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Update on probationary clauses from Ontario Court of Appeal

This blog post by the newly formed employment law firm Rudner Law, provides an update on probationary clauses from the Ontario Court of Appeal.

probationary clausesLast April we wrote about the decision of the Divisional Court in Nagribianko v Select Wine Merchants Ltd, 2016 ONSC 490, which dealt with the enforceability of a very brief probationary clause in an employment agreement.

Recently, the Ontario Court of Appeal affirmed the decision of the Divisional Court, finding that the probationary clause, which provided, simply, “Probation…six months”, was enforceable, and that the employee was not entitled to anything more than the one week of pay in lieu of notice of dismissal pursuant to the Ontario Employment Standards Act, 2000 (“ESA”).

The decision of the Court of Appeal makes it clear that including a probationary clause in an employment agreement will have the effect of ousting an employee’s right to reasonable notice at common law, even where such wording is not expressly included as part of the clause. That is quite different than earlier case law, which required clearer and more explicit wording.

Trial decision

Mr. Nagribianko was subject to a written employment agreement which included a probationary clause stating only “Probation…six months”. No other details with respect to the probationary period were set out in the employment agreement.

The employer, Select Wine Merchants Ltd., terminated Mr. Nagribianko’s employment prior to the end of the six month probationary period, having decided that he was not suitable for the position after a key customer of Select’s had refused to deal with Mr. Nagribianko. Select provided Mr. Nagribianko with one week of pay in lieu of notice in accordance with the ESA. Mr. Nagribianko brought an action seeking damages for wrongful dismissal.

At trial, the judge found that the wording of the probationary clause in Mr. Nagribianko’s employment agreement did not expressly limit his entitlements on termination. The judge adopted Mr. Nagribianko’s understanding of the probationary clause, which was “that he would be kept on as an employee if he performed well”, and further found that Mr. Nagribianko would not have accepted the job with Select had he known that he could be dismissed without just cause and with only one week’s pay in lieu of notice.

On this basis, the trial judge awarded Mr. Nagribianko damages equivalent to four months’ pay in lieu of notice.

Divisional Court

On appeal to the Divisional Court, Select successfully argued that the meaning of “probation” in the employment agreement should not have been interpreted based on the subjective understanding of Mr. Nagribianko, but objectively based on what reasonable persons in the same circumstances would have understood. In this regard, Justice Sanderson found that a reasonable person would have understood the term “probation” to mean a period of tentative employment. Justice Sanderson therefore held that the trial judge erred in law in failing to enforce the clear terms of the employment agreement, including the six month probationary period, and overturned the decision.

Mr. Nagribianko appealed.

The Ontario Court of Appeal

The Court of Appeal agreed with Justice Sanderson, finding that the term “probation” in the employment agreement was not ambiguous, and that the status of a probationary employee has a clear meaning at common law. In the words of the Court,

unless the employment contract specifies otherwise, probationary status enables an employee to be terminated without notice during the probationary period if the employer makes a good faith determination that the employee is unsuitable for permanent employment, and provided the probationary employee was given a fair and reasonable opportunity to demonstrate their suitability.

Takeaways for employers and employees

In the past, there has been case law which suggested that merely stating that there will be a probationary period, without explaining the terms of same, may be ineffective in displacing an employee’s common law entitlement to reasonable notice. See, for example, Cao v SBLR LLP, [2012] O.J. No. 3328, where the employee’s employment agreement stated only that she would be subject to a probationary period of 90 days, and did not expressly set out her entitlements on dismissal. In that case, the court found that the clause was ineffective and that the employee, who was dismissed during the term of the probationary period, was entitled to reasonable notice at common law. However, the Court of Appeal has now confirmed that the inclusion of a probationary clause in an employment agreement will oust an employee’s entitlement to common law reasonable notice unless the agreement expressly provides otherwise.

This decision will be helpful for those employers who may have “minimalist” employment agreements in place with their staff and who are seeking to rely on probationary clauses that may not be expressly defined. However, practically speaking, we recommend that employers continue to explicitly set out the details of any probationary clause in their employment agreements, even if only to ensure a clear understanding between the parties at the start of the employment relationship.

Employees should be aware of the broad implications of a probationary clause in an employment agreement, which can significantly limit their entitlements on dismissal even where such a right is not expressly indicated in the agreement. Before accepting the terms of any employment agreement, we recommend that employees seek legal advice to understand and protect their rights.

Authored by Stuart Rudner and Brittany Taylor, Rudner Law


Please note: Rudner Macdonald LLP ceased operations on August 31, 2017. As of September 1, 2017, my team and I will continue as Rudner Law.

We can be reached at:
www.rudnerlaw.ca
416.864.8500 / 905.209.6999
stuart@rudnerlaw.ca
brittany@rudnerlaw.ca

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Stuart Rudner, Rudner Law

Employment Lawyers and Mediators at Rudner Law
Stuart Rudner is a leading HR Lawyer, mediator and a founding partner of Rudner Law, a firm specializing in Canadian Employment Law. At Rudner Law, their approach is simple. They want to understand your circumstances, your concerns, and your goals. They will then ensure that you understand the legal regime along with your rights and obligations. Once that is done, they work with you to design a cost-effective strategy that meets your needs. They want to be your trusted advisor.Read more
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