Performance Improvement Plans ("PIP"s) 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.

A 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 anti-discrimination and retaliation laws. Previously, employees typically had to show significant harm—such as termination, demotion, or a reduction in pay—to bring a viable claim. After Muldrow, the standard is less demanding: employees need only show that 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 does not 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 bring an employment discrimination or retaliation claim under federal law.

Following Muldrow, courts have made clear that PIPs are not inherently unlawful. For example, in Walsh v. HNTB Corp., a federal appellate court rejected the argument that placing an employee on a PIP automatically constitutes an adverse employment action. Instead, the court emphasized that each situation must be evaluated based on its own facts. The court drew a cautious distinction between two categories –PIPs issued “to warn an employee about performance deficiencies or assist an employee in developing a plan to achieve an identified opportunity for skill development,” which are not adverse employment actions even under Muldrow, and PIPs that “impose new job responsibilities, change the present terms of employment, or deprive an employee of potential advancement opportunities,” which may constitute an adverse employment action.

Together, these developments have led courts toward a more nuanced and fact-specific analysis of PIPs. Rather than applying a bright-line rule, the inquiry focuses on:

• Did the PIP materially change the employee’s job duties or conditions?
• Were the PIP’s requirements reasonable and achievable?
• Was the PIP applied consistently among similarly situated employees?
• Is there evidence suggesting discriminatory or retaliatory intent?

This case-by-case approach introduces a degree of legal uncertainty for empployers as two similar PIPs could be viewed very differently by the courts depending on how they are implemented and what effects they have on the employee.

Application to Employers

As legal standards evolve, PIPs are more frequently becoming the subject of employment disputes. Employees may argue a PIP was not a genuine effort to improve performance, but rather a pretext for discrimination or retaliation. In some cases, employees have claimed PIPs function merely as a so-called “paper trail” designed to justify eventual termination. Following Muldrow, courts are increasingly willing to consider these arguments, particularly when a PIP is paired with other negative employment actions.

For employers, the message is clear:  PIPs must be handled with care. They should be based on well-documented performance issues, include realistic and measurable goals, and provide employees with a reasonable opportunity to succeed. Consistency among different employees is also critical to reducing legal risk. Employers should consider stating the purpose of the PIP—the opportunity to correct unsatisfactory performance—as an added layer of protection.