A Performance Improvement Plan (“PIP”) is commonly implemented on under-performing employees to get them to improve their performance. While PIPs are not mandatory by law, if an employer opts to use a PIP, it must be a genuine attempt to fix performance issues, with clear and realistic goals. A PIP cannot be a “check the box” exercise designed to drive an employee out.

In CLP v MIMS Medica Sdn. Bhd. (Award No.: 870 of 2023), the Industrial Court awarded an employee more than RM2 million in backwages and compensation in lieu of reinstatement, after he was put on a PIP and dismissed. The Court held that despite the PIP, there were no indications that the employee as a poor performer and so the PIP was imposed with mala fide as part of a series of oppressive conduct.

Brief Facts

  • The Claimant was a former Vice President of the Company, having served the group for approximately 19 years.
  • After the Company was acquired and taken over by new management, the Claimant was accused of being a poor performer for failing to turn around a business unit that was already struggling before the Claimant was appointed to lead that business unit.
  • The Claimant alleged that in addition to the above, there was a series of conduct by the Company and its management that singled out the Claimant and oppressed him.
  • At one point the Claimant was offered a severance package to resign. After the Claimant refused, he was put on a PIP.
  • The Claimant challenged the PIP as he claimed he is not a poor performer, and the targets set in the PIP were unreasonable and designed to fail the Claimant.  For example, the Claimant was expected to hit a 106% achievement rate of revenue (ie: an increase) despite the management’s own downward projection for the business and instruction to the Claimant to only “maintain” revenue and “stop the bleeding”.
  • The Claimant participated in the PIP under protest.
  • After the PIP period, the Company alleged that the Claimant failed to meet the goals set and therefore dismissed him for poor performance. 

Court’s Findings 

  • The Industrial Court ruled in favour of the Claimant and found on a balance of probabilities that the dismissal was without just cause and excuse. 
  • The Industrial Court held that the Company did not prove that the employee was a poor performer to begin with:
  • The Court was not convinced that the Company honestly believed on reasonable grounds that the Claimant was incapable or incompetent (even if the Company did not have the burden to prove actual incapabilities or incompetencies).
  • The Claimant’s performance during the period immediately before the PIP showed that the Claimant was not a poor performer. On the contrary, the Court found that the Claimant performed “commendably well” within the scope of instructions given to him.  For example, there was evidence that under the Claimant’s leadership, decreases in revenue were reduced, which was in line with the direction to “stop the bleeding”.
  • The Claimant was earlier rewarded with a significant salary adjustment, which the Court viewed as evidence of the Claimant’s good performance.  Further, the Claimant was promoted multiple times throughout his 19 years in the Group, and was therefore instrumental in growing the Company’s business.
  • The PIP was part of a series of conduct with mala fide intent, designed to drive the Claimant out of the Company. The Industrial Court noted the Company’s actions before the Claimant was on a PIP – for example: (a) adjusting the Claimant’s level of reporting whereby his subordinates were placed on the same level as the Claimant; (b) not providing a proper job description for the Claimant’s new role; (c) adding portfolios to the Claimant’s scope of work and not allowing him to hire new employees; and (d) attempting to convince the Claimant to take a severance package.
  • The PIP itself was designed to fail the Claimant as the goals were vague and unreasonable. Despite that, the Claimant came close to achieving those goals. However, the Company ignored those achievements.
  • The Industrial Court awarded the Claimant more than RM2 million, comprising compensation in lieu of reinstatement and backwages. The Court did not scale down the award sum as the Claimant was not gainfully employed after the dismissal and economic conditions were affected by the pandemic.

Key Takeaways

Employers should not view a PIP as an “exit plan” for employees. The primary objective of a PIP should be to help employees improve their performance to meet the expected standards, rather than facilitating their dismissal.

Here, the Industrial Court ruled that the Company failed to meet the initial threshold required to justify dismissal, as they could not prove that the Claimant had been a poor performer from the outset. There was no valid basis for placing him on a PIP. 

Even when a PIP is warranted, it must be executed properly. The goals outlined in a PIP should be unambiguous, attainable, and realistic. The Court scrutinized the PIP targets and found them to be unachievable, designed to ensure the Claimant’s failure, particularly considering the Company’s prior knowledge of an anticipated downturn in the Claimant’s business unit. Despite the Claimant’s commendable efforts and near-achievement of the targets, the Company did not acknowledge this and instead terminated his employment. 

While a PIP can be an effective tool for addressing subpar performance, it can become problematic for employers if implemented improperly or with malicious intent, potentially exposing them to significant financial liabilities.

***

This article was written by Zi-Han, Lim (Senior Associate) from Donovan & Ho’s employment law practice. 

Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations.  Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.

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