Probationary clauses: A double-edged sword for employers
“The Supreme Court of British Columbia recently reiterated that while probationary clauses can be useful to employers, they also impose obligations on employers to which they would otherwise not be subject.”
Many employers find it necessary to assess new employees’ performance on the job before making a final determination about whether an individual is suitable for a position.
In the absence of an express term in an employment contract, employees in Canada are entitled to reasonable notice of termination at common law when they are dismissed without just cause. Many employers put terms in their employment contracts, such as probationary clauses, which limit this entitlement. However, employers may not always be clear on the implications of such clauses.
The Supreme Court of British Columbia recently reiterated that while probationary clauses can be useful to employers, they also impose obligations on employers to which they would otherwise not be subject.
In Ly v. British Columbia (Interior Health Authority), the employee was hired to manage a team of consultants. His employment was short–lived. The employer dismissed him within a few months and relied on the probationary clause in his employment contract to avoid paying him reasonable notice under common law.
Employment standards legislation in British Columbia does not require employers to provide notice of termination if an employee has been employed for fewer than three months. After three months, employers must provide one week’s notice (or pay in lieu). The probationary period in this case was expressly set out in the offer letter to Mr. Ly as follows: “Employees are required to serve an initial probationary period of six (6) months for new positions”.
The Court found that “probation” is well understood in the context of employment in business as a period wherein an employee is being assessed by the employer to ascertain the suitability of the employee as a permanent employee. As such, an employer’s decision to terminate an employee subject to a probationary clause is assessed against a standard of ‘suitability’.
The Court in that case noted that employers are not generally required to give reasons when dismissing an employee without cause. However, the Court held that an employer’s conduct in assessing probationary employees is reviewable in light of factors such as:
- whether the probationary employee was made aware of the basis for the employer’s assessment of suitability before, or at the commencement of, employment;
- whether the employer acted fairly and with reasonable diligence in assessing suitability;
- whether the employee was given a reasonable opportunity to demonstrate his suitability for the position; and
- whether the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of the employee, including not only job skills and performance but also character, judgment, compatibility, and reliability
The Court ultimately found that the employer had not given the employee a fair opportunity to demonstrate his suitability for the position. It found instead that the employee had been wrongfully dismissed, and awarded him damages in accordance with common law reasonable notice.
Many employers erroneously believe that designating a period as “probationary” means that they may dismiss an employee during this period for any reason, without paying any notice. However, as this case reminds us, employers wishing to rely upon such a clause must actual assess employees’ suitability in good faith, or they may be liable to pay wrongful dismissal damages.
In jurisdictions where employment standards legislation does not require an employer to provide any notice or payment in lieu of notice for an initial period (i.e., up to three months), it may be preferable not to establish a separate probationary clause. Instead, it may be prudent to utilize a clause that simply guarantees employment standards entitlements on termination—thus incorporating the statutory probationary period by implication.
Many employers find that they require longer than three months to assess an employee’s suitability up front, or choose to ‘extend’ formal probationary periods in employment contracts beyond the informal period set out in employment standards legislation. This is permissible, but such clauses must be carefully drafted and the language must not limit statutory entitlements.
In light of the hazards inherent in such probationary language, employers should consult an employment lawyer to ensure that the content reflects their organizational needs without running afoul of the law.
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