Employer is Entitled to Dismiss a Probationary Employee Without Notice and Without Giving Reasons

A recent decision of the Divisional Court in Nagribianko v Select Wine Merchants Ltd., 2016 ONSC 490 [Nagribianko v Select], appears to be somewhat of a set back to the evolving policy of the common law to provide greater fairness to those who are working toward becoming permanent employees.

The Divisional Court held that during a probationary period, the employer does not have to provide a reason to terminate the employee, nor does the employer have to give notice. All that is required is that the employer shows that it acted “fairly” in determining whether or not the probationary employee was suitable and that he or she was given a fair opportunity to demonstrate his or her ability.

Unfortunately, the Divisional Court has failed to provide clear guidelines as to what evidence or factors are sufficient to satisfy the suitability test.

So far, this decision shows that where the employment of a probationary employee has been terminated for unsuitability, the employer’s judgment and discretion in the matter cannot be questioned.

In this case, Mr. Nagribianko was hired by Select Wine Merchants (“Select”). Among other things, the employment contract provided for a probationary period of six months. Select terminated Nagribianko’s employment within the six month probation period, indicating that “after careful consideration” Nagribianko was “unsuitable for regular employment.”

Trial Decision

At trial, Nagriabianko was awarded common law damages equivalent to four months’ salary and benefits in lieu of reasonable notice.

The trial judge found that while the employment contract referred to the probation period, Nagribianko did not receive a copy of Select’s Employee Handbook. The Employment Handbook was incorporated by reference into the employment contract and expressly mentioned that Select could terminate an employee’s employment during the probationary period upon providing written notice or payment in lieu of notice under the Employment Standards Act, RSO 1990, c E 14. Accordingly, the trial judge rejected to determine what probationary period meant just by the contract. Therefore, according to the trial judge, Select was not entitled to rely on the contract alone without the Employee Handbook in order to terminate Nagribianko’s employment without notice solely because the termination occurred during probation period.

Decision on Appeal

On Appeal, Sanderson J of the Divisional Court noted that it was not necessary for Nagribianko to refer to the Employee Handbook to know that his employment was subject to a six-month probationary period. Moreover, he noted that the trial judge erred in law in failing to enforce the clear terms of the employment contract, which made reference to a probationary period of six months.

As to the meaning of the probationary period, Sanderson J clarified that probation is a testing period for the employer to assess a probationary employee’s suitability. It offers the employer the opportunity to determine if the employee will work in harmony with the organization, if hired permanently.

Sanderson J further clarified that determination of the meaning of probation and existence of the probation period must be done on the objective standard. Specifically, when interpreting a contract, the question that the Court should ask is, what reasonable person in the same circumstances as the parties would have understood the contract to mean? The subjective intensions are irrelevant. The goal is to ascertain the objective intent of the parties’ through the application of legal principles.

Applying the principles to the circumstances of this case, Sanderson J noted that a reasonable person in Nagribianko’s place would have understood that “probationary” is inherently unstable and tentative employment during which Select would determine whether he would be a suitable employee, and would decide whether or not to make him a regular or non-probationary employee. Sanderson J noted that on Nagribianko’s own evidence, Nagribianko understood that during the six-month probationary period he would be at risk.

“Suitability Test” and a Duty of Good Faith

While the decision clarified the meaning of probationary period and how to ascertain whether or not an employee has agreed to the probationary period on the circumstances of each case, it is still unclear what is required of the employer to satisfy the duty to act reasonably or fairly toward an employee when deciding that he or she was unable to meet job requirements for permanent employment.

In this decision, Sanderson J commented on the employer’s duties toward probationary employees, noting that an “employer must extend to the probationary employee a fair opportunity to demonstrate suitability for permanent employment” (Nagribianko v Select, para 35). He also noted that in the absence of bad faith, an employer is entitled to dismiss a probationary employee without notice and without giving reasons.

Nevertheless, Sanderson J did not elaborate on whether or not Select had led sufficient evidence to prove that Nagribianko’s qualifications were unsuitable and/or that he was unable to meet the job requirements. The decision clearly lacks analysis of the facts demonstrating that Select satisfied its duty to act reasonably or fairly toward Nagribianko when deciding that he was not suitable for permanent employment.

Simply put, Sanderson J indicated that where the employment of a probationary employee has been terminated for unsuitability, the employer’s judgment and discretion in the matter cannot be questioned.

The decision goes to show that courts will typically respect probationary periods of reasonable length and will enforce limitations on employee entitlements for dismissal during such periods. Signing a contract or verbally agreeing to extend a probationary period keeps the risk of employment loss on the shoulders of the employee. The employers still have a considerable degree of freedom to terminate employees during the probationary period without risk of financial consequence, if they consider the suitability of the employee, in good faith, and give a fair opportunity to the employee to demonstrate his or her ability. While it is still not entirely clear what the degree of this employer’s duty to act fairly is or what it entails, the employees would be smart to negotiate a shorter probationary period before signing the employment contract.  Alternatively, if the employer offers employment only with the extension of the probationary period, the employees should ascertain the employer’s precise requirements so these requirements could be addressed while ascertaining the employees’ suitability for permanent employment