What’s Fair? Severance and Probationary Employees

With contributions from Richard Johnson, Lawyer.

suitability2Consider this scenario:

Your new employee isn’t working out quite the way you had hoped. You’ve made the tough decision that it’s better for everyone – you, him, the Company – if you end the employment relationship now. Since he’s only been with you for six weeks, you’re not sure…do you owe him any severance? How much?

Well, that depends on a few things. Did you advise him at the time of hiring that he was subject to a probationary period? Is he currently on probation? Did he sign an employment contract with a severance limiting clause?

In this blog post, we focus on employees fired while on probation who are not subject to a written provision limiting their severance on termination. If this describes your situation, read on…

An employee’s right under British Columbia employment standards legislation to receive notice of dismissal, or pay in lieu of such notice, does not kick in until she has completed three months of employment. So, in our scenario above, you would have no statutory liability to the former employee, since you terminated his employment before he completed three months on the job.

However, because he is not subject to a written limit on his severance entitlement, the common law applies. In other words, he is entitled under the law to “reasonable notice” of his termination, or an equivalent amount of money. What is “reasonable” in the circumstances will depend on the employee’s age, job position, years of service, and other factors relevant to his re-employability. While in some cases, a probationary employee’s reasonable notice period may be relatively short, there is more than one example of a Canadian court awarding a short-term employee significant damages. (For example, see our blog post on Senior Short-Term Employees here.) As such, you could be subject to significant severance liability (relatively speaking) if your ex-employee decides to sue you for wrongful dismissal.

Is there any way for an employer to defend itself against a “reasonable notice” (wrongful dismissal) claim by a dismissed probationary employee, where there is no severance limiting clause in place? One way is to treat the employee fairly during her employment with you. In certain cases, the courts have acknowledged the right of an employer to assess a new employee’s “suitability” for the job in question – that is, whether she is performing her job to an acceptable level, and “fits” with the company and its culture.

For example, in Jadot v. Concert Industries Ltd., the BC Court of Appeal upheld the trial judge’s decision to reject the wrongful dismissal claim of an employee who was fired after six weeks’ probation. In doing so, the Court affirmed the following legal principle:

during a probationary period, an employer has the implied contractual right to dismiss a probationary employee without notice and without giving reasons, if the employer acts in good faith in assessing the employee’s suitability for the permanent position.

suitability
We call this the “suitability defence”, and it requires the employer to give the employee a fair chance to demonstrate her skills and fit for the position. In the more recent case of Geller v. Sable Resources Ltd., the employer’s suitability defence failed because the company had not clearly conveyed its expectations to the employee, nor had it given the employee “a reasonable opportunity to demonstrate his suitability for the job…”.

Of course, there are other cases where the courts have awarded severance to probationary employees. To protect yourself from unexpected financial consequences, and to ensure that the ex-employee’s severance entitlements are consistent with the nature of the employment relationship, we offer the following suggestions for engaging with probationary new hires:

  1. Enter into a clear, comprehensive, fair employment contract, which sets out your expectations during the probationary period, and the employee’s entitlements in the event of termination, while on probation or otherwise.
  2. Be transparent, reasonable and consistent with the employee, orally and in writing, about your expectations for her specific position and for employees of the company generally.
  3. Provide the employee with regular, constructive feedback during the probationary period on her performance relative to your expectations.
  4. If the employee is not meeting the required standard of performance, provide him with specific guidance  as to how he can improve, as well as a reasonable opportunity  to make these improvements.
  5. If you follow the above steps and conclude that there is no option other than to dismiss the employee, do so fairly, respectfully, and in a timely manner.

Because every employment situation is unique, there may be other things to consider when it comes to assessing your probationary employees. If you have questions about a particular employee, or need advice about developing a performance improvement plan or dismissing an employee in a respectful fashion, contact us!

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