct its reviews in this fashion, it is riskier to continue generating problematic reviews than to halt them altogether. Informal evaluations tend to result in the type of problematic reviews discussed above. Because of their information nature, it is easier for supervisors to slip into the habit of generating inaccurate or incomplete documentation and downplaying any problems to their employees. If employers do not wish to invest the time to consistently conduct evaluations, train supervisors in best practices, and review evaluations for potential problems, it would be best to eliminate the process altogether.