PIP and Termination: Can an Employee Challenge an Unfair Performance Improvement Plan?

A Performance Improvement Plan (PIP) usually begins with a meeting where the employee is informed that their performance needs improvement. The employer may provide specific targets along with a 30, 60 or 90-day timeline.

In principle, a PIP is meant to provide an employee with an opportunity to improve. However, problems arise when the PIP is not genuinely designed for improvement and is instead used to create a record before terminating the employee.

So, can an employee challenge an unfair PIP? In many situations, yes. However, the legal position depends on the employee's role, employment terms and the manner in which the PIP was implemented.

What Does the Law Say About a PIP?

There is no specific Indian statute that defines or regulates a Performance Improvement Plan. It is essentially an HR and performance-management practice.

Therefore, the fairness of a PIP may need to be examined in light of:

• The employment contract
• Company policies
• Applicable standing orders
• Principles of natural justice

Merely placing an employee on a PIP is not illegal. However, the situation may become questionable when the PIP is used only to create a paper trail for removing an employee whom the employer has already decided to terminate.

The Legal Position Under the Current Labour Law Framework

The Industrial Relations Code, 2020 came into effect on 21 November 2025 and replaced, among other laws, the Industrial Disputes Act, 1947.

The Industrial Relations (Central) Rules, 2026 were notified on 8 May 2026. State governments may also notify their respective rules, making it important to examine the legal framework applicable in the concerned state.

The nature of employment is also important. For example, the legal position of a permanent employee may differ from that of an employee engaged under a fixed-term contract.

Are You a Worker or a Managerial Employee?

This distinction can significantly affect the legal remedies available after termination.

The Industrial Relations Code protects "workers", which generally includes employees performing technical, clerical, operational and skilled functions. Employees mainly working in managerial or administrative roles are excluded, along with supervisors earning above the prescribed wage limit.

Where an employee qualifies as a worker, termination following a failed PIP may potentially be examined through the conciliation machinery and Industrial Tribunal.

Where termination amounts to retrenchment, statutory requirements relating to notice, compensation and procedure may become applicable.

If the employer treats the termination as a consequence of misconduct, a fair disciplinary enquiry may also be required.

For managerial employees, the legal position is generally more dependent on the employment contract. Important issues may include the notice period, termination clause, outstanding dues and contractual rights.

Signs That a PIP May Be Unfair

Certain circumstances may indicate that a PIP was not genuinely intended to improve performance:

• The targets are vague or practically impossible to achieve within the given period.

• The employee had consistently positive appraisals immediately before being placed on the PIP.

• The PIP was issued shortly after the employee raised a complaint, filed a grievance, took maternity or medical leave, or refused an illegal instruction.

• Other employees with similar performance were not placed on a PIP.

• The employer promised support, resources or regular feedback but failed to provide them.

• The circumstances suggest that termination had already been decided before the PIP period was completed.

No single factor automatically proves that a PIP is unfair. The entire sequence of events and supporting records should be considered.

What Should You Do If You Are Put on a PIP?

Receiving a PIP does not necessarily mean that you should immediately resign.

First, carefully read the document and understand the allegations, performance targets and timeline.

Ask the employer to provide clear and measurable targets in writing if the expectations are vague.

If you disagree with the allegations, respond professionally in writing and explain your position.

Maintain copies of important documents, including:

• Previous performance appraisals
• Achievement records
• Emails and official communications
• Performance reports
• Feedback received from managers
• Requests for training or assistance
• Responses received from the employer

If you sign the PIP only to acknowledge that you have received it, you may clearly record that acknowledgment of receipt does not necessarily mean acceptance of all allegations contained in it.

Where an applicable grievance mechanism exists, the employee may also consider using it.

Legal advice should ideally be taken before the PIP period expires rather than waiting until a termination letter is issued.

What If You Are Terminated After a PIP?

If termination follows a PIP, carefully review the entire employment record.

Check your appointment letter, applicable standing orders, HR policies, PIP document and termination letter.

The available remedy will depend significantly on whether the employee qualifies as a worker or falls outside that category.

A worker may be able to raise an industrial dispute, subject to the applicable legal procedure and limitation requirements.

A non-worker may consider contractual remedies relating to notice pay, unpaid salary, outstanding dues and other contractual entitlements. Depending upon the facts, additional remedies may also arise where retaliation or discrimination is involved.

Is a PIP the Same as a Warning or Termination Notice?

No.

A PIP is primarily a performance-management measure. It is not automatically a punishment or termination notice.

However, if termination subsequently takes place, the manner in which the PIP was drafted and implemented may become important evidence in determining whether the process was genuine and fair.

Can an Employee Refuse to Sign a PIP?

An outright refusal may create additional difficulties because the employer could potentially portray the refusal as non-cooperation or insubordination.

An employee may instead acknowledge receipt of the document while clearly recording disagreement with the allegations and subsequently provide a detailed written response.

Can an Employer Terminate an Employee During the PIP Period?

The answer depends upon the employee's legal status, employment contract and circumstances of termination.

For a worker, applicable retrenchment requirements or disciplinary procedures may need to be followed.

For other employees, the termination clause and notice-period provisions contained in the employment contract become particularly important.

Where an employer terminates an employee significantly before the PIP period is completed, it may also become relevant when examining whether the outcome had already been decided.

Does Poor Performance Justify Termination?

Poor performance can form the basis of termination where the performance deficiency is genuine, measured fairly and the employee has been provided a reasonable opportunity to improve.

However, unreasonable targets, inconsistent evaluation, unequal treatment or lack of promised support may raise questions about the fairness of the process.

Is an Employee Entitled to Notice Pay or Compensation?

This depends on the employee's legal status and the nature of termination.

Where the termination of a worker amounts to retrenchment, statutory notice and retrenchment compensation requirements may apply.

Other employees may be entitled to benefits provided under their employment contracts, along with earned salary, leave encashment and gratuity where applicable.

Can an Employee Get Reinstatement?

For workers, the Industrial Tribunal may have the power to order reinstatement in appropriate cases.

For managerial employees working in private employment, compensation is generally a more common remedy than reinstatement.

What If the PIP Was Issued After an Employee Made a Complaint?

Timing can become important evidence.

If an employee raises a complaint concerning harassment or an allegedly illegal practice and is placed on a PIP shortly afterwards, the sequence of events may be relevant when examining whether retaliation was involved.

The employee should preserve the original complaint, dates, emails and all communications received after making the complaint.

What About Fixed-Term Employees?

The expiry of a fixed-term employment contract is treated differently from ordinary retrenchment.

An employer may choose not to renew a fixed-term contract after its expiry. However, early termination should still be examined in accordance with the terms of the employment contract.

Fixed-term employees are also entitled to applicable wages and benefits on the basis provided under the relevant legal framework.

Should an Employee Resign After Receiving a PIP?

Resigning immediately may not always be advisable.

A voluntary resignation can affect legal remedies that might otherwise have remained available following termination.

Before resigning, an employee should understand the consequences of resignation, termination and the applicable contractual provisions.

The Bottom Line

A Performance Improvement Plan can be a legitimate management tool when it contains genuine, measurable targets and provides an employee with a fair opportunity and appropriate support to improve.

However, a PIP may become open to challenge when it is used merely as a procedural shield for a termination decision that has already been made.

Employees facing a PIP should maintain proper records, communicate objections in writing, understand their employment status and seek legal advice at an early stage.