Failure to perform: When is unsuitability ‘just cause’ during probation?

A recent case out of Nova Scotia serves as a reminder for employers and HR about employment law considerations when it comes to employees on probation.

Due to a crucial omission in an employment contract, an employer was ordered to pay $10,000 of a remaining signing bonus to an employee terminated for “gross incompetence” during her probationary period.

“He prepared his own employment contract – mistake number one,” says Ronald Pink of Pink Larkin in Halifax.

“When you have employment contracts and they deal with rights of employees, you better be explicit; certainly, when you're going to disadvantage them in some manner or respect. If you leave it to being implied, then that's a very dangerous field to live in, in my view; if you could be explicit, be explicit, and why weren't you explicit when it came to it?”

The employee, who had been hired as a CFO by the employer, Ace Mechanical and EFP Engineering in Halifax, was terminated just shy of her probationary period expiring. In her claim, she sought not only the remainder of a $15,000 signing – or entry – bonus ($10,000) but three months’ salary continuance that was contracted as compensation in the event of “termination without cause,” the court decision detailed.

The employer argued that they had just cause to terminate her, and the court agreed.

Document performance issues to track suitability during probation

“On the positive side, what he did right was he recorded all the times he spoke to her, followed up by emails,” says Pink. “He had a good paper trail of things that he was concerned about, and he put it in writing. When we put that whole paper trail together, it was quite impressive.”

The court found that the employer had been correct in its determination of the employee’s unsuitability for the role – she failed to complete essential tasks, ignored communication from colleagues and clients, and, most importantly, failed to prepare the company’s year-end financial statements which were needed to secure financing.

The importance of the year-end financial statements was clearly communicated to the employee in her introductory package, however, she did not compete the task on time, necessitating another accountant being hired to finish the job.

This, along with the other documented performance shortcomings of the employee, such as being “routinely” late for work and “routinely” missing important meetings, amounted to unsuitability and ultimately “gross incompetence” and just cause for dismissal, even within a probationary period, the court found.

“By themselves, these incidents would not constitute just cause but, cumulatively, they cannot be ignored and only make the conclusion more compelling,” the court wrote.

“Where the employment of a probationary employee has been terminated for unsuitability, the employer's judgment and discretion in the matter cannot be questioned. All that is required is that the employer show that it acted fairly in determining whether the probationary employee was suitable and that he/she was given a fair opportunity to demonstrate his/her ability.”

Suitability and performance reviews during probation

Although an employer can determine suitability that decision “cannot be questioned,” as the court stated, that does not mean they have carte blanche, Pink points out.

There are still matters of discrimination, obviously, meaning they cannot terminate someone based on their sex, gender, religion, or any other Charter-protected category.

But it has to be fair, he says: “It can't be without merit. All that is required is for the employer to show that he acted fairly in determining whether the probationary employee was suitable. So, if you act fairly, you're okay.”

While an employee is not entitled to reviews or progressive discipline during a probationary period, it is advisable to monitor and give warnings about performance issues, Pink explains.

“A few warnings go a long way to encourage an employee that they ought to improve, and that if they don't, it’s in your discretion to terminate them,” he says. “It's a matter of coaching to determine suitability. But if you don't tell them they're not suitable, it's a little more difficult.”

Employment contracts and the signing bonus

Because the employer failed to specify the conditions of the signing bonus, the small claims judge agreed with the claimant that she was owed the full amount, even though she was terminated with cause.

As recorded in the court decision, the Signing & Entry Bonus in the contract read:

“An entry bonus of $15,000 will be provided. $5,000 paid the first week of employment, $5,000 paid at the 3 month point and the final instalment paid at the 6 month point. In the event that the candidate terminates their employment with the Companies in the first 18 months, the Signing & Entry bonus would be repayable in full within 30 days.”

The small claims adjudicator acknowledged that he was being “asked to imply” that that bonus was a retention bonus.

“I see no legal basis to imply such a term,” he wrote.

“On the other hand, it seems to me that this signing and entry bonus on its wording, is payable whether or not the candidate completes the probationary period. … in some measure, it provided the person in the position of the [employee], who was moving from Alberta to take this position, with some motivation to make that move and some security that there would be this money payable whatever else happened.”

Any ambiguity in an employment contract will likely be in favour of the employee, Pink stresses, which was proven in this case.

“That's the principle lesson I take from this case – the judge was a very smart guy, he just said that ‘Look, you own the pen, you wrote the contract, so it's on your shoulders,’” says Pink.

“Make sure it's right — if there’s any doubt, the doubt is going to favour the employee. That was [the employer’s] problem, and that's what happened.”