What is a Performance Improvement Plan (PIP)?

A Performance Improvement Plan (PIP) is a structured process used by employers to address concerns regarding an employee's work performance. While not a term explicitly defined in New Zealand legislation, a PIP is a common human resources tool designed to communicate performance deficiencies, set clear expectations for improvement, and provide support to the employee to meet those expectations. The legal framework surrounding a PIP in New Zealand is primarily derived from the Employment Relations Act 2000, particularly the requirements for acting in good faith and ensuring any subsequent employer actions are justified.

The Principle of Good Faith

The Employment Relations Act 2000 (ERA) places a fundamental obligation on both employers and employees to deal with each other in good faith [Source: Employment Relations Act 2000, s 4]. This principle of good faith requires parties to be active and constructive in establishing and maintaining a productive employment relationship. In the context of a PIP, this means:

Open and frank discussions: Performance concerns must be raised transparently with the employee [Source: Employment Relations Act 2000, s 4(1A)(a)].
Providing information: The employer must provide the employee with access to information relevant to the performance issues [Source: Employment Relations Act 2000, s 4(1A)(b)].
Genuine consideration of views: The employer must give due consideration to any explanations or responses provided by the employee [Source: Employment Relations Act 2000, s 4(1A)(b)].

Employer Obligations During a PIP

When implementing a PIP, employers must adhere to their obligations under the ERA and principles of natural justice. This includes:

Clear Communication of Concerns: Employers must clearly articulate the specific performance issues, providing examples where possible [Source: Employment Relations Act 2000, s 4(1A)(a)].
Setting Measurable Expectations: The PIP should outline clear, specific, and measurable performance goals that the employee is expected to achieve [Source: Employment Relations Act 2000, s 4(1A)(a)].
Providing Support and Resources: Employers are generally expected to provide reasonable support, training, or resources to assist the employee in meeting the performance goals [Source: Employment Relations Act 2000, s 4].
Reasonable Timeframes: The PIP must include a realistic timeframe for improvement, allowing the employee a genuine opportunity to meet the set expectations [Source: Employment Relations Act 2000, s 103A].
Regular Review and Feedback: Ongoing feedback and regular reviews of progress should be conducted, with discussions about performance and any barriers to improvement [Source: Employment Relations Act 2000, s 4(1A)(a)].
Maintaining an Open Mind: The employer must genuinely consider the employee's perspective, explanations, and any mitigating factors [Source: Employment Relations Act 2000, s 4(1A)(b)].

Employee Rights During a PIP

Employees have specific rights when undergoing a PIP process:

Right to be Informed: Employees must be fully informed of the specific performance concerns and the expectations for improvement [Source: Employment Relations Act 2000, s 4(1A)(a)].
Right to a Support Person: An employee has the right to have a representative or support person present at any meeting relating to the PIP where discussion could lead to disciplinary action, including potential dismissal [Source: Employment Relations Act 2000, s 4(1A)(c)]. A support person is someone who can provide emotional support, take notes, and help the employee understand the process, but cannot speak on their behalf unless specifically permitted by the employer.
Right to Respond and Explain: The employee must be given a fair opportunity to provide their perspective, explain any contributing factors to their performance, and respond to the concerns raised [Source: Employment Relations Act 2000, s 4(1A)(b)].
Right to Fair Consideration: The employer must genuinely consider the employee's responses and explanations before making any final decisions [Source: Employment Relations Act 2000, s 4(1A)(b)].

The Justification Test and PIPs

If an employer's actions, such as dismissal, arise from the outcome of a PIP, these actions will be subject to the justification test outlined in the ERA. The justification test requires the Employment Relations Authority or Employment Court to determine whether the employer's actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred [Source: Employment Relations Act 2000, s 103A].

A well-conducted PIP that adheres to principles of good faith and natural justice can be crucial evidence for an employer to demonstrate that their actions were justified. Conversely, a flawed PIP process, lacking clear communication, proper support, or a fair opportunity for the employee to improve, could render any subsequent disciplinary action, such as dismissal, unjustified [Source: Employment Relations Act 2000, s 103A].

When to Seek Independent Legal Advice

Individuals involved in a Performance Improvement Plan process, whether as an employer or an employee, often benefit from seeking independent legal advice. An employment law professional can provide guidance on specific situations, ensure compliance with legal obligations, and help protect rights. Free advice may be available from Community Law Centres. [https://communitylaw.org.nz/]

Key Resources

Employment Relations Act 2000: [https://www.legislation.govt.nz/act/public/2000/0024/latest/whole.html]
Employment New Zealand (MBIE): [https://www.employment.govt.nz/]
Community Law Centres Aotearoa: [https://communitylaw.org.nz/]