Erin Brandt, Contributor.
In a May 2015 post, Richard Johnson considered the 2012 Geller decision from the BC Court of Appeal and offered best practice suggestions for employers wanting to impose a probationary period for new hires. More recently, we shared a piece from David Brown that includes a discussion of the 2012 Ontario decision in Cao v. SBLR LLP and additional tips for dealing with employees on probation. In both cases, Richard and David’s comments assumed the employer was committed to using probation as part of its employment practices.
The January 2017 BC Supreme Court decision in Ly v. British Columbia (Interior Health Authority) inspired us to consider the issue from a different perspective.
Put simply: Are probationary periods necessary or advisable?
The Case of Ly v. IHA
Mr. Ly’s employment contract with IHA included a 6 month probationary period for new employees. When he was fired approximately 2 months after starting work, IHA did not provide him with any notice of dismissal or any severance in lieu of notice. Mr. Ly sued for wrongful dismissal.
In considering Mr. Ly’s claim against IHA, the Court affirmed the following principles regarding the law on probation:
- If an employee is dismissed during his probationary period, he is entitled to compensation for length of service under the ESA. Section 63 of the ESA entitles all employees to a certain amount of notice or compensation in lieu once they complete three months of employment. Thus, if an employee is subject to a 6 month probation period and is fired after 5 months of employment, she is entitled to compensation under s. 63, unless she was fired for cause.
- The test for dismissing a probationary employee is suitability. So long as an employer can prove that it acted in good faith in assessing the employee’s suitability for the position, the employer can dismiss the employee without providing reasonable notice under the common law. Suitability is different from “just cause”.
The Court ultimately concluded that IHA did not meet its legal duty to assess Mr. Ly’s suitability for continued employment in good faith.
Because Mr. Ly’s contract did not set out his notice / 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. In this case, the Court set Mr. Ly’s reasonable notice period at three months, and ordered that IHA pay Mr. Ly damages accordingly.
In most cases, an employer likely views probationary employment as a way to limit its severance liability should a new hire turn out to be a poor fit.
However, the Ly case highlights that a contractual probation clause may not actually be the best way to achieve this objective. Even though Mr. Ly was on probation, 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 (which it did) in assessing whether Mr. Ly was suitable for the job.
You read that right: putting an employee on probation actually made the employer vulnerable (since it failed to be explicit about the employee’s rights on dismissal).
If IHA was in fact trying to reduce its financial exposure, a better strategy would have been for it to avoid the issue of “probation” altogether and simply include in Mr. Ly’s contract a well-drafted severance clause that complies with the ESA.
Had IHA chosen to limit Mr. Ly’s severance to the minimum required by the ESA, it could have dismissed him after two months and paid him no severance. With Mr. Ly not “on probation”, the issue of suitability would not have arisen and IHA would not have risked a finding that it did not act in good faith in its assessment.
Sustainable employment considerations
More importantly, from a sustainable employment perspective, such an approach doesn’t just limit an employer’s liability, it’s a clear, transparent way to create certainty at the outset for both employee and employer when it comes to the employee’s rights on termination.
As proponents of sustainable employment practices, we don’t mean to encourage employers to look for ways to avoid acting in good faith towards their employees. We believe a successful business enterprise depends on employment relationships built on trust, fairness and respect. Rather, we are suggesting that probationary periods are not helpful to either employers or employees.
Furthermore, employers have a legal duty to act in good faith towards their employees, regardless of whether they are on probation. Both during the employment period (see Bhasin v. Hrynew) and at the time of dismissal (see Honda v. Keays), an employer must act in good faith, which involves acting honestly, without lying to or misleading her about matters relating to her employment. (For more on good faith, read our blog post here.)
In short, probationary periods seem to add little to an employer’s already existing legal duties to its employees, and may simply confuse or interfere with an appropriate determination of an employee’s rights on dismissal.
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