An employee who has previously performed well has quietly started to struggle. They’re missing deadlines, quality is dipping and the energy they once brought to the team has faded. The obvious next step is a performance conversation. But you’ve also noticed something else. Perhaps they seem withdrawn or have mentioned they’re going through a hard time.
You don’t know what’s behind the drop in performance and it isn’t your place to guess. It could be workload, a personal issue, disengagement, or a mental health condition. The manager’s task isn’t to diagnose the cause. It’s to respond fairly and consistently to what’s in front of them.
Act too firmly without checking in first and the business risks overlooking a genuine wellbeing issue while increasing its legal risk. On the other hand, act too gently, or assume you already know what’s going on and standards quietly slip while nobody actually deals with the real issue, whatever it turns out to be.
Why It’s Worth Getting This Right
To begin with, this isn’t a rare edge case reserved for HR manuals. A 2014 PwC analysis for beyondblue found that poor mental health cost Australian workplaces an estimated $10.9 billion a year, across absenteeism, presenteeism and workers’ compensation claims. Similarly, the Productivity Commission’s 2020 national inquiry into mental health estimated that mental ill-health and suicide cost the Australian economy somewhere in the order of $200 to $220 billion a year, once you factor in healthcare, informal care and reduced workforce participation.
At the individual level, survey research by TELUS Health has found that around 31% of Australian employees feel their mental health is affecting their productivity at work, a figure that climbs to almost half among Gen Z respondents. Separately, Safe Work Australia’s data show that psychological injury accounts for roughly 9% of serious workers’ compensation claims nationally. These claims tend to take longer to resolve and, on average, cost more than physical injury claims.
The pattern is clear. Most leaders will eventually have a version of this conversation, whether they feel ready for it or not.
Where the Legal Line Actually Sits
This section provides general information, not legal advice. Individual circumstances vary considerably, so you should discuss specific situations with an employment lawyer or HR adviser before taking any formal action.
Australia’s disability discrimination laws may treat mental illness as a protected attribute. The Fair Work Act also provides protections that may be relevant depending on the circumstances. None of this means employers can never address poor performance. Rather, the process an employer follows can matter just as much as the outcome.
First, consider whether reasonable adjustments are required. Where an employee has disclosed a health condition or disability that may be affecting their work, employers may have obligations to consider reasonable adjustments before and during a performance process. Depending on the circumstances, these might include altered hours, modified duties, or temporary changes to workload, provided they are reasonable and compatible with the inherent requirements of the role.
Next, assume less and ask more. A manager is not in a position to diagnose a mental health condition and shouldn’t treat a dip in performance as evidence of one. Where an employee discloses that a health condition may be affecting their performance, Australian employment decisions indicate that employers should make a genuine effort to understand the situation. Ideally, this means seeking the employee’s input and appropriate medical guidance before deciding on any formal steps.
Meanwhile, a disclosed condition is not an automatic shield, but a fair process still matters. Australian employment decisions have recognised that employers can enforce genuine performance standards. At the same time, employers need to show that the process was reasonable. They also need to show that they considered relevant circumstances and gave the employee a genuine opportunity to respond.
Finally, dismissal should not be the starting point. If performance concerns persist after appropriate support, adjustments and a fair process, an employer may need to consider further action. Each case’s circumstances will determine what the law allows.
Ultimately, most of the legal risk in this area doesn’t come from having the performance conversation. It comes from skipping the steps that should have come before it.
A Realistic Way Through It
To start, separate the two conversations. Have a private, calm conversation about wellbeing before any formal performance discussion. Ask how they’re going and whether anything is affecting their capacity to work. Don’t assume the cause and don’t pressure them to disclose a diagnosis.
At the same time, keep expectations clear, not soft. Compassion doesn’t mean setting the standards too low. Clearly define what “acceptable performance” looks like, with specific timeframes. Allow flexibility while you trial adjustments.
From there, explore adjustments together, not for them. Common options may include a temporary reduction in workload, flexible hours, adjusted deadlines, or a referral to an Employee Assistance Program. Agree on a trial period and a date to check back in.
Alongside this, bring in the right people early. Engage HR and, where relevant, a workplace health and safety contact. If medical information would help assess work capacity or potential adjustments, seek appropriate guidance from the employee’s treating practitioner, with their consent.
Throughout the process, document everything as you go. Record each conversation, the adjustments offered and the review dates. This helps protect the employee by showing you provided genuine support and the business by showing you followed a reasonable process.
Eventually, be honest when it isn’t working. If performance doesn’t improve despite genuine support and an appropriate process, say so directly. Avoiding the conversation rarely spares anyone and usually delays a harder one.
Support and Standards Aren’t Opposites
Handled well, this isn’t a trade-off between compassion and accountability. It’s the same conversation, done properly. It treats the employee fairly while giving the business the clarity it needs to make a defensible decision about what comes next.
There’s no script that entirely removes the discomfort of this conversation. A careful process is the right approach whether or not a mental health condition is ever confirmed or even present. Whatever is behind the drop in performance, a considered, well-documented process gives everyone involved the clearest and fairest basis for what comes next.
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