Probationary Panacea: Divisional Court Affirms Rights of Employers to Dismiss Probationary Employees without Reasonable Notice

Probationary periods are often essential tools for both employers and employees to determine the viability of a new employment relationship. In recognition of this, the Ontario Employment Standards Act (the “ESA”) provides for a three-month period in which no minimum notice is required for termination. Often employers in Ontario will adopt a three month probationary period in light of this.  However, this period may be insufficient to properly assess a new employee’s suitability.  What if an employment agreement provides for a longer probationary period, but fails to expressly state what entitlements an employee would have in the latter part of that period – i.e. after the statutory three months?

Nagribianko v Select Wine Merchants addressed precisely this issue.  The case began with a decision by the Ontario Small Claims Court concerning the wrongful dismissal claim of an employee terminated after four months of employment. The parties agreed that the employment contract provided for a probationary period of six months. However, there was disagreement as to whether this language was precise enough to limit the employee’s entitlements on termination of employment.

As we have discussed in our previous articles, employee entitlements to “reasonable notice at common law” are not based on a formula, but by a case-by-case assessment of various factors, such as length of service, age, nature of the position and re-employment prospects, which are known as the Bardal factors. For employers with long service employees, common law notice entitlements can be significant. Although there is no formal cap on these damages, typically courts will award up to 24 months. It is permissible to contract out of common law notice by agreeing to provide specific termination entitlements, which must be at least equal to minimum statutory entitlements.  If a contract purports to provide less than those minimum statutory entitlements the contract is void, and the employee is deemed entitled to reasonable notice at common law instead. In this case the employee was awarded four months (pay in lieu of) reasonable notice – much more than the one week of statutory notice to which he would otherwise have been entitled under the ESA.

The employee handbook, which provided for termination during the probationary period on the minimum entitlements set out in the ESA, was not given to the employee until after he began working for the defendant. At trial, the court found that the employer could not rely upon the notice limitation clause in the handbook, due to a lack of fresh consideration.  As a result, absent an express agreement concerning the employee’s entitlements during the latter three months of the six month probationary period, the court held that the employee was entitled to common law reasonable notice.

The employer appealed.

The Divisional Court held that a probationary period is a well understood concept. It is a period during which the employer and employee determine whether the employee is suitable for the position. It is understood as a period of minimal job security. During a probationary period, an employer need only act fairly in determining whether an employee is suitable for the position. If they have acted in such a manner, the probationary employee can be dismissed without further notice and without giving reasons.

As a result, a reasonable person in the circumstances of the plaintiff would have understood the risk and less stable employment relationship during a probationary period, even without having seen the employee handbook. On the basis of this understanding, once the employer made the good faith determination that the plaintiff was not suitable for the position, it was entitled to terminate the plaintiff’s employment without reasonable notice at common law.

Unfortunately, the Divisional Court did not provide its reasoning on perhaps the thorniest question.  Contracts which provide employees with less than their statutory entitlements are void by law.  Employees terminated after three months of employment are entitled to one week’s notice and benefit continuation (if any).  The Divisional Court did not expressly overturn the trial finding that the guarantee of statutory entitlements in the handbook was not a contractual term. So, if the “well understood” concept of the probationary period provides that an employee may be dismissed without further notice, why did the extended probationary period not run afoul of the ESA by failing to guarantee at least the minimum ESA entitlements for a termination beyond three months?  Implicitly, the Divisional Court must have found that the well understood concept of a probationary period includes such a guarantee.  But, unfortunately, despite the ample analysis of the fundamental concept of a probationary period, the decision is silent on this key aspect.

Probationary periods are often valuable tools for employers to determine whether significant hiring decisions are appropriate. Employers would be well advised to assess whether they require longer probationary periods than the three months set out in the Ontario Employment Standards Act to assess the suitability of candidates. This case shows that courts will respect probationary periods of reasonable length, and will enforce limitations on employee entitlements for dismissal during such periods, provided statutory minimum requirements are respected.

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