In the highly competitive business environment, enterprises often face the challenge of employees with poor performance. How to handle such situations properly, ensuring both the operational efficiency of the enterprise and compliance with laws and regulations, has become a concern for many enterprises. Recently, as an HR consulting firm with years of in - depth experience in the field of labor law, we successfully assisted a world - class coaching and consulting company in properly resolving this thorny issue.
This coaching and consulting company had an employee with persistently poor performance. After identifying the problem and deciding to address it, the company's management was caught in a dilemma: should they follow the regular process and first implement a Performance Improvement Plan (PIP) for the employee, or directly negotiate with the employee to terminate the employment contract? The PIP process is complex and time - consuming. It not only requires significant investment of time and effort in training and supervising the employee but may also reach an impasse if the results are unsatisfactory, incurring additional human and financial costs. However, directly negotiating to terminate the contract raises concerns about potential violations of labor laws and legal risks.
Facing the client's dilemma, we promptly formed a professional consulting team to intervene. All team members possess profound knowledge of labor laws and extensive HR management experience, with in - depth research on various labor dispute cases.
We first provided the client with a detailed interpretation of the relevant provisions regarding employment contract termination in labor laws. According to Article 36 of the Labor Contract Law of the People's Republic of China, an employer and an employee may terminate the employment contract upon reaching a consensus through consultation. This means that, based on the principle of voluntariness and equal consultation, an enterprise has the right to reach an agreement to terminate the employment contract with an employee under the premise of complying with laws and regulations and adhering to the principle of good faith. However, in actual operations, it is necessary to ensure that the negotiation process is legal and compliant, avoiding any improper behaviors such as coercion or fraud.
At the same time, we pointed out that PIP is not a mandatory procedure for terminating an employment contract required by law. Moreover, the PIP process is very complex. In practice, a PIP generally involves training or job transfer and subsequent performance assessment. Usually, this process takes at least 3 - 6 months. During this period, the enterprise undoubtedly has to continue paying employment costs such as salaries, social security contributions, housing provident funds, and benefits. Although in some cases, implementing a PIP can demonstrate the enterprise's care and support for employees and provide certain evidence for potential labor disputes in the future, in some specific situations, directly negotiating to terminate the employment contract is a more efficient and viable option.
After clarifying the legal basis and the advantages and disadvantages of different strategies, we developed a detailed negotiation - based termination plan for the client.
1. Before communicating with the employee, we assisted the client in collecting and organizing relevant evidence such as the employee's performance data and work performance records to ensure that the reasons for terminating the employment contract could be clearly and rationally explained during the negotiation.
2. The communication process is of utmost importance. We guided the client's HR team to adopt a professional, gentle, and sincere communication approach when talking to the employee. During the communication, they clearly stated the company's position and the reasons for terminating the employment contract while fully respecting the employee's feelings and giving the employee an opportunity to express their opinions and demands.
3. In addition, we designed a reasonable economic compensation plan for the client. Based on the employee's length of service and salary level, we determined the compensation standard in accordance with legal regulations. On this basis, we also took into account the actual situation of the company and the individual circumstances of the employee and provided certain additional compensation to reflect the company's human - centered care. This plan not only protected the legitimate rights and interests of the employee but also laid a good foundation for the smooth termination of the employment contract. In fact, there was a crucial time factor for this client. When the client approached us with this case, the employee's length of service was almost four years. If the process was delayed until the next week, according to the general rules for calculating economic compensation in Shanghai, that is, one - month's salary is paid for each full year of service, and if the service period is more than six months but less than one year, it is counted as one year, and if it is less than six months, half - a - month's salary is paid. The company would have to pay an additional half - month's salary as economic compensation.
4. Throughout the negotiation process, as a professional hr management company, we were fully involved, providing real - time legal support and communication guidance to the client. Finally, with our professional assistance, the client successfully reached an agreement with the employee to terminate the employment contract through negotiation. Both parties signed the relevant documents, and the entire process was smooth and orderly, without any labor disputes. The employee also expressed understanding and gratitude for the development opportunities provided by the company over the years.
Through the implementation and successful completion of the above - mentioned comprehensive and detailed negotiation - based termination plan, we finally resolved the client's problem. From this experience, we have summarized the following valuable insights for sharing:
1. Thoroughly understand legal regulations: When dealing with employee performance issues, enterprises should first familiarize themselves with the relevant provisions of labor laws to clarify their rights and obligations. Not all cases of poor performance necessarily require a PIP. Directly negotiating to terminate the employment contract is a viable option as long as it complies with legal regulations.
2. Develop a reasonable plan: After deciding to negotiate the termination of an employment contract, enterprises should formulate a detailed and reasonable plan, including collecting sufficient evidence, designing a reasonable economic compensation plan, and planning a professional communication strategy.
3. Seek professional team support: HR consulting companies play a crucial role in this process. Professional teams can provide accurate legal interpretations, effective plan designs, and full - process communication guidance to help enterprises avoid legal risks and improve the efficiency of terminating employment contracts.
4. In HR management, when facing issues such as poor employee performance, enterprises should remain calm, base their decisions on relevant labor law regulations, fully consider the advantages and disadvantages of different handling methods, weigh the pros and cons between PIP and negotiation - based termination as in this case, and use professional knowledge and experience to choose the solution that best suits the enterprise's own situation.
Note: The Labor Contract Law of the People's Republic of China does not directly stipulate the "Performance Improvement Plan (PIP)". The legal provision related to PIP is mainly Article 40, Paragraph 2, which states: "If an employee is incompetent for work and still remains incompetent after training or job transfer, the employer may terminate the employment contract by giving the employee a written notice 30 days in advance or paying the employee an additional month's salary."
• In enterprise management practice, when an enterprise implements a PIP, it usually claims that an employee's failure in performance assessment or being at the bottom of the ranking belongs to "incompetence for work", and implementing a PIP for the employee belongs to "undergoing training". If the employee still fails to meet the standards after the PIP, it is considered "still incompetent for work", and the enterprise then believes that it can legally terminate the employment contract based on this provision. However, in judicial practice, there are differences in the legal recognition of using PIP to link incompetence for work and terminate employment contracts in different regions.
• For example, some courts in Shanghai recognize that when an employee's poor performance is determined as "incompetence for work", the PIP can be regarded as qualified training. If the employee still fails to reach the corresponding indicators, the company's termination of the contract based on this is considered legal. In contrast, courts in Beijing and some other regions will conduct strict reviews on aspects such as the rationality of the PIP's goal - setting, the relevance of the training content to the employee's work, and the fairness and impartiality of the implementation process. If there are flaws in these aspects of the PIP, even if a well - designed PIP is recognized as training, it is not sufficient to directly determine that the employee is "still incompetent for work", and thus the employment contract cannot be directly terminated based on this provision. In practice, it is necessary to pay attention to the judicial tendencies of different regions. When implementing a PIP or handling similar situations, it is necessary to carry out more rigorous document formulation and management throughout the process to ensure that the company's actions comply with legal requirements at every step and reduce legal risks.
