Saturday, 19 November 2016

“An employer can only dismiss a probationary employee for just cause” – Why that statement may have been correct, but it doesn’t mean what you think.

(c) istock/ilyast

Does an employer require “just cause” to terminate the employment of an employee “on probation”? For the reasons that will follow, I would submit that, in Ontario, provided that the employer is provincially regulated (for information on whether an employer is provincially regulated see Which Laws Apply?), they do not.

I agree that my position would appear to stand at odds with the following statement made by the Honourable Justice Epstein in Mison v. Bank of Nova Scotia, 1994 CanLII 7383 (ON SC):

[43] … an employer can only dismiss a probationary employee for just cause.

Stay with me, this is about to get complicated.

Context Matters: The Employer in Mison was a Bank

Although the significance of this fact may not be immediately obvious to those who do not practice employment law, the employer in the Mison case was a bank.

Why does that fact matter? Because, as I explain more fully on my page Which Laws Apply?, banks are governed by federal law, a fact, which, again unless you practice employment law, also probably means very little to you.

Which brings me to my point: A federally regulated employer, such as a bank, absolutely requires just cause to terminate the employment of most of its employees. As confirmed by the Supreme Court of Canada in Wilson v. Atomic Energy of Canada Ltd., 2016 SCC 29 (CanLII), which case I summarized in the post No Cause? Then No Dismissal for Non-Unionized Federal Employees – The Supreme Court of Canada Shakes Up Canadian Employment Law, federally regulated employers, such as banks, require just cause to terminate a non-managerial employee employed for more than 12 months, unless the employer is eliminating the position.

Why Does it Matter that Federally Regulated Employers Require Just Cause to Terminate Employees?

The relevance of the fact that federally regulated employers require just cause to terminate the employment of employees is this: While it is now settled law that a federally regulated employer cannot terminate the employment of most of its employees absent just cause, it is long-settled law that provincially regulated employers most certainly can terminate an employee’s employment without cause. This point was made abundantly clear by Justice Stratas in his reasons for decision on behalf of the Federal Court of Appeal in Wilson v. Atomic Energy of Canada Limited, 2015 FCA 17 (CanLII):

[63] At common law, an employer can dismiss a non-unionized employee without cause, but is liable to provide reasonable notice or compensation for same. Put another way, an employee dismissed without cause but given reasonable notice is not wrongfully dismissed.

So, before moving on to my final point here is what is for certain thus far:

  • Federally regulated employer: Just cause required for termination.
  • Provincially regulated employer: Just cause not required for termination.

Justice Epstein’s Statement Has Been Misapplied

In my anticipatory tweet to this post I wrote, “Why the statement "... an employer can only dismiss a probationary employee for just cause." is both right AND wrong.”

As to the statement being correct, I believe the proclamation that Justice Epstein intended to make in Mison was this: Because the plaintiff in this case was employed by a bank, and because banks do require just cause to terminate an employee’s employment [the points made above], Mr. Mison’s probationary status did not vitiate the obligation on the employer to have just cause. Put another, the fact that the employer was federally regulated trumped the fact that the employee was on probation. At least, that is my assessment of her decision.

The problem is that Justice Epstein did not make that point as express as I just did. In fact, Her Honour made no mention of the fact that the bank was a bank – perhaps because it was so obvious.

But the fact that the bank was a bank – or better said, the fact that Mr. Mison’s employment was governed by federal employment standards – is not immediately obvious unless you practice in this area. I will concede that this nuance was not immediately obvious to me either.

What this nuance means, I would submit, is that the decision has been misapplied in the years following its release.

A perfect example of the misapplication of the Mison decision is the case of Alexander v. Padinox Inc., 1999 CanLII 4542 (PE SCAD), a 1999 decision of the Appeal Division of the Prince Edward Island Supreme Court. [And if you think that’s obscure reference for an Ontario employment law blog, consider this fact, I have previously written about a decision from the Northwest Territories Human Rights Tribunal, see Human Rights Adjudicator Allows Employee to Take Entire Summer Off to Care for Disabled Child.]

Padinox concerned the appeal of a dismissal of a wrongful dismissal action brought by George Alexander. In June 1997, Mr. Alexander responded to an advertisement placed in the Toronto Star by Padinox Inc. seeking an individual to fill the position of “Operations Production Supervisor” at its plant in Charlottetown, PEI. Padinox is involved in the manufacture and sale of metal cookware and Mr. Alexander, who lived most of his life in Ontario, had previous managerial experience in that industry as well as other manufacturing industries.

After being interviewed by the Operations Manager, Mr. Alexander received an offer of employment from Padinox on May 25, 1997, which he accepted. That offer and his acceptance constitute the contract of employment. A relevant term of the contract of employment was that there was to be a probationary period of up to one year during which time the management of Padinox had the discretion to confirm or reject Mr. Alexander for the position.

