The Australian Taxation Office's tech division would have named one in 10 of its staff on a list of "worst-performing" employees in a plan quickly killed after complaints were raised.
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Bosses at the Australian Taxation Office's Enterprise Solutions and Technology group in November asked senior managers to identify their bottom 10 per cent performers in a bid to improve their work.
When a union representing tax officers told the ATO the plan would breach its enterprise agreement, the agency scotched the proposal.
The Tax Office on Thursday said it had resolved the matter after the Australian Services Union approached the agency.
"The ATO does not have under-performance targets for its workforce," a spokeswoman said.
"It is entirely appropriate for business areas to consider a range of possibilities for future workforce planning scenarios."
Services union official Jeff Lapidos said the proposal would breach the latest enterprise agreement, which said the ATO must manage staff performance at an individual level.
Mr Lapidos said it was unclear how the plan would have identified the "under performers" or measured differences between workers in performance.
It might have found that the "bottom" 10 per cent of staff were in fact meeting their performance expectations, he said.
"There was no real guidance as to how it would've worked. They were told 'Just do it'," Mr Lapidos said.
"It's easier when you've got a whole bunch of people doing standardised jobs, but EST is actually a big chunk of the workforce these days, and it's central to how the ATO increases its productivity and effectiveness."
The ATO said as part of normal business practice, divisions of the agency may discuss parts of its workforce that required development, support or investment.
But the Tax Office measured employee performance against agreed individual work and development goals as well as performance expectations, its spokeswoman said.
The agency supported staff found needing improvement through discussions between managers and their direct reports based on individual performance plans.
After the ASU raised the plan with the ATO, second commissioner and chief information officer Ramez Katf sent an email to EST staff saying performance should be managed individually, and not through "broad and collective templates and discussions".
Staff voted up the latest enterprise agreement in June following a prolonged industrial dispute over pay and conditions.
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