Changing legal landscape of performance improvement plans: What you need to know

Performance improvement plans (PIPs) have long been a routine part of performance management. Employers use them to address underperformance, set expectations, and document efforts to help employees improve. But in recent years, courts are increasingly scrutinizing how and why PIPs are used, turning what was once a largely safe tool to quietly exit problematic employees into a potential focal point in employment litigation.

Shift in how the law views workplace harm

A major development influencing PIPs came from the U.S. Supreme Court’s decision in Muldrow v. City of St. Louis. In that case, the Court lowered the threshold for what qualifies as an “adverse employment action” under federal antidiscrimination and retaliation laws. Previously, employees typically had to show significant harm—such as termination, demotion, or a reduction in pay—to file a viable claim. After Muldrow, the standard is less demanding: Employees need only show they were made “worse off” in the terms or conditions of their employment.

This shift has important implications for PIPs. While being placed on a PIP doesn’t necessarily involve a pay cut or job loss, it can affect an employee’s reputation, opportunities for advancement, or day-to-day working conditions. Under the standard articulated in Muldrow, those effects may be enough to file an employment discrimination or retaliation claim under federal law.