While popular, clause not recommended by experts
As common as they may be, probationary periods just don’t make a lot of sense, according to legal experts — an opinion seemingly reinforced by a recent decision from the Supreme Court of British Columbia.
The case involved a man who was on a six-month probation and was let go after two months. He was given no notice so he sued for wrongful dismissal — and the court agreed, awarding damages that included three months’ pay.
The case begs the question: Why bother with probation? said Erin Brandt, barrister and solicitor at Kent Employment Law in Vancouver.
“My recommendation is generally not to have a probationary clause at all,” she said. “I ask employers ‘What’s the purpose of including it? Why are you adding additional obligations onto yourself that’s making it more difficult and more vague?’”
In this case, the man was on probation but the fact that his contract was silent on his severance rights on dismissal left the employer open to a damages award if it failed to act in good faith in assessing whether the man was suitable for the job, she said.
“Putting an employee on probation actually made the employer vulnerable.”
This case is probably surprising to a lot of employers because many are not evaluating for suitability, said Doug MacLeod, principal of MacLeod Law Firm in Toronto.
“They don’t treat the (new) employee any differently than a longer-term employee, so they don’t have enhanced supervision or mentoring or any kind of assessment process.”
Phuc Ly was hired by the Interior Health Authority (IHA) to begin working on Nov. 6, 2014, as a manager of quality and patient safety and client experience, with a team of six consultants and an administrative assistant. His offer letter stated his salary would be $98,000 and he would be required to serve an initial probationary period of six months.
Ly’s employment contract included a “valid and enforceable” probationary term, said the court in the Jan. 11 decision Ly v. British Columbia (Interior Health Authority), and the province’s Employment Standards Act (ESA) stated an employee was only entitled to one week’s wages for compensation after three consecutive months of employment.
IHA’s probationary period was six months but it relied on the ESA’s exemption to minimum notice periods of “just cause,” saying this incorporated or subsumed the standard of “suitability” typically applied to probationary employees.
So employees who were assessed in good faith to be unsuitable fell within the exemption.
But suitability is the standard upon which probationary employees are assessed, while just cause is the standard courts have established for non-probationary or “regular” employees, said the court.
More importantly, IHA did not meet its legal obligation to carry out a good-faith assessment of Ly’s suitability for continued employment. Accordingly, the former manager was entitled to an award of damages based on reasonable notice of termination — three months’ pay — along with additional damages relating to various expenses incurred during the job.
Because Ly’s contract did not set out his notice or severance rights on dismissal, he was entitled to damages under common law, calculated based on what would have been “reasonable notice” of his termination in the circumstances, said Brandt.
“Ultimately, they had a clause that said, ‘You’re on probation for six months’ but there was no severance-limiting component to it, so they added in an obligation on themselves to assess suitability in good faith without tying that to any severance expectations,” she said.
“(The court) put (its) foot down and said there’s nothing in the legislation to suggest just cause encompasses lack of suitability.”
There’s a very high threshold for an employer to show it has just cause to terminate someone, according to Laurie Jessome, a partner at law firm Cassels Brock in Toronto.
“Just cause is all about whether or not the employee engaged in some kind of misconduct that makes continued employment impossible, essentially. So you’re really focused on particular incidents and whether or not they happened and the extent to which they impacted your ability to continue working with the person. A suitability analysis is much more fuzzy.”
If an employer is going to have a probationary period, it needs to understand there’s a certain obligation that comes with that, said MacLeod.
“The Supreme Court basically said, ‘You have to be very clear if you’re going to take away someone’s right to reasonable notice at termination.’”
Good faith assessments
In determining whether an employer acted in good faith, its conduct is viewed in light of several factors, said the court: Was the employee made aware of the basis of the assessment before or at the start of the work? Did the employer act fairly and with reasonable diligence in assessing the employee? Was the employee given a reasonable opportunity to demonstrate his suitability? Was the employer’s decision based on an honest, fair and reasonable assessment, including his job skills, performance, character, judgment, compatibility and reliability?
While Ly made several attempts to better understand the basis for his employer’s assessment of his suitability, his efforts were not responded to with clarity by the IHA, said the court.
“Ly was simply not given a reasonable opportunity to demonstrate his suitability for his job as manager.”
Suitability is a completely grey area and every case is going to require contextual analysis as to what happened within the employment relationship, said Brandt.
“You’re going to have to go into what was communicated to the employee at the start and: Were they given an opportunity to meet those expectations or did the employer change their expectations? Did the employer promise one thing and then determine suitability based on entirely different factors?”
In this case, “the email records were incredibly important to show that the employee had reached out to the employer on multiple occasions to try and set up meetings and to try and learn about the workplace and try and integrate himself,” she said.
This case is a good example of the detail a court will get into, such as email exchanges, discussions and meetings, said Jessome.
“(These) were all fodder for examination to determine whether or not the decision had been made fairly.”
Terminating someone during a probationary period and showing that you did so in good faith “invites a level of scrutiny to the decision to terminate that you don’t usually see, with the exception of just cause termination,” she said. “The courts feel as though it is their obligation to review and second-guess all the managerial decisions that were made with respect to that particular employee.”
Tips for employers
Employers should think long and hard about whether they need a probationary clause, said MacLeod. Usually, they want one so they can terminate someone with no notice, not because they want to assess a person’s suitability.
“So I say, ‘Well, there’s more than one way to skin a cat and we can deal with that in the termination clause,’” he said. “(It) provides certainty so when someone is terminated, both sides know what the obligations are.”
“Otherwise, you’re left with a big fight about what reasonable notice is, and reasonable people can disagree significantly on what reasonable notice should be.”
If employers put in a termination clause that reflects ESA minimums, they don’t need a probationary period, he said, “because you can terminate in the first three months with no notice and you don’t have to assess their suitability.”
Having a probationary period communicates that there are expectations, that there will be a period of assessment, and that having been hired, a person is not automatically in place for any guaranteed period of time, said Jessome.
“However, as we’ve seen from this case and other cases as well, they do invite judicial scrutiny if you rely on them and you’re not prepared to offer a reasonable severance package. So the preferred route, from a purely legal risk management perspective, would be to have a tight and enforceable termination clause that allows you to exit from the relationship with a minimal cost, particularly in the first year or so of service.”
If an employer feels strongly about having a probationary period because of the nature of its business or it onboards many new hires, it’s important to have the right system in place to support it, she said.
“It doesn’t have to be overly elaborate but it should have key elements, as in a regular check-in, documented feedback from the employer to the employee, and recording the employee’s response to that feedback.”
If an employer does want a probationary clause, it should make sure the clause is in compliance with the ESA alongside clear expectations, said Brandt.
“Compliance with the ESA is the first step because if you’re offside the act, then the paper’s not worth what it’s written on.”
“As an HR best practice, if you’re assessing someone based on the suitability standard, I think that implies an obligation to have meetings and followup with the employee to assess their ongoing suitability,” she said. “You don’t want the employee surprised at the conclusion of the probationary period that they didn’t meet the suitability standard.”