This system of evaluation is not doing justice to the employees’ work. Those who are good are getting fewer scores, and those who are not good are getting higher scores. The system does not reveal good/bad traits in a fair, proper, or just way. It does not show the merits of the employees properly.
This system is —— .
nonfunctional? unfair? non-revealing?
Of course, unfair may work but it seems as there should be word that are more to the point for such circumstances.
Dysfunctional is the first word in my mind
There are many other words to describe something that’s unjust or meritless , but trying to find an individuals connotation becomes more difficult.
Looking at your wider context it is possibly best to say “This system misjudges the value of…”