When performance management triggers a claim

Something has shifted in how performance management plays out. A few years ago, a manager could raise underperformance, set expectations, and work through a plan with the employee still at their desk. That is happening less often. Increasingly, the moment an employee learns they are being performance managed, they go on sick leave, and in a growing number of cases they lodge a workers compensation claim for a psychological injury said to arise from the process itself.

This is not a reason to avoid performance management. It is a reason to do it properly. On the current record, the employers who get into trouble are not the ones who addressed underperformance. They are the ones who did it without a defensible process behind them.

The pattern I am seeing

The sequence is now familiar. Performance concerns are raised, sometimes for the first time in a formal meeting. Within days the employee is certified unfit for work, often with a certificate citing stress or anxiety. Sometimes a workers compensation claim follows, naming the performance process, or the manager, as the cause of a psychological injury. The performance issue that started it all is left unresolved, and the conversation shifts from capability to injury, conduct and process.

For the employer this is destabilising. The underperformance does not go away. The manager who raised it, often correctly, now feels exposed. And the file that should have been about work quality is suddenly about whether the process was fair.

Why it is happening

Several things are converging. Employees and their advisers understand the general protections regime far better than they once did. They understand that taking sick leave is the exercise of a workplace right, and that psychological injury claims are taken seriously. Awareness of psychosocial hazards, and of the employer’s positive duty to manage them, has risen sharply, and rightly so. There is also, in some cases, a tactical element: a claim can pause a process, shift the ground, and change the negotiating position.

It would be a mistake to read every claim as tactical. Many are genuine. Performance conversations are stressful, and a clumsy or aggressive process can cause real harm. That is precisely the point. Whether a claim is genuine or defensive, the employer’s protection is the same: a process that was reasonable, proportionate and procedurally fair on the face of the record.

Where the risk actually sits

Two areas carry the real exposure.

The first is the general protections. Adverse action is broad. It is not limited to dismissal. It includes altering an employee’s position to their prejudice, or treating them differently because they have exercised a workplace right, such as taking sick leave or making a complaint. If an employee alleges that a step in the performance process was taken because they went on leave or lodged a claim, the reverse onus applies. The employer is presumed to have acted for that reason unless it can prove otherwise. That is a high bar, and it is met with contemporaneous records, not recollection.

The second is workers compensation and the psychosocial duty. Reasonable management action taken in a reasonable manner is generally excluded from workers compensation liability for psychological injury. The words that carry the weight are “reasonable” and “in a reasonable manner”. Management action that is sound in substance but delivered poorly, without notice, without a genuine chance to respond, or with a predetermined outcome, can lose that protection. The same failures that make an action unreasonable for compensation purposes tend to be the ones that make it look like adverse action.

Why procedural fairness matters more than ever

Procedural fairness used to be framed mainly as protection against an unfair dismissal claim at the end of a process. It now does far more work than that. It is the single thread that runs through every risk above. A fair process is what makes management action reasonable for workers compensation purposes. It is what rebuts the presumption under the general protections. It is what shows a psychosocial hazard was managed rather than created.

In practice, procedural fairness on the current landscape means a few things done consistently. The employee knows what the concern is, in specific terms, before any meeting. They are given a genuine opportunity to respond, and the response is actually considered, not noted and set aside. Support is offered, including a support person and, where the business has one, an employee assistance program. Timeframes are reasonable, and the employee is not set up to fail. And the outcome is not decided in advance.

None of this is new law. What has changed is the cost of getting it wrong, and how quickly a thin process is tested.

Practical steps to mitigate the risk

• Start the record before the meeting, not after. Set out the specific concerns, the standard expected, and the support available, in writing.
• Keep management action genuinely reasonable and proportionate. Separate capability from conduct; they are different processes and they blur at your cost.
• When an employee goes on sick leave mid-process, do not treat the leave as the problem. Manage the medical position properly, seek appropriate capacity information, and keep the performance issue on foot without pressuring an employee who is unwell.
• If a workers compensation claim is lodged, do not stop managing, but take advice before the next step. The next step is the one that gets characterised as adverse action.
• Document contemporaneously throughout. On the current record, the reverse onus means the absence of a record is read against you.

The net observation

Performance management has not become something to avoid. It has become something to do deliberately. The employers who manage underperformance early, fairly and on the record are in a strong position even when a claim lands. The ones who improvise are not. Procedural fairness is no longer the last step before a dismissal; it is the protection that holds the whole process together from the first conversation.

If you are dealing with a performance matter that has turned, or you want a process reviewed before it does, this is exactly the kind of work where an independent set of eyes helps. I am happy to talk it through: emilie@hrautomate.au.

This article is general information current as at August 2026 and is not legal advice. For a specific matter, obtain advice on your circumstances.

---