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Performance Reviews. Done Properly, They Can Be a Positive; Done Poorly, They Can Kill a Defense Case

October 2006
By Jonathan Fraser Light

Annual performance reviews are a stressful time for both the reviewer and the employee who is the subject of the review. From the reviewer's perspective, it is a stress-inducing process because of the potential for confrontation in the meeting. It is also viewed as a time-consuming paperwork process that may not produce much positive change. That’s in part why an annual review should never contain surprises for the employee. Ongoing evaluation is critical, and then the annual review becomes more of a summary of the year’s effort and a forward-looking document.

If reviews are all done at the same time of year, rather than on an individual employee's anniversary date, it concentrates the work for the reviewer at a single point in time. The argument in favor of annual reviews all in the same month is that salary increases and bonuses can be awarded more uniformly, and the reviewer is focused on the task at hand in one concentrated effort. Conversely, spreading out the reviews puts less time pressure on the reviewer, and allows for a more detailed and therefore more accurate review. Salary increases and bonuses can be awarded retroactively or pro-rated.

Supervisors should be taught how to do an effective review. They need to understand the importance of reviews to support a termination decision, and how to look ahead to see how the review will hold up under scrutiny in a contested matter. Sloppy, inaccurate or incomplete reviews can kill a case. Some companies don’t do reviews, but reviews are expected by employees, judges and juries. Thus, they are a necessary part of the employment experience in almost every setting. The employer who fails to conduct reviews can be looked up on as uncaring, or worse.

Unfortunately, the employee often focuses only on the negative in her review. If she receives 18 positive scores out of 20, she will spend the next week brooding about the two negatives. Reviews can be used as a positive time to set goals, to review progress from the prior review, and to ask an employee what training she needs to advance her skill set. Some employers avoid this last question because they assume it will increase the likelihood that an employee will leave for a better job once the skill set is enhanced. To the contrary, employees look favorably on employers who focus on such improvement, and the goodwill it fosters may increase the likelihood that an employee will stay with the company and look for advancement internally.

Reviews of supervisors often are done using the same written format as lower-level employees. Much of the review format can be the same, but there should be separate sections on supervisory skills, training, setting examples, and other skills that set supervisors apart from subordinates.

In filling out the review form, four mistakes often are made. First, a 4- or 5-point system should be the maximum scoring. Anything more leaves too wide a range for evaluation among employees. "Grades" perhaps shouldn't be used at all, which leads to the second common problem.

Second, if an employee does not receive the highest or second-highest rating, supervisors must be forced to provide essay-style comments, with examples. A number alone, or broad statements such as "not a team player," "skill set still not up to par," or "trouble interacting with others," are not helpful. Include specific examples of each problem area to help justify the low rating. In a lawsuit, if the manager can't back up the broad statements with examples, it will seriously jeopardize your client's defense. Most review forms I see don't have enough space for the reviewer to write substantive comments, which discourages that part of the process. Leave space. Require comments, and make the reviewer go back and expand the review if the broad negative comments don't include examples. Those comments and examples can be the foundation of a good wrongful termination defense.

Third, reviewers need to avoid grade inflation. Every employer believes that its culture tolerates only employees who are 4’s and 5’s (i.e., top performers). Thus, a mere 3 (which the review form identifies as "satisfactory") is not acceptable. The reviewer tries to send a negative message by awarding a 3—trying to avoid face-to-face conflict in the review meeting that a 2 ("needs improvement") would foster, but still attempting to convey negativity. When the employee is terminated, however, the lawyers are left to defend the termination of a "satisfactory" employee who is claiming, for example, age discrimination. If the employee was "satisfactory" on paper, the jury reasons, the termination must have been based at least in part on a discriminatory motive.

Fourth, employers often average the total score from all evaluation categories. The average may be used to rank the employee for purposes of raises or bonuses. There must be a better way to establish an appropriate raise or bonus. The problem can be illustrated by a case I tried a couple of years ago in which the employee was terminated for terrible attendance. Otherwise, she was a very good employee. Her average rating was 92.7 - "outstanding" - and plaintiff’s counsel repeated several times during the trial the mantra, "How could they fire an outstanding employee, it must be race/sex discrimination and retaliation." Although we prevailed, that outstanding rating made the task a bit more difficult. Even the worst employee is only going to rate poorly in a small number of categories. Thus, the overall rating will always be at least a B-minus or so for even the poorest performer.

Some forms allow for self-evaluation by the employee, which is acceptable. Just don't allow the employee to do a numerical rating that tracks the same rating system used by the reviewer. Otherwise, you will have a parallel universe in which the employee is of course the very best performer that any employer has ever had, in contrast to the inevitably lower rating provided by the reviewer. This gives a jury a separate set of statistics to use in evaluating the employee's performance. Don't go there. Broad essay-style comments by the employee are fine, numerical ratings are not.

The human resources department should have a tickler system to ensure that reviews are being done. Merely sending them out and hoping they come back, without tracking, will be a problem later when we go to the file to determine if the decision to terminate is supported by the past reviews.

Handbooks and other materials related to reviews should indicate that reviews will be performed "approximately" at 90 days or annually. Employers sometimes get trapped because the review was delayed, and the timing doesn't conform exactly to the promise made by the employer in the handbook (“on the 90th day…”).

A new supervisor can also create challenges. A "new sheriff in town" may be a tougher grader, and reviews may be far worse than in the past. The sudden reversal of fortune for the employee can be tempered somewhat by an interim review provided by the new supervisor at the three-month mark. The new supervisor has by then had an opportunity to observe the staff and offer some preliminary performance assessments. This clues employees in sooner than later about a supervisor's concerns, and allows for time (before the regular annual review) for the employee to meet the new supervisor's expectations and avoid surprises.

Employers also should not hesitate to do an interim review sometime during the year if the employee is not performing well and needs counseling. The review does not need to track the formal annual review form, but any additional paperwork in the file regarding performance is always useful in defending against wrongful termination claims.

If the review is due within 30-60 days after the proposed termination date, do the review. In a trial I had a few years ago up north, the employer was made to look uncaring because it didn’t bother to perform the then-due review to support the termination decision. That additional paperwork would have helped support the decision. In the termination meeting, an employer can note that the review has been completed and the employer would be happy to go over the results with the employee. Almost all employees will decline the invitation, but the employer will still have that paperwork in the file to support the decision (and it had better support the decision!).

Some employers have instituted what is known as a "360 review" process, which involves peer review and review of supervisors by subordinates. Employees who review their supervisors may be nervous about putting their names on such a review. The human resources manager can create a number coding system and have a confidential key that will match the employee with the number the employee placed on the form. This will help maintain anonymity, and give employees greater comfort that any negatives they note will not be disseminated inadvertently. My clients who have instituted the 360 review have uniformly found it to be a useful tool, although it creates more work for everyone.

Supervisors should be clear and direct throughout the year with constructive criticism, expectations, goal achievement; as well as provide positive feedback when earned. These efforts will help ensure that the annual review is unsurprising to the employee, less traumatic for both parties, and more focused on moving forward in a positive manner. A detailed, accurate and expansive written review will also, from a trial lawyer’s perspective, be one of the most effective tools available to support a termination decision and to defend a wrongful termination claim. In contrast, a poorly prepared performance review can undermine the oral testimony of the supervisor and devastate even a seemingly solid wrongful termination defense case.

Jonathan Fraser Light is a senior partner with Nordman Cormany Hair & Compton LLP, Ventura County’s largest law firm. For the record, he stresses out when preparing reviews of his staff. He may be reached at jlight@nchc.com or 805.988.8305.