In the fall of 1997 there were production problems in the company’s plant. Those problems prompted the company, in November 1997, to dismiss the operations manager, the person to whom Mr. Alexander reported directly. The operations manager was replaced by the vice-president of finance, who became responsible for both positions.

In December the draw press, which is a crucial piece of equipment in the production of the product, was sent out for annual maintenance or retrofit. When it was returned, it did not work properly and further repairs had to be completed at the plant before production could recommence. It was during this crisis that the vice-president of finance, to whom Mr. Alexander was now reporting, says he lost confidence in the abilities of Mr. Alexander to perform his duties as outlined in the contract of employment. Around this time Mr. Alexander inquired of the vice-president of finance as to how he was doing, and in reply he was told to read his job description. Approximately two weeks after this conversation Mr. Alexander was advised by the vice-president of finance his employment was terminated and, in lieu of notice, he was paid two weeks’ salary and vacation pay.

Mr. Alexander sued for wrongful dismissal seeking special damages equivalent to eight months’ earnings, special damages for vacation pay and benefits for that eight-month period, as well as general damages, punitive damages and aggravated damages. The action proceeded to trial and the trial judge dismissed Mr. Alexander’s claim in its entirety. The trial judge’s reasons are reported at (1999), 1999 CanLII 4128 (PE SCTD), 175 Nfld. & P.E.I.R. 58.

On appeal to the Appeal Division, the court overturned the decision. The Honorable Mr. Justice John A. McQuaid reasoned as follows:

[17] The common law has evolved from a position where a probationary employee could be dismissed without cause, without reasons and without notice in the absence of bad faith or improper motive, to a point where now there is recognition that greater fairness should prevail in the termination of a probationary employee. The test has gone beyond the establishment of good faith in the employer’s exercise of discretion…

[20] In Mison v. Bank of Nova Scotia (1994), 1994 CanLII 7383 (ON SC), 6 C.C.E.L. (2d) 146, supplementary reasons 6 C.C.E.L. (2d) 159 (Ont. Ct. Gen. Div.), Epstein J. acknowledged the passage to a fairer approach in the dismissal of a probationary employee. At para.37 she stated:

However, on reviewing more recent authorities, it is clear that there has been some movement toward an attitude of greater fairness in dismissing a probationary employee.

This attitude of greater fairness is practically meaningless unless there is a duty on an employer to exercise discretion on some objective standard.

In the end the court ruled that Padinox had failed to discharge the onus of proving it had cause to dismiss Mr. Alexander as unsuitable for permanent employment and that he was therefore entitled to a greater period of reasonable notice.

Commentary

Here is why I think those pronouncements are incorrect.

  • First, it is clear, settled law that a provincially regulated employer requires neither just cause nor even reason to terminate the employment of an employee who is not on probation. Meaning that those employees who either (a) are not placed on probation, see my next point below, or (b) ‘survive’ the probationary period, most certainly can be terminated without cause or reason.
  • Second, the placement of an employee on probation is wholly at the discretion of the employer; there is no automatic probationary period.
  • Third, the act of placing an employee “on probation” cannot possibly elevate the employee’s rights; that would be antithetical to the point.

So if all of those points are legally correct, and I would submit that they are, then why is an employer required to demonstrate just cause to terminate the employment of a probationary employee at all? Sure, it’s a modified test under Mison, but still, what is the legal basis for requiring an employer to show fairness to employee to whom it has arguably provided more notice of an intention to ‘fire at will’ than one to whom it has not? It simply makes no sense to me.

Thoughts?

As I write this post it is now the middle of November 2016. I am well aware that this blog is followed by a large number of employment lawyers and human resource professionals. I thank you for your interest.

I know some of you will have an opinion on this issue, so I welcome your comments below. Also, as I am arguing this exact point before the Divisional Court on the 30th of November, 2016, if any of you do have opinions, thoughts, etc., I would appreciate them as soon as possible. (Preferably below in the comments field, but by email if you wish to be discrete is fine too.)

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

9 comments:

  1. An alternative interpretation would be the court’s rejection of the idea that employers can simply terminate the employment of a probationary employee without cause and without the provision of *any* notice. (See Padinox at para 15.) But that position would also appear to belie the legislative choice inherent in the that employees employed for less than three months are not entitled to any form of statutory termination pay. Machtinger confirms that employees can contract for legislative minimums. I am still at a loss.

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  2. I agree with your analysis completely. Other than courts failing to distinguish between the federally regulated and provincially regulated regimes, I cannot see how a provincially regulated employee on probation is entitled to the protection of dismissal with just cause only. The only possible idea I have is that the court finds it "unfair" to dismiss an employee on probation without cause as that employee likely has no entitlement to notice or pay in lieu thereof, especially if the dismissal is within the first 3 months of employment. By the way, I subscribe to your blog and think it is exceptional.

