Employers Entitled to Dismiss Probationary Employees without Notice or Reasons

The Divisional Court of Ontario has recently confirmed that an employer may terminate a probationary employee during the probation period, provided it acts in good faith in determining the employee’s suitability and ability to fulfill the requirements of the job.

In Nagribianko v. Select Wine Merchants Ltd., the employee had entered into an employment agreement with the employer that provided for a probationary period of six months. The employer terminated the employee’s employment within the six month probation period because it had concluded that the employee was “unsuitable for regular employment.” Shortly thereafter, the employee commenced an action against the employer seeking damages for wrongful dismissal.

The evidence at trial was that the employer’s employee handbook – which was incorporated by reference into the employment contract, provided that the employer could terminate an employee’s employment during the probationary period upon providing written notice or payment in lieu under the Employment Standards Act, 2000 (ESA).

The trial judge accepted the employee’s argument that, at the time the employment agreement was signed, he did not receive a copy of the employer’s employee handbook.  Further, the judge held that that the meaning of probation was not clear on the face of the contract and relied on the employee’s subjective understanding of the term probation. In determining damages in lieu of notice, the judge found that the employer had induced the employee to come work for the employer. The employee was ultimately awarded damages based on a notice period of four months.

On appeal by the employer, the Divisional Court held that the trial judge had erred in law in failing to recognize that the employment of a probationary employee is different in nature from that of a non-probationary employee. Rather, when interpreting a contract, the Court held that:

“[…] the question the Court should ask is what reasonable persons in the same circumstances as the parties would have understood the contract to mean. The subjective intent of the parties is irrelevant.”

A reasonable person in the same circumstances as the employee, the Court stated, would have understood the term “probation” to mean a period of tentative employment during which the employer may determine the employee’s suitability. In this case, the employee’s subjective belief was that the employer would find him to be a suitable employee but, as the Court noted, “[…] a reasonable person in those circumstances would also have understood that that might not happen.”

The Court held that the standard for dismissal from probationary employment is suitability, which includes considerations of the employee’s character, ability to work with others, and ability to meet the employer’s present and future standards.

The Court held 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. All that is required is that the employer show that it acted fairly in determining the probationary employee was suitable and that he/she was given a fair opportunity to demonstrate his/her ability.

In the absence of bad faith, an employer is entitled to dismiss a probationary employee without notice and without giving reasons, provided they have an ESA-compliant termination clause and the employee’s probation period is three months or less. Where the probationary period is longer than three months, notice of termination must be provided, but will still be very limited where an ESA-compliant termination provision is in place.

Also worth noting is the fact that the Court held that the trial judge erred in law in failing to enforce the clear terms of the contact, which made reference to a probation period of six months. It was not necessary for the employee to refer to the employee handbook to know that his employment was subject to a six month probationary period.

Finally, regarding the allegation of inducement, the Court held that, “[…] probationary employment, on its face and by its nature, is inconsistent with any inducement or promise of long-term employment.”

A key takeaway from this case is that an employer may terminate employment in good faith during the probationary period, provided its ability to do so is expressly worded in an employment contract signed by the employee, and the employer has provided a fair opportunity for the employee to demonstrate his/her suitability and ability to do the job. Moreover, the case suggests a probationary period may assist employers in defending against claims for inducement. 

As with non-probationary employment terminations, in order to limit their notice pay obligations to the statutory minimums, employers must ensure they have in place enforceable employment contracts which include an ESA-compliant termination provision.