“I Need to start Performance Management — But I’m Worried They’ll Go Off With Stress”

A small business guide to performance managing fairly when you’re worried about a stress claim

This is one of the most common and most stressful situations business owners bring to us. You’ve got an employee whose performance genuinely isn’t good enough. You know you need to address it – you need to start performance management. But there’s a nagging worry in the back of your mind: the moment you raise it, they’ll go off sick with stress, and you’ll be left carrying the workload, the uncertainty, and a process that drags on for months. In a small team, that really hurts. So you feel stuck between a rock and a hard place: say nothing and the performance issue festers, or say something and risk the whole thing blowing up. The good news is that this isn’t the trap it feels like. You’re allowed to start performance management, and there’s a clear, fair way to do it that actually protects you if a stress claim does come. Here’s how it works.

Can an employee stop a performance process just by going off sick with stress?

No — and this is the reassurance most owners need to hear first. Going off sick doesn’t erase a genuine performance issue, and it doesn’t automatically freeze everything in place. Managing underperformance is a normal, legitimate part of running a business. What matters is that you do it reasonably and in a reasonable way because when you do, the law treats it as reasonable management action, which is protected. It isn’t bullying, it isn’t a workplace safety hazard in itself, and a stress claim that flows from it is generally knocked back. The way out of feeling stuck isn’t to avoid the process; it’s to run a good one.

Isn’t performance management risky in the first place?

It’s only risky if it’s done badly. The Fair Work Commission is clear that performance management and disciplinary action, when they amount to reasonable management action carried out in a reasonable manner, are simply not bullying. The national work health and safety guidance goes a step further: the model code on psychosocial hazards expressly says that reasonable management action carried out lawfully and reasonably, even if an employee finds it uncomfortable or distressing, is not itself a psychosocial hazard. In other words, addressing poor performance is exactly what a responsible manager is supposed to do. Avoiding it doesn’t make you safer; it just lets the problem grow.

If they lodge a stress claim, will it succeed — and does everything stop?

This is the heart of the worry, so it’s worth being precise. A medical certificate or a workers’ compensation claim doesn’t automatically shut down a fair process. And when it comes to the claim itself, here in Queensland the Workers’ Compensation and Rehabilitation Act 2003 (section 32) specifically excludes a psychological or psychiatric injury where it arises out of reasonable management action taken in a reasonable way things like performance appraisals, reasonable disciplinary action, and similar decisions. WorkCover Queensland assesses claims against exactly that test, and every other state and territory has an equivalent exclusion. So a fair, well-run performance process isn’t what exposes you to a stress claim; it’s your best defence against one. The exposure comes from a process that’s rushed, aggressive, done behind closed doors, or dressed up to target someone.

Won’t the timing make it look like I caused the stress?

It can feel that way, and an aggrieved employee may well say it. But the protection doesn’t turn on whether the timing is awkward; it turns on whether what you did was reasonable and how you did it. If you can show a genuine, documented performance gap, a fair process, and a calm and respectful manner, the fact that the conversation was uncomfortable (or that it triggered a claim) doesn’t make it unlawful. That’s why the paperwork and the tone matter so much: they’re what tell the real story later.

What actually makes performance management “reasonable”?

Reassuringly, the bar is not perfection. The test the Commission applies isn’t whether your process could have been done more reasonably with the benefit of hindsight; it’s whether it was reasonable in all the circumstances, and not irrational, absurd or ridiculous. It’s assessed objectively, so neither your view nor the employee’s is the final word. In practice, the things that make a process reasonable are: acting on a genuine issue rather than a personality clash, not letting things drag on through unreasonable delay, making basic inquiries so you actually have the facts, taking the individual’s circumstances into account, and following your own policies and procedures. Get those right, and you’re on solid ground.

How do I protect the employee’s mental health while I do this?

This isn’t just decency; it’s a legal duty. As an employer, you have a work health and safety obligation to manage psychosocial risks, and a performance process that’s handled poorly (an ambush meeting, no clarity about what’s actually wrong, an aggressive tone, no support offered) can become a hazard in its own right. The way you neutralise that risk is by running the process well: give proper notice of meetings, be crystal clear about the specific gap and what “good” looks like, offer a support person, point them to your Employee Assistance Program if you have one, keep the tone calm, and allow a fair timeframe to improve. Done this way, the process protects the employee’s wellbeing and your business at the same time.

They’ve gone off sick in the middle of it — how do I keep things moving?

Carefully, but you don’t have to abandon it. Stay in reasonable, supportive contact, and where their fitness is unclear, ask (with their consent) for medical guidance on whether they’re able to participate in the process and what adjustments might help, the same cooperation principle that applies to any extended sick leave. You can often keep things moving with sensible adjustments: allowing written responses, extending timeframes a little, or offering a support person, rather than parking the whole thing indefinitely. What you’re aiming for is a process that’s paused thoughtfully where it needs to be, not one that’s dropped out of fear.

How long do I have to drag this out? We’re a small business.

There’s no magic number, and that’s actually in your favour. “Reasonable” is proportionate to the role and the issue; for many small-business roles, a fair opportunity to improve is measured in weeks, not months. You’re not required to wait indefinitely for someone to be well before you can ever address genuine underperformance, and you’re not required to tolerate poor performance forever. What you do need to do is make reasonable accommodations along the way and be able to show you gave a fair chance to improve. Balance, not endurance, is the goal.

What’s the practical, defensible way to run it?

If you’re about to start, this is the sequence we’d walk a client through:

• Get specific first. Pin down the actual performance gap with real examples, dates and evidence before you raise it not a vague feeling.
• Check your own rules. Look at the contract and any performance policy, and follow the process you’ve set; deviating from it is a classic trip-up.
• Put it in writing. Set out expectations, the standard required, the support on offer and a fair timeframe for a proper, fair improvement plan.
• Run the meeting well. Give notice, offer a support person, stay calm, and give the employee a genuine chance to respond and explain.
• Separate support from the message. Offer wellbeing support (EAP, adjustments) alongside, but don’t let it blur or soften the performance expectations.
• If they go off sick, adjust — don’t bin it. Seek medical guidance, adapt the process reasonably, and keep it fair rather than dropping it.
• Document everything. Dates, what was said, what support was offered, how they responded. If it isn’t written down, it didn’t happen.
• Get advice before the big steps. Before a formal warning or any move to dismissal, have someone sense-check the process with you.

For ongoing backup through the whole process — the plan, the letters, the meetings — take a look at our HR Support packages, or get in touch here. It’s also worth getting ahead of this before you ever need to: if your contracts, position descriptions and performance policies aren’t clear and current, an HR Audit is the simplest way to make sure the foundations are in place before a tricky conversation, not after.

This article is general information only and isn’t legal advice. Workers’ compensation and WHS laws differ between states and territories, and every situation is different — please get in touch for advice tailored to your circumstances before acting.