Underperformance in the Nordics

There are different ways to handle underperformance. Some companies have formalized performance improvement plans (PIPs), while others have more informal procedures.

However, if the company’s attempts to improve performance are unsuccessful, companies can rarely lawfully proceed directly to termination. The reason is that justified termination due to underperformance requires prior written warnings in most cases. Often, PIPs do not meet the requirements set by the courts. We have previously written about an unjustified termination following a PIP process here.

The good warning

Warnings may limit the risk of claims if performance does not improve. However, it always depends on the circumstances in each case, and different elements may come into play. One key element is whether the warning is good enough to be the basis for a termination.

The recommendations for drafting a “good warning” are similar across the Nordics and include that warnings should be:

• Written
• Clear and precise as to what needs to be improved
• Within the employee’s control
• Consequences if the employee fails, including risk of termination

Depending on the circumstances, other elements may also include:

• Deadlines for improving performance
• Follow-ups
• Support and coaching

If the employee still fails to improve, most companies proceed to termination. In this connection, it becomes a question of timing. The reason is that there are no clear rules on how much time the employee must have to improve after receiving the warning. Instead, it is decisive that the employee has a real chance to improve their performance before being terminated. At the same time, the employee must not get too much time. Otherwise, the risk is that the warning expires while the company is waiting for the employee to improve.

IUNO’s opinion

Underperformance is difficult to handle in practice, and there are many pitfalls. Circumstances, such as promotions or salary increases, may make the process more difficult. It may also be that the employee is incapable of performing their work. On that basis, a clean approach and a case-by-case assessment is always required to limit the risk of claims of unjustified termination.

IUNO recommends that companies have internal procedures for underperformance. Such procedures should include clear guidance on how warnings are drafted and how to follow up with the employee. Procedures may also include guidance on union information and consultation requirements.

This newsletter is in a series explaining restructuring and dismissals in the Nordics. Read about changing terms and conditions here and misconduct here