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  3. I also agree with your analysis. I've always believed the purpose of a probationary term was to determine if the employee was a fit for the organization and the organization was a fit for the employee. Provincial Employment Standards language illustrates the difference in that no payment is required under less than 3 months' service. While I recognize that probation periods can exceed that (and often do depending on the level of the position), that language tells me that there does not have to be cause. If the letter of offer is explicit in how the probationary period will be considered should termination occur, I don't understand how that could be challenged.

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  4. Hi Sean, I read this quickly, and I haven't read all the case you cite. This is a off-the-top-of-my-head comment. I doubt that the court in Mison was confusing the statutory just cause provision in the Canada Labour Code when it referred to "cause" to dismiss a probationary period. No probationary employee would ever satisfy the conditions for section 240 just cause protection since they won't have been employed long enough. The court was likely aware of that.

    Another explanation of what is happening is that the courts are saying that the employers entered into a contract that included a term saying essentially, "during the probationary period you will be evaluated in good faith and if we decide there's reason why you are not working out, we can can fire you without notice within that period." That is a form of a 'cause' provision: it says the employer can fire you for cause (i.e. for unsuitability, poor performance), without notice, during the probationary period. The whole purpose of a probationary period is to lower the standard of 'cause' for summary dismissal below what a court might otherwise apply. But in doing so, a contractual probationary period also introduces a standard and a court can assess if the employer satisfied the standard. Because the employer has subjected itself to a time-limited standard (unsuitability, poor performance during a defined probationary period), the employee can challenge the employer's decision against that standard. Did the employer actually assess the employees' skills and performance in good faith and make a rationale decision consistent with the intentions of the parties in agreeing to a probationary period? Both employer and employee would intend that the employer would not terminate a probationary employee for unsuitability unless there's evidence of actual unsuitability.

    Of course, if the probationary period says no notice is required and that term conflicts with the requirement to give notice in employment standards legislation, then the probationary period clause would be void and reasonable notice implied. But other than that, the courts may be saying that when a probationary period is included in a contract, then the parties intend that the employer will not exercise its right under that clause in bad faith, or without good reason. Its not the some thing as saying the employer must have "just cause". The language is saying that since the employer promised it will evaluate the employee for suitability, the employee can ask the court to decide if the employer did that in good faith (i.e. turned its mind to the employees' performance, gave the employee a reasonable chance to succeed, etc). It's like an implied obligation to exercise discretion under a probationary period in good faith. A contract that does not include a probationary clause includes no such implied promise by the employer to assess the employees' performance in good faith during the early stages of the contract. In that sense, an employer may be better off not including a probationary clause at all, since it really adds little to the existing bundle of implied and statutory rights employers' already possess to terminate short term employees. Most of the time, an employer would be better off just including a clause saying it can terminate a probationary period by providing the employee with the minimum amount of notice in the ESA, if any such notice is required at all.

    My off the top of my head thoughts. David

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    Replies
    1. I agree with that analysis and thank you for it.

      I agree most with your final point that, for employers, it is likely better to say nothing about "probation"; instead having a termination for convenience provision.

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    2. As you see it, would it therefore be accurate to say that, the purpose of probation is to lower the definition of “cause” so that employers may terminate 'for cause' and without the provision of any notice or pay in lieu. But the same does not remove the employer’s ability to terminate without cause.

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    3. Yes, I'd argue that a probationary clause does not oust the right of employer to terminate with notice, without alleging that termination is for cause. But once employer asserts termination is due to unfitness or failure to meet performance standards, a probationary clause allows court to assess the employer's decision on a low threshold standard of review (did employer fairly evaluate, give employee a reasonable chance, not act in bad faith, etc). The probationary clause introduces a lower standard of cause for employers who want to avoid notice and rely on summary dismissal. Having said that, if a probationary employee is terminated while a probationary clause is still in effect, a court may presume that the termination was due to performance or unfitness and consider the employer's decision in any event. Since notice period for a probationary employee would always be very short, at least if the contract requires only ESA minimum notice, I've never understand the value to an employer of including a probationary clause. If the probationary period is less than 3 months, no notice is required under ESA, if 3-12 months, it is one week's notice. Why not just give the notice and be done with it?

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  5. Another great one Sean.

    I learned the term vitiate, for this I thank you. Another thing I was unaware of is that termination for convenience clauses exist (and are, I presume, enforceable) outside of the construction industry. Is this type of clause legal in all employment contracts?

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  6. I can see what Professor Dorey is saying and it makes sense. If there were not proper good faith evaluations being done, giving the employee an opportunity to correct any deficiencies, then the employer breached the contract. What if there were proper assessments being done - recognizing that following the 3 months' set out in ESA - there would be payment of some sort for a probationary period that exceeded the 3 months.

    When I've written employment contracts, I use the language from the ESA and always state that (as amended from time to time). I don't often encourage employers to give the ESA minimums except in entry level positions. I also have them vetted by my lawyer...

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