There are six important concepts that appear in litigation related to a performance management system. Employment at will. In employment at will, the employer or employee can end the employment relationship at any time. This type of employment relationship gives employers considerable latitude. They could potentially end the employment relationship without documenting any performance problems.

Negligence. Many organizations outline a performance management system in their employee manual, employment contract, or other documents. When the system is not implemented as described, legal problems can arise. Defamation. Defamation is the disclosure of untrue, unfavorable performance information that damages an employee’s reputation. An employee can argue that the organization defamed her if the employer states false and libelous information during the performance evaluation, or negligently or intentionally communicates these statements to a third party, such as a potential future employer, thus subjecting the employee to harm or loss of reputation.

Misrepresentation. Whereas defamation is about disclosing untrue unfavorable information, misrepresentation is about disclosing untrue favorable performance and this information causes risk or harm to others. When a past employer provides a glowing recommendation for a former employee who was terminated because of poor performance, that employer is guilty of misrepresentation.

Illegal discrimination. Illegal discrimination, also called disparate treatment, means that raters assign scores differentially to various employees, based on factors that are not performance related, such as race, nationality, color, or ethnic and national origin. As a consequence of such ratings, some employees receive more training, feedback, or rewards, than others.

Adverse impact. Adverse impact, also called unintentional discrimination, occurs when the performance management system has an unintentional impact on members of a protected class, such as sex or race. The majority of legal cases involving performance management systems involve a claim of disparate treatment.