The one clause that HR should never forget

One recent case in Ontario has illustrated just how invaluable a certain clause within an employment contract can be.

The one clause that HR should never forget
A clear written employment contract can be an invaluable tool for employers looking to ensure that their permanent employees are a good fit within their organization. The recent decision of Nagribianko v Select Wine Merchants Ltd from the Ontario Divisional Court confirms that employers can rely on a probationary period to terminate an employee without an entitlement to common law reasonable notice.

Common law reasonable notice is a type of damages that can be awarded to employees who are terminated. The amount is determined by assessing a variety of factors such as the age of the employee, the length of service, and the position the employee held. Common law reasonable notice is a separate entitlement from the minimums owed to a terminated employee outlined in the Employment Standards Act, 2000 (“ESA”).

In Nagribianko, Select Wine Merchants Ltd (“Select”) and the Plaintiff had a written employment contract that set out a six month probationary period. The contract did not expressly define when or why Select could terminate the relationship during the probationary period. The contract did reference an employment handbook that provided more details; however, this handbook was not provided to the Plaintiff until after the contract had been signed. As a result in Small Claims Court, the Deputy Judge held that Select could not rely on the handbook to terminate the Plaintiff without notice simply because he was “unsuitable for regular employment.”

At Small Claims Court four months’ notice was awarded to the Plaintiff. Select successfully appealed this judgment. The Divisional Court determined that there is a clear difference between probationary and non-probationary employment. When determining whether an employer can rely on a probationary period to dismiss an employee without providing reasonable notice the test is suitability. This means that an employer must give a probationary employee a fair opportunity to demonstrate suitability for permanent employment. However, an employer can dismiss a probationary employee without notice and without giving reasons, as long as there is no bad faith.

The Divisional Court also confirmed that even though Select could not rely on the handbook to define probation, that probationary employment would have been understood by a reasonable person to mean a period of tentative employment during which an employer would determine if the employee was suitable for permanent employment. In this case the Plaintiff even admitted that he understood probationary employment to be inherently unstable and tentative.  As a result the failure to successfully incorporate the employment handbook was not fatal to Select’s position.

This decision is good news for employers. It confirms that a probationary period written into an employment contract can be successfully relied on to avoid payment of common law notice if the employee is not suitable for permanent employment.   Despite the Company’s ultimate (but likely costly) victory in this case, CCP encourages employers to include stronger language in their probationary clauses such as the notice (or lack of notice) the employee will receive if their employment is terminated during the probation period and the purpose of the probation period (to determine suitability for the position).    Employers should also remember that any probationary period that goes beyond three months will require the payment of ESA entitlements. This is because the ESA limits a probationary period to 3 months which cannot be contracted out of. However, a longer probationary period that provides for ESA entitlements can be relied on to avoid owing reasonable notice at common law.

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