Performance Improvement Plan: What Is Permitted Under German Labor Law

Pietro Mattina

August 19, 2026
14 minutes

A Performance Improvement Plan (PIP) originated in U.S. performance management and is increasingly being adopted by German HR departments through international corporate guidelines. There, this tool must navigate a labor law framework with its own requirements regarding the right to issue instructions, protection against termination, written warnings, and employee representation. A PIP can therefore be a useful management and development tool, but it must not be equated with a sanction under labor law. It is crucial to maintain a clear distinction between performance management, written warnings, and any potential further measures under labor law.

What is a Performance Improvement Plan (PIP)?

A Performance Improvement Plan is a time-limited, written action plan designed to systematically address a specific performance gap. In German-speaking countries, the terms “Leistungsverbesserungsplan” or “Maßnahmenplan” are also used for this purpose; the abbreviation PIP stands for “Performance Improvement Plan.”

PIP is primarily derived from international performance management and is often used when the goal is to improve an individual’s performance over a defined period of time. The focus is not only on identified shortcomings, but also on specific expectations, support measures, and regular reviews.

A typical PIP includes:

a description of the current performance situation
Specific and, as far as possible, measurable performance goals
a specified term, often 30, 60, or 90 days
Support measures, such as training or mentoring
Scheduled dates for interim reviews
a record of progress
a description of possible next steps if there is no improvement

It is important to distinguish between a PIP as a management and development tool and a disciplinary sanction under labor law. A PIP is primarily intended to specify what performance is expected and what support is offered to help meet those expectations. A written warning, on the other hand, serves a different purpose: It addresses a specific instance of misconduct, demands that it be corrected, and generally warns of possible consequences in the event of a recurrence.

Performance Improvement Plan in Employment Law: Permissible, but Not a Substitute for a Written Warning

A Performance Improvement Plan is not regulated by law under German labor law. It can be used as a performance management tool, but it may not override statutory requirements or contractual agreements, and, in particular, it does not automatically replace the function of a written warning.

The basis for specific work instructions may include, among other things, the employer’s right to issue instructions under § 106 of the German Trade Regulation Code (GewO). Under the conditions specified therein, this allows for a more detailed determination of the content, location, and time of the work to be performed. A PIP can serve to structure expectations and measures. However, it does not entail a unilateral change to the work performance required under the contract.

The so-called “subjective concept of performance” is also of particular importance. Employees are generally not required to achieve an objectively defined maximum standard. Rather, what matters is the level of performance contractually required of them, achieved through the reasonable utilization of their personal capabilities. Below-average performance alone therefore does not automatically constitute a breach of employment obligations. The Federal Labor Court emphasized this principle, among other things, in its ruling of January 17, 2008, Case No. 2 AZR 536/06.

For companies, this means:

Performance goals must be objectively verifiable and achievable.
Benchmarks must be appropriate for the specific activity.
The causes of underperformance should be investigated before the evaluation.
A lack of training, excessive workload, or unclear objectives should be evaluated differently than a culpable breach of duty.
Performance trends should be documented in a transparent manner.
A PIP should not be used merely as a preliminary step toward a termination that has already been decided.

A particularly problematic scenario arises when goals are unrealistic from the outset or when the employee in question is not given sufficient opportunity to actually achieve the required improvement. Such a “set-up to fail” approach can further complicate the subsequent evaluation under labor law.

Even performance targets or variable compensation components cannot be unilaterally changed through a PIP. Changes to contracts generally require an appropriate legal basis.

Note: The information provided here is for general informational purposes only and does not constitute individual advice on employment law. Before introducing or implementing a PIP, a legal review should be conducted, particularly if there are planned consequences under employment law.

The 4 Phases of a Legally Sound PIP Process

A structured PIP process begins with an objective description of a performance issue and ends with a documented assessment of progress. It is crucial that the achievement of goals not be determined only at the end of the period, but that there be transparent monitoring throughout the entire process.

Phase 1 – Objectively Assessing Performance Deficits

Before initiating a PIP, it is first necessary to determine exactly what the performance gap is. General statements such as “not performing at the expected level” are not very helpful in this regard.

Instead, the following are useful:

specific performance metrics
transparent quality criteria
documented errors or deviations
Comparative data from an appropriate reference group
specific examples from everyday work
a review of the targets set to date

Analyzing the root causes is equally important. Poor performance can be caused, for example, by a lack of training, unclear responsibilities, excessive workload, a lack of resources, or health-related factors. Only after these factors have been taken into account can the performance situation be properly assessed.

