Probationary clauses: Devil is in the details

by J. Alexandra MacCarthy

In Canada, the legal effect of a probationary clause in an employment contract can be unclear depending upon the facts of the particular case. The Supreme Court of British Columbia recently addressed probationary clauses in employment contracts in Ly v. British Columbia (Interior Health Authority), 2017 BCSC 42.

The plaintiff (PY) was hired by the Interior Health Authority (IHA) as the manager of quality and patient safety and client experience and moved from Vancouver to Kamloops for the position. The offer of employment contained the following clause:

Employees are required to serve an initial probationary period of six (6) months for new positions.

PY was employed for only a few months before his employment was terminated. Relying on the probationary clause, IHA took the position that reasonable notice was not required under common law.

There were several issues before the court, including whether employers can enforce a probationary period longer than the minimum articulated by the Employment Standards Act (ESA) and if so, whether such clauses breach the ESA. In British Columbia, section 63 of the ESA does not require employers to give notice of termination of employment to an employee who has been employed for less than three months. However, if an employee has been employed for more than three months, statutory and common law notice requirements apply.

The court confirmed that the common law presumption of reasonable notice may be rebutted where parties have expressly agreed to some other period of notice. Any agreement that purports to rebut this presumption must be clear and unequivocal. The effect of such an agreement is that during this probationary period, an employer has an implied right to dismiss an employee without notice, as long as it acts in good faith.

However, the court noted that an express probationary period cannot contravene statutory entitlements under the ESA and the common law will not imply a term into a contract that is inconsistent with legislative requirements. The court held that the terms of PY’s probation did not breach the requirements of the ESA.

The court explained that a probationary period is best understood as part of an employment contract in two contexts: 1) where the employee is held to the requirement that for a specific period of time that employee must demonstrate certain suitability requirements set by the employer; and 2) the employee may be dismissed without reasonable notice (subject to statutory minimums) if he or she does not meet suitability requirements. If the employee is found to be suitable for the position, then once the probationary period is complete, the contract continues as an employment contract with the requirements of just cause and reasonable notice.

The court held that PY’s employment contract included both an express probationary term of six months and an implied term that IHA had a right to dismiss him during his probation without notice as long as it acted in good faith in its assessment of his suitability.

In determining whether an employer has acted in good faith, a court will review several factors such as:

  • Whether the probationary employee was made aware of the basis for the employer’s assessment of suitability before or at the commencement of employment;
  • Whether the employer acted fairly and with reasonable diligence in assessing suitability;
  • Whether the employee was given a reasonable opportunity to demonstrate his suitability for the position; and
  • Whether the employer’s decision was based on an honest, fair, and reasonable assessment of the suitability of the employee.

The court held that PY was not given a fair opportunity to demonstrate his suitability for the position and that IHA did not clarify the expectations of his position. Consequently, the court found that IHA did not meet its legal obligation to carry out a good faith assessment of PY’s suitability. As such, the court found that PY was wrongfully dismissed and awarded him a three-month notice period.

Takeaways

Employers in Canada must be aware of the requirements under applicable employment standards legislation regarding when notice of termination or pay in lieu is owed to the employee. Under the British Columbia ESA, once an employee has been employed for three months, he or she is entitled to notice of termination even if the probationary period in the employment contract extends past three months. Longer probationary periods, such as the six months in PY’s case, will not limit the employee’s ESA entitlements.

Furthermore, employers terminating an employee’s employment during a probationary period have an obligation to assess the employee’s suitability for the position in good faith. An employer who fails to do so may be found to have wrongfully dismissed an employee and required to pay damages.

About J. Alexandra MacCarthy:
Alexandra is an associate in the firm's Labour, Employment & Human Rights practice group. She has experience providing clients with effective solutions to workplace issues.
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