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Interpretation and enforcement of probationary periods in employment contracts

probabtion-periodWhen hiring a new employee, employers will often characterize the first several months of employment as a “probationary period”, the purpose of which is generally to give both parties an opportunity to assess whether the employee is a good fit for the workplace.

A probationary period will typically have a significant impact on an employee’s entitlements if their employment ends during this period. Under the Employment Standards Act, 2000 (the “ESA”), an employee only becomes entitled to notice or pay in lieu of notice of the termination of their employment once they have been employed for three months. However, this is not the case when considering an employee’s entitlement to reasonable notice at common law. In the absence of a contractual agreement to the contrary, even a very short service employee is still be entitled to reasonable notice.

The principles surrounding the interpretation and enforcement of a probationary clause in an employment agreement were recently considered by the Divisional Court in Nagribianko v Select Wine Merchants Ltd, 2016 ONSC 490.

Background

In this case, Mr. Nagribianko signed a written employment agreement which stated that he would be subject to a probationary period of six months. The agreement did not set out the details of Mr. Nagribianko’s entitlements if his employment was terminated during this period, although these were described in Select’s employee handbook. However, Mr. Nagribianko had not received a copy of the employee handbook in advance of signing the employment agreement.

Select terminated Mr. Nagribianko’s employment prior to the end of the six month probationary period after concluding that he was “unsuitable for regular employment”. Mr. Nagribianko sought damages for wrongful dismissal.
At trial, the judge accepted that Mr. Nagribianko was subject to a six month probationary period. However, he did not accept Select’s argument that this limited his entitlements on termination, holding that the meaning of “probation” was not clear on the face of the contract. There is case law standing for the proposition that merely stating that there will be a probationary period, without explaining the meaning and terms of it, may be ineffective in displacing the common law entitlement to reasonable notice.

The judge awarded Mr. Nagribianko damages equivalent to four months’ pay in lieu of notice. A factor in the amount of the award was the judge’s conclusion that Mr. Nagribianko had been induced to leave previous secure employment to join Select. Select appealed to the Divisional Court, where the decision of the trial judge was overturned and the action dismissed.

What does “probationary” mean?

On appeal, Select successfully argued that the meaning of “probation” in the employment agreement must be interpreted objectively, based on what reasonable persons in the same circumstances as the parties would have understood this term in the contract to mean. Justice Sanderson noted that “a reasonable person in the same circumstances as the Respondent/Plaintiff would have understood the term “probation” to mean a period of tentative employment during which Select would determine whether the Respondent/Plaintiff would be a suitable employee and would decide whether or not to make him a regular/non probationary employee” and further, that “it was not necessary for the Plaintiff to refer to the employee handbook to know that his employment was subject to a 6 month probationary period.”

As a result, Justice Sanderson concluded that the trial judge erred in law in failing to enforce the clear terms of the employment agreement that made reference to a six month probationary period.

When can an employer terminate the employment of a probationary employee?

Justice Sanderson confirmed that provided that a probationary employee is given “a fair opportunity to demonstrate suitability for permanent employment”, an employer is entitled to terminate the employment of a probationary employee without notice (beyond that required by statute) and without giving reasons.

Where an employer has terminated the employment of a probationary employee for unsuitability, Justice Sanderson noted that “the employer’s judgment and discretion in the matter cannot be questioned”. The employer must only demonstrate that it acted fairly in determining the suitability of the probationary employee.

Is a probationary period inconsistent with inducement?

Justice Sanderson rejected Mr. Nagribianko’s argument that he should be awarded damages based on the fact that he was “induced” by the employer to leave a previous position and join Select, noting that “probationary employment, on its face and by its nature, is inconsistent with any inducement or promise of long-term employment”.

Concluding thoughts for employees and employers

In Nagribianko, the Divisional Court reaffirmed that “probation is a testing period for the employer to assess a probationary employee’s suitability” and further, that “the nature of the employment relationship during probation is tentative”. Although the Court was prepared to conclude that the word “probation” was sufficiently clear in this case, we recommend that, for greater certainty, employers clearly set out in the employment agreement an employee’s entitlements during the probationary period, particularly with respect to termination of employment. In addition, where an employer prescribes a probationary period longer than three months, it must still comply with its obligations under the ESA when terminating the employment of a probationary employee.

Employees entering into a new employment relationship should carefully consider the impact on their rights when agreeing to a probationary period in an employment agreement, particularly if the employee is leaving an existing position under the encouragement of the new employer.

Before implementing or signing an employment agreement, we recommend that employers and employees obtain legal advice to ensure a full and complete understand of their rights.

By Brittany Taylor and Stuart Rudner

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Stuart Rudner

Employment Lawyer at Rudner MacDonald LLP
Stuart Rudner is a leading HR Lawyer and a founding partner of Rudner MacDonald LLP, a firm specializing in Canadian Employment Law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is the author of You’re Fired! Just Cause for Dismissal in Canada, a textbook and database of summary dismissal cases published by Carswell. Read more
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