A recent decision by the Federal Court of Canada has confirmed that employers are not permitted to use the “Peter Principle” to promote employees to a level of incompetence and subsequently terminate them.
What is the “Peter Principle”?
Canadian sociologist, Dr. Laurence Johnston Peter, developed the principle that “In a hierarchy, every employee tends to rise to his or her level of incompetence.”
Essentially, in a hierarchy, members are promoted as long as they work in a competent manner. Thus, the assessment of an employee's potential for promotion is based on his or her performance in the current job. Sooner or later, the members are promoted to a position where they are no longer
competent, and this is where they stay. According to the theory, work is accomplished by those employees who have not yet reached their level of incompetence.
Ultimately, the higher levels of a bureaucracy will be filled by incompetent people, who got there because they were good at performing a different task than the one they were originally expected to do.
One way that organizations attempt to avoid this effect is not to promote a worker until he or she shows the skills and work habits needed to succeed in the elevated position. Thus, a worker is not promoted to managing others if he or she does not already display management abilities.
Background
In the case, the employee had worked for the employer (a bank regulated by the Canada Labour Code) since 1986, and had held positions in various departments. In May of 2005, the employee applied for a promotion to the position of Administrative Officer, Special Loans. The employer gave the employee the promotion even though the employee did not have the academic training to fulfill the position.
The employee commenced her new position in July of 2005, but the supervisor could not properly train her due to the large number of files that accumulated during the supervisor's vacation. The employee was later permitted to ask the supervisor questions if necessary.
Within the employee's first three months in the new position, the head of the department noticed errors of inattention by the employee. When informed of the errors, the employee promised to be more careful. In December of 2005, the employee and head of the department created a plan of action for improved performance.
The employee was not able to meet the objectives in the plan. In January of 2006, she received a letter stating that she would be dismissed if she did not meet the objectives by February 15, 2006.
On January 27, 2006, the employee made an error regarding a letter of credit that caused the employer to lose US$830,000. Therefore, the employee was terminated on January 31, 2006.
On June of 2006, the employee brought an action for unjust dismissal pursuant with the Canada Labour Code.
Decision of the adjudicator
The employee argued that her dismissal was a disciplinary action which resulted from her mistake regarding the letter of credit, and not an administrative action resulting from her incompetence. She asked to be reinstated, or to be given compensatory payment of one year's salary.
The employer argued that the dismissal was purely an administrative action resulting from many errors of inattention made by the employee. Although the date to terminate was set on February 15, 2006, the employer considered it was justified in terminating the employee immediately after her serious omission that caused a major loss of money. The employer asserted that it did everything possible to address the employee's shortcomings.
The adjudicator dismissed the employee's complaint in May of 2007. The conclusion was that the dismissal was an administrative action taken on account of the incompetence shown by the employee in the performance of her duties.
In addition, the adjudicator stated that an employer is obligated to tell the employee of the shortcomings in her work, give her proper support to correct the shortcomings and achieve the desired objectives, allow her a reasonable amount of time to accomplish this, and inform her of the risk of dismissal if there is no improvement. The adjudicator found that the employer met these requirements.
The employee appealed to the Federal Court of Canada.
Decision of the Federal Court of Canada
The judge found the issue to be whether the adjudicator erred in failing to consider whether the employer had made every reasonable effort to find the employee alternative employment within its operation.
The judge confirmed that in cases of employee incompetence, the factors to be considered are:
- The employer must define the level of job performance required;
- The employer must establish that the standard expected was communicated to the employee;
- The employer must show it gave reasonable supervision and instruction to the employee and afforded the employee a reasonable opportunity to meet the standard;
- The employer must establish an inability on the part of the employee to meet the requisite standard to an extent that renders her incapable of performing the job, and that reasonable efforts were made to find alternative employment within the competence of the employee;
- The employer must disclose that reasonable warnings were given to the employee that a failureto meet the standard could result in dismissal.
However, the judge commented that these factors, highlighted in previous case law, were not exhaustive. The only requirement in the Code was the fairness of the dismissal.
The judge stated that the adjudicator noted there were no objections made against the employee in her 20 years of service leading up to the promotion. Six months after obtaining managerial employment, despite her lack of qualifications, she was dismissed for incompetence. The head of the department knew early on in the new employment that the employee could not perform her duties, but this was never communicated to her.
In the opinion of the judge, the adjudicator failed to analyze the dismissal in light of the employee's long history of employment with the employer and her impeccable record. The judge concluded that not making efforts to reassign the employee to some other position was an error requiring the court's intervention.
The main reason was this: without a different ruling, an employer could allow an employee who did not have the necessary qualifications to attain a promotion and subsequently dismiss her. The judge said that in this case, “One might also wonder whether in these circumstances the employer was not in part responsible for the applicant's difficulties and did not make an error of judgment by giving her a promotion for which she did not have the necessary qualifications.”
Consequently, the judge ruled that the adjudicator made an unreasonable decision by failing to consider the circumstances in this case. The adjudicator must consider the nature, sufficiency and validity of the reasons for dismissal in addition to whether the dismissal procedure the employer followed was fair.
The court allowed the application for judicial review, and sent the matter back to the adjudicator for a re-hearing. The question of reassignment to an alternative position within the company would be addressed then.
What can employers take from this case?
As can be seen from this case, employers are not permitted to promote an employee into a position for which the employee does not have the necessary qualifications, and subsequently terminate the employee for incompetence shortly thereafter. The “Peter Principle” cannot be used in order to eliminate an employee. Employers can avoid this situation by offering promotions to those who are capable of handling the new responsibilities, as demonstrated in their prior positions, or through additional training before the new job commences.
In addition, once the employee begins working in the new position, employers are recommended to work with the employee to establish work expectations, fill in the gaps between the previous and new roles, and identify which skills must be enhanced for the employee to succeed. Feedback and communication throughout the training process is vital; it is best not to wait until a major error occurs that jeopardizes the health of the organization. If the promoted employee's supervisor notices errors, it is best to deal with them immediately, document all conversations with the employee, and follow the dismissal procedure outlined by the court, if required.
To view the case, go to the CanLII website at http://www.canlii.org/.
Reprinted with permission. "Employers not permitted to use the 'Peter Principle' to terminate employees" by Christina Catenacci LL.B., Assistant Editor for HRinfodesk---Canadian Payroll and Employment Law News and Developments, May 2008.
