Reduce the Legal Risks of Performance Reviews

For supervisors, all those performance evaluations completed years ago may now be just a dim memory. But tha​t could change in an instant if an employment lawsuit shines a spotlight on one of those reviews.

Serious legal risks can arise as a result of conducting employee performance evaluations, as shown by a recent lawsuit filed against Yahoo in California. In that case, a former manager alleges gender discrimination and other violations of the law.

By making the evaluation process as objective and transparent as possible, though, employers can reduce the chances of being sued—while still providing helpful feedback for employees.

Legal Risks

The risks include not only claims of intentional discrimination, but also unintentional discrimination, according to Chicago attorney Aimee Delaney of Hinshaw & Culbertson. Even if there's no sign of intent to discriminate, a company could face legal trouble if some part of the review process has a disproportionate impact on a protected group, she said.

Performance reviews often become crucial in employment disputes, said attorney Jeffrey Horton Thomas, of Thomas Employment Law Advocates in West Hollywood, Calif. According to Thomas, reviews become key evidence if a former employee alleges that an action taken by the employer was done for an illegal reason. Such actions could include if an employee is overly criticized by superiors, subjected to an undesirable transfer, denied a raise or promotion, demoted, or fired.

Without a history of “consistent, objective, well-crafted” evaluations, employers may have a tough time defending themselves against such claims, he said.

Evaluations also play a key role in breach-of-contract cases, according to Thomas. For instance, highly paid executives often have agreements providing for “termination for good cause.” If the executive is fired, the review will be scrutinized to determine if the company had sufficient grounds for its action, he said.

The Yahoo case illustrates the potential legal perils of employee reviews. In the Feb. 1 lawsuit, a former manager claims that the evaluation system could be manipulated based on biases and stereotyping. In an e-mail, Yahoo spokeswoman Carolyn Clark said that the company’s system is fair and offers meaningful feedback.

Key Concepts for Employers

Selecting the reviewer: Management needs to have fair criteria for choosing the individuals responsible for performance evaluations, Thomas said. For example, the evaluator shouldn’t have a personal or family relationship with the employee being reviewed.

The reviewer shouldn’t have a history of being accused of unlawful bias, he added. This includes bias on the grounds of race, gender or sexual orientation.

Also, if a manager has reason to believe that an employee may have blown the whistle on him or her, then that manager shouldn’t evaluate the worker.

Another guideline: reviewers should evaluate only those workers in their direct line of supervision.

Frequency of reviews: All employees in the same job classification should be evaluated on the same time cycle, according to Thomas. Whether that’s once a year or some other time period, make sure it’s consistent for all workers in that category.

Objective criteria: Employers should strive to evaluate workers on objective factors, like meeting sales numbers or meeting project deadlines, Thomas said.

For certain occupations, it’s easier to base evaluations on purely objective criteria, Delaney noted. That’s because for some jobs, performance tends to be measured by strict numerical measures; examples might include workers at manufacturing facilities or call centers.

In contrast, there’s likely to be more subjective criteria in the area of professional services—and reviewers need to be especially cautious with their wording in these circumstances. With proper training, evaluators can learn the appropriate way to word their comments.

Careful wording: Whether or not they’re intended that way, certain phrases might appear to show bias.

Thomas cited several examples of problematic language, such as “lacks energy,” “moves too slowly,” and has “no gusto.” These types of phrases could potentially lead to claims of age discrimination.

Los Angeles attorney Richard Frey of Venable noted that there’s been an increased focus on “unconscious bias” in the workplace, referring to situations in which people aren’t even consciously aware of their biased attitudes. That can make interpreting the wording in reviews very tricky, highlighting the need for quality training.

Overall, when evaluating employees, maintain a professional tone. Supervisors should highlight both the positive and negative in a constructive manner, Delaney said. “Avoid inflammatory language,” she emphasized.

Self-assessments: Employees should assess themselves as part of the review process, according to Frey. If the manager and employee agree on the areas that need improvement, it’s easier to set performance goals for the future, Frey said. If they don’t agree, then the supervisor can constructively explain his or her point of view. Either way, the employee has some input in the evaluation process.

Training: It’s crucial for reviewers to learn appropriate language and proper procedures, according to lawyers. The training should convey the purpose of the evaluation process, Frey said. As Thomas observed: “Training is absolutely critical.”

Transparency: Employees should not only receive copies of their evaluations, but they should also have a clear understanding of how the system works, Thomas said. He recommends that companies have a written document explaining the procedures for performance reviews. The document should describe the criteria used, how often reviews are done, who will conduct the evaluations and the training process that evaluators undergo.

Audits: Delaney recommends proactively examining results to determine whether the evaluation system is fair.

For instance, the audit could examine whether the process has a disproportionate impact on a protected group, Delaney said. Also, it could reveal if poor rankings tend to come from a particular manager.

The exact type of audit will depend on the type of system used. According to Delaney, reviews that include some type of ranking, scoring or category result are easier to audit than, say, a purely summary report of performance.

The latter may be difficult to audit in the traditional sense, she added. But even with those types of evaluations, companies could flag certain results for a risk analysis or second look, Delaney observed. For example, this would be advisable in situations where a review leads to a recommendation that an employee be fired.

Toni Vranjes is a freelance business writer in San Pedro, Calif.