Evaluating employee performance without creating legal liability

by Robert E. Bettac, Esq., Ogletree Deakins, San Antonio

Performance evaluations are important tools to help employers gauge whether employees are performing at expected levels. They can help organizations spot talent and leadership potential, while identifying areas where employees need extra training and support.
    Evaluations also can protect employers from frivolous lawsuits filed by employees who claim they’ve been demoted, fired or otherwise unfairly treated when the real reason was poor performance.

Strengths and weaknesses

The evaluation of an employee’s performance is a critical factor affecting the employee’s career, salary, expectations and retention. Employees themselves use the evaluation process to gauge the employer’s fairness. Evaluations should reflect a forthright appraisal of the employee’s performance and identify both strengths and weaknesses.    
    Employees want feedback but don’t necessarily like the performance appraisal process most employers use. A recent survey by Adecco Staffing North America indicates that only 49% of employees say their managers take performance evaluations seriously. Just 44% report that they receive constructive feedback. Of those surveyed, 47% would feel better if the review process were a two-way street. Twenty-four percent say they don’t receive evaluations on a regular basis, and 18% say their reviews fail to address their long-term career goals.
    There are no laws requiring performance appraisals.

Liability protection

The impact of performance evaluations on an employer’s liability is not merely hypothetical. In fact, courts frequently decide employment cases by analyzing the contents of performance appraisals.
    For example, in Lloyd v. Georgia Gulf Corp. (No. 91-3634, 5th Cir., 1992), the plaintiff alleged he had been fired because of his age. The employer argued it terminated him due to his poor performance. Four supervisors testified about numerous examples of the plaintiff’s performance deficiencies. But not a single document in his personnel file supported the supervisors’ objections. Therefore, the 5th Circuit Court of Appeals upheld the jury’s finding of discrimination, ruling the evidence supported a reasonable inference that poor performance was not the true reason for the termination.
    On the other hand, when used properly, performance evaluations can serve as a sound defense. In Murphy v. Metropolitan Transit Authority (No. 04-20334, 5th Cir., 2004), evidence showed Murphy’s performance evaluations steadily declined, resulting in an overall unsatisfactory review. The employer placed him on a performance improvement plan and ultimately fired him. Murphy sued, claiming age and race discrimination. In addition to the formal appraisals, the employer could show numerous e-mails and memoranda documenting problems. The 5th Circuit ruled that Murphy failed to overcome the evidence and decided against him.
    Winters v. Chubb & Son, Inc. (No. 14-03-00248, Texas Court of Appeals, 2004) shows the value of documenting performance problems. Craig Winters was an underwriter who worked for Chubb in Houston. His boss wrote a memo summarizing some performance issues. In a subsequent appraisal, Winters received mostly “good” marks, but there were also some negative comments. Later, Winters received a performance warning. He quit and sued, claiming race discrimination. He said other underwriters had performance issues, but he was singled out. The court dismissed the case because there was no evidence indicating another employee had the same performance issues that Winters had in “nearly identical” circumstances.

Accuracy and honesty count

In short, by committing appraisals to paper—both through formal appraisal processes and informal evaluations—employers can create the documentation necessary to support discipline (including discharge from employment) and can defend against charges of unlawful conduct.
    Performance evaluations can work to the serious detriment of an employer if supervisors fail to give them the attention they deserve. It can be equally damaging if supervisors are not candid or inflate evaluations, giving below-average employees undeserved satisfactory or better ratings. Many former employees have successfully challenged their terminations in court on the basis of an undeserved satisfactory performance evaluation. In these types of cases, the supervisor usually was “too nice” to rate the employee accurately or was afraid to communicate an unsatisfactory rating to the employee.
    Avoid those problems by spending the time necessary to develop a performance appraisal process that works for your organization. Train managers and supervisors how to use the process well. A performance appraisal is a cornerstone document in the employment relationship, and effective employee performance evaluation is critical to a healthy employer-employee relationship.

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Robert Bettac is a shareholder in Ogletree Deakins’ San Antonio office, where he represents management in labor and employment law-related matters. He can be reached at (210) 354-1300 or via e-mail at bob.bettac@ogletreedeakins.com.

Why evaluate?

Performance appraisals serve a variety of purposes, including:

  • Determining the extent to which employees are meeting, exceeding or falling below performance standards.
  • Identifying the next crop of leaders (i.e., employees who may be suitable candidates for increased responsibility or promotion).
  • Determining eligibility for raises or bonuses.
  • Identifying a need for additional training and support.
  • Supporting disciplinary action taken against an employee.