Probation for permanent and contract employees

Length of probation period at discretion of employer but must be stipulated in contract

Stuart Rudner
Question: Is there a different standard for probation periods between permanent and contract employees? Are employers free to establish any length of time for a probation period if set out in writing?

Answer: In this context, it does not matter whether an individual is hired for a fixed period of time or an indefinite period. Like most elements of an employment agreement, the existence and particulars of a probationary period are subject to negotiation. The parties are generally free to establish whatever terms they choose, so long as they do not violate applicable employment standards legislation.

Typically, the reason employers want to have a period of probation is to avoid an onerous notice obligation if it quickly becomes apparent the employment relationship will not work and the new employee will have to be terminated. Under the Employment Standards Act of Ontario, employees who have been employed for less than three months are not entitled to any notice of termination or pay in lieu. However, unless the employment agreement explicitly restricts the notice obligation to statutory notice only, even employees who have been employed for less than three months will be entitled to common law notice of termination. The common law requires that “reasonable notice” be provided at the time of termination. A mistake organizations make is to assume short-term employees will only be entitled to minimal notice of termination. As I have written in other contexts, employees with relatively short tenure are often entitled to disproportionately lengthy notice.

It is always possible to contract out of the common law requirement, though not out of the statutory requirement. For example, once an employee in Ontario hits the three-month mark, she is entitled to at least one week of notice as provided for by employment standards legislation. As a result, the longest an individual can be employed before she is entitled to some notice of termination is three continuous months — and this can only be achieved if the contract restricts the notice entitlement to the statutory requirements.

Employers can establish probation periods longer than three months, but they will still have to provide the statutory minimum notice of termination once the employee has been employed for more than three months, unless just cause exists. The employment agreement can also provide discretion to extend the period of probation in circumstances where, at the end of the initial period, questions remain regarding the suitability of the individual for the position. Similarly, employment agreements can provide for employees to be put on probation even after they have completed any initial probationary period.

This would typically occur when there are behaviour or performance issues and would essentially be a step in the discipline process.

I always recommend to employers they should have new employees sign employment agreements that explicitly set out their entitlement to notice in the event of termination. By doing so, employers can limit their potential liability and also avoid the uncertainty of assessing what “reasonable notice” might be in a particular set of circumstances.

Stuart Rudner is a partner who practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or [email protected].

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