Tesla Uses Performance Reviews to Layoff Hundreds, but at What Cost?

by Energage

How structured, ongoing coaching conversations prevent costly lawsuits … and protect your workplace culture

A recent round of layoffs at Tesla raised eyebrows. Why would a growing company that’s struggling to meet its production quotas suddenly lay off hundreds of people, all at once?  The Mercury News reported Tesla is responding to poor performance that was recently exposed by a ‘company-wide annual review’. Those asked to leave had been flagged as underachievers.


[bctt tweet=”Using performance reviews for annual purging is dangerous legal move – and costly to your culture.” username=”TeamEnergage”]


This explanation doesn’t sit straight with Gary Markle, an expert who has been helping organizations reimagine performance reviews for more than two decades. “This was not a prudent move by Tesla,” says Markle. “Using evaluations to justify bulk terminations is just begging for a lawsuit.”

In fact, Tesla could be opening itself up to discrimination challenges if any protected class is disproportionately affected. Claims can be based on age, race, sex, Vietnam veteran status, religion, or disability. The Mercury News article also suggested there could be a pattern established with respect to labor organizing.


But the bad optics of this move go beyond legality.

Using performance reviews in this way impacts employee engagement – and how the remaining workforce perceives the company. With 33,000 employees, Tesla will have performance-related departures. But the company claims that letting poor performers leave is a morale boost for higher performing team members. The Mercury News reported the opposite is more likely to be true.

“The immediate morale impact of a bulk termination may be open to debate,” says Markle. “But the long-term negative impact is almost certain. “Even if Tesla is correct and good performers are happy their poor performing teammates got walking papers, they’re going to dread next year’s performance review.”


How can you avoid making the same mistake?

Markle advises training managers how to stage timely coaching conversations with underperformers that are “catalytic” in nature. A dialogue that’s designed to speed the pace of significant change. Employees should know if their contributions miss the mark and require support in an effort to quickly rectify any shortfalls.

“Think about it logically. Why would performance problems worthy of termination happen to hundreds of employees at the same time? This implies underachievers have been allowed to lurk below acceptable thresholds for months – maybe even years,” says Markle, “While a healthy coaching approach could theoretically result in many of the same people leaving, their departures would be staggered. When job threatening problems surface, workers should be given formal notice of the need improve. They should also get assistance to try to make that happen. Weekly monitoring determines whether they’ve demonstrated significant and sustained improvement or it’s time for them to leave.”

From a legal standpoint, what’s most compelling is the absence of a readily recognizable “class” with staggered departure. Righteous indignation is minimized, fear is abated, and good-to-great performers remain engaged.

In summary, using performance evaluations to perform an annual purging, as Tesla admits they’ve done, is dangerous from a legal perspective. It’s also costly to workplace culture. Don’t make the same mistake. Instead, implement a structured, real-time coaching program. Work through performance problems on an individual basis as they occur and avoid even the appearance of class-based impropriety.

[bctt tweet=”Structured, ongoing coaching conversations prevent costly lawsuits … and protect your workplace culture. #catalyticcoaching” username=”TeamEnergage”]