What Can You Do with an Underperforming Employee?

It’s one of the trickiest situations for any employer — you’ve got an employee who isn’t meeting expectations and a difficult conversation is overdue. But what are your options? Can you reduce their responsibilities? Move them into a different role? Demote them?

In short: it depends.

Here’s what to know — and what to consider — before you take action.

Performance Management

Managing poor performance is lawful and necessary but what becomes risky is when performance management processes are used to:

• Force someone out of the business

• Justify a demotion without clear process

• Make the workplace uncomfortable enough that the employee resigns

These are the hallmarks of a potential constructive dismissal claim — where the employee argues they were effectively pushed out. Even if performance issues were real, the employer’s approach and process will be closely examined.

They aren’t doing their job – can you demote them?

Unless your employment contract explicitly allows for role variation or reassignment, demotion can be considered a repudiation of contract — meaning the employee may have grounds to resign and claim constructive dismissal.

That means:

• You can’t simply lower someone’s title, pay, or duties without agreement

• Even if performance is poor, the Fair Work Commission expects a structured process before any changes are made

• Getting the employee to “agree” under pressure can still create legal risk

In most cases, a demotion is treated as a termination of the original role — and must be handled with the same care.

What Are Lawful Alternatives to Demotion?

If a change in duties or position is necessary, you have a few safer options — but they must be approached carefully.

1. Variation of Contract (by agreement)

• If the employee agrees to a change in role or responsibilities, document it properly

• This includes any changes to title, pay, reporting lines, or expectations

• Update the position description so the employee understands the changes to their duties and the expectations of the role.

2. Continuation of the Performance Management process

• Ensure you are following an appropriate process – speak to HRAnywhere about this!

• Set up a Performance Improvement Plan which sets clear performance expectations and gives the employee a chance to improve

• Use written warnings, progress reviews, and documented support, as required

• If improvement doesn’t occur, termination may be justified (but seek advice first!)

If you’re facing an underperformance issue and aren’t sure what’s legally safe, get advice before making a move.

Not sure how to handle a performance issue without crossing the line?

[Speak with a HRAnywhere advisor before you take the next step]