Particularly when it comes to data-driven performance processes, it is also important to verify whether the metrics used are actually suitable for measuring individual performance. KPIs in workforce management can serve as an important foundation for this, but they must always be interpreted in the context of the specific job.

A structured onboarding process is also important: If expectations, processes, or systems were not adequately communicated at the outset, a performance shortfall identified later may be attributable, at least in part, to this lack of a solid foundation.

Phase 2 – PIP Meeting and Written Agreement

In the next step, the results are discussed with the individual concerned, and the goals of the PIP are documented.

Goals should be formulated using the SMART criteria whenever possible. The most important factors are:

What exactly needs to be improved?
How is the improvement measured?
By when should this goal be achieved?
What kind of support is available?
When do performance review meetings take place?
What further steps can be taken if there is no improvement?

A duration of 30, 60, or 90 days may be appropriate depending on the activity. However, there is no one-size-fits-all optimal duration. Complex tasks or longer project cycles may require a longer evaluation period.

Phase 3 – Support and Interim Reviews

A PIP is not an observation period in which only the final result is considered after several weeks. Regular feedback and review meetings should take place throughout the duration of the PIP.

The following should be documented:

What progress has been made?
What goals were achieved?
Where are there still discrepancies?
What kind of support was used?
Do we need to adjust our goals or measures?
What next steps were agreed upon?

This allows for adjustments along the way and reduces the risk that differing expectations regarding the status of the work will arise only at the end of the process.

Phase 4 – Final Evaluation and Consequences

The PIP should conclude with a transparent final evaluation. In principle, several outcomes are possible:

Goal Achievement: The PIP is successfully completed, and the employee’s performance is integrated into the regular performance management process.
Partial achievement of objectives: The timeframe or individual measures may be adjusted or extended under certain conditions.
Further steps under labor law: Depending on the cause and the specific situation, a written warning or another labor law measure may be considered.
Mutually Agreed Separation: If continuing the employment relationship does not seem feasible, a mutually agreed-upon solution may also be considered.

For the transition to a structured offboarding process , responsibilities, knowledge transfer, and access rights should be addressed early on.

In diverse workforces, this step often fails due to issues of responsibility. Companies that rely on a managed service provider for temporary staffing have defined escalation and replacement processes in place with the staffing agency, rather than resorting to improvised solutions on a case-by-case basis.

Works Council, Personnel Files, and Data Protection in the PIP

In the case of a PIP, in addition to the individual employment relationship, any participation rights of the works council as well as data protection requirements must be taken into account. This becomes particularly relevant when a single PIP evolves into a standardized procedure for many employees or a technical performance monitoring system.

A distinction must be made between an individual measure and a company-wide, standardized performance management process. General evaluation principles may affect the works council’s participation rights under Section 94 of the Works Constitution Act (BetrVG). If technical systems designed to monitor behavior or performance are used, Section 87(1)(6) of the Works Constitution Act (BetrVG) may also be relevant.

In practice, this means that before implementing a standardized PIP process, it is important to determine what participation rights exist.

Clear guidelines also apply to data protection. Performance data should be processed only for a legitimate purpose, and the scope and retention period should be appropriate. With regard to employee data, Section 26 of the Federal Data Protection Act (BDSG) in particular contains provisions governing processing in the context of employment.

For documentation purposes, a clear distinction is therefore recommended:

The technical documentation of performance should include, for example:

specific performance deviations
agreed-upon goals
objectively verifiable metrics
Documented feedback sessions
Agreed-Upon Support Measures
Results of the review meetings

The following should be handled with special care:

Generalized personal judgments
unsubstantiated assumptions
Personal information unrelated to the employment relationship
Data that is not required for the specific assessment

Risks of discrimination must also be taken into account. Performance objectives and their application should be objective and transparent, regardless of the characteristics protected under the AGG.

Poor Performance Among External Employees: Why the PIP Doesn't Work in This Case

For freelancers, IT service providers, and other external resources, a Performance Improvement Plan is generally not the appropriate management tool. In these cases, performance is typically managed through the underlying contract, service descriptions, SLAs, acceptance procedures, and defined KPIs.

This is precisely where a frequently overlooked difference between the internal and external workforce lies.

In the case of a freelancer or service provider, there is no employment relationship with the client. An HR tool such as a PIP therefore does not readily fit into this contractual relationship. If, on the other hand, external individuals are managed as if they were the company’s own employees, questions regarding the distinction between self-employment and employment may arise, depending on how the work is actually carried out. Anyone wishing to avoid bogus self-employment should therefore pay particular attention to how the contract is actually carried out and the specific organization of the collaboration.

In the case of a Statement of Work, for example, the focus is on the agreed-upon service or the deliverable. In the case of temporary staffing, on the other hand, an employment relationship exists between the staffing agency and the temporary worker; at the same time, temporary workers are integrated into the client company’s work organization and are subject to its instructions there. The specific legal classification should therefore always be based on the actual contractual model. The difference between a Statement of Work and temporary staffing is accordingly crucial for proper performance management.

In the case of temporary staffing, performance-related issues should generally be addressed through the contractual contacts and the staffing agency. Therefore, having the client company develop its own Performance Improvement Plan (PIP) for a temporary employee may be based on the wrong legal approach.

The counterpart to PIP at the supplier level is Vendor Performance Management. This involves the use of the following elements, for example:

Definition of Relevant KPIs
Service Level Agreements
Regular performance reviews
documented deviations
Escalation Levels
Action Plans
Structured replacement or succession processes

Performance management of external resources is therefore not a traditional HR issue, but rather a central component of contingent workforce management.

In practice, however, there is often no central database for this purpose. Work hours, contract data, performance metrics, and supplier information are stored in different systems. To make it possible to compare the performance, working hours, and supplier performance of external staff at all, a centralized database is needed—such as our workforce management software MAVES, which consolidates the assignment and performance data of all external resources in one place.

FAQ: Frequently Asked Questions About the Performance Improvement Plan

What is a Performance Improvement Plan, in simple terms?

A PIP is a time-limited, written action plan designed to address a specifically identified performance gap. It includes an analysis of the current situation, measurable goals, specific support measures, set review dates, and a clearly defined duration. Typical durations range from 30 to 90 days, although the exact duration depends on the specific activity and objectives.

Is a Performance Improvement Plan legally binding in Germany?

The PIP is not a legally regulated instrument under German labor law. It can be used to specify expectations and job performance requirements, but it cannot unilaterally alter the terms of a contract. Furthermore, a PIP does not automatically have the legal effect of a written warning and does not replace its warning function.

Does a PIP replace a warning letter?

No. A formal warning serves a distinct purpose of warning and reprimanding, which a development tool such as a PIP does not fulfill. However, a properly documented PIP can provide information on performance trends and specific breaches of duty, thereby supporting a subsequent evaluation under labor law.

Can an employee be terminated during or after a PIP?

A PIP does not provide additional protection against termination, nor does it automatically constitute grounds for termination. The general requirements under employment protection law and the specific cause of the poor performance remain decisive. Depending on the circumstances, reasons related to the employee’s personal characteristics or conduct may be relevant. An individual legal review is required prior to termination.

Does the works council need to be involved in a performance improvement plan?

That depends on the specific details of the arrangement. A distinction must be made between an individual measure and a standardized procedure that is implemented company-wide. Participation rights may be affected, particularly in the case of general evaluation principles or technical performance monitoring. Participation rights should be reviewed before introducing such a procedure.

Does a Performance Improvement Plan also apply to freelancers and temporary workers?

As a general rule, a PIP is not a suitable HR tool for external personnel. For freelancers and service providers, performance is managed through contracts, scope of work documents, SLAs, and acceptance procedures. In the case of temporary staffing, performance issues should be addressed through the staffing agency. Depending on how it is actually implemented, a PIP for external personnel may also raise questions regarding the distinction between an employee and a contractor.

Conclusion: The PIP needs a clear limit

A Performance Improvement Plan can help companies clarify performance expectations, structure improvement measures, and document progress in a transparent manner. Under German labor law, however, it is not a legal instrument in its own right and does not serve as a substitute for a written warning or for assessing the grounds for termination.

This distinction becomes particularly important in companies with mixed workforces. For permanent employees, HR tools such as PIPs, feedback, and performance management can be used. For freelancers, IT service providers, and other external resources, however, performance management must be handled through contracts, SLAs, and vendor performance management.

This means that the PIP is not a one-size-fits-all tool for every resource, but rather a building block of a broader workforce strategy.