B.C. Supreme Court Decision Reminds Employers that Probationary Period is Not Carte Blanche to Dismiss Employee with No Strings Attached

July 2017

Previously printed in the LexisNexis Labour Notes Newsletter.

In Ly v. British Columbia, 2017 BCSC No. 43, the plaintiff, Phuc Ly, was hired as a manager for the employer.  His employment was terminated after approximately 2.5 months.  The employer did not provide any notice or pay in lieu of notice in reliance on a probationary clause in Mr. Ly’s offer of employment which read, in its entirety, that “[e]mployees are required to serve an initial probationary period of six (6) months for new positions”.

Mr. Ly filed a wrongful dismissal suit claiming, among other things, that the probationary clause was unenforceable because it was ambiguous and breached the minimum requirements of the Employment Standards Act (“ESA”).  Mr. Ly also claimed that the employer failed to carry out a good faith assessment of his suitability for employment, and that he was therefore entitled to an award of damages based on reasonable notice of termination.

Was the clause too ambiguous to be enforceable?

There is a well-established legal presumption in all contracts of employment that, in the absence of just cause, reasonable notice will be required in order to lawfully terminate the contract. An express probationary clause may rebut the presumption of reasonable notice.

Mr. Ly argued that a bare reference to a probationary period without explaining what that meant or what would happen if the employment relationship ended before the six-month probationary term expired was ambiguous and insufficient to meet the employer’s obligation to create an express probationary term. He therefore claimed that the clause was invalid and unenforceable.

The B.C. Supreme Court disagreed, finding that there was nothing in the language of the contract which suggested a contrary meaning to the usual interpretation of “probation” in the employment law context. As stated by the Court, it is well understood in business and industry that probation means an employee is being assessed for his or her suitability for continued employment.  Under cross-examination, Mr. Ly agreed that this was his understanding of the term “probation”.  The clause was therefore clear and sufficiently express to be enforceable.

Can a probationary period be longer than three months?

Mr. Ly also claimed that the six-month probationary clause was invalid because it failed to meet the minimum standards of the ESA. He argued that it provided for no notice of termination for the entire six-month probationary period, which contravened an employee’s entitlement to one week of wages as compensation for length of service after three months of consecutive employment:  section 63(1) of the ESA.

Again, the Court disagreed with Mr. Ly, finding that the ESA had not been circumvented or breached by the express language of the probationary term or any other term of the employment contract.  It held the common law principle that an express probationary period can refute a presumption of reasonable notice of termination is subject to legislative limitations.  No term will be implied into a contract of employment that is inconsistent with the protections of the applicable legislation.

In other words, given that the employment contract did not say anything to the contrary, it was implied that Mr. Ly was entitled to the benefit of section 63(1) of the ESA during the probationary period, meaning that he would have been entitled to one week of termination pay after three months of service if he was found to be unsuitable for continuing employment.

The Court said there was a need for clarity in the law with respect to whether employers can impose probationary periods of longer than three months. While the Court clearly found that the “suitability” standard can extend beyond a three-month period, the statutory right to termination pay will be implied into the agreement.

Suitability must be assessed in good faith

Probationary periods do not give employers a carte blanche to dismiss employees with no strings attached. Employers do not have to establish just cause to dismiss a probationary employee, but they do have to demonstrate that they have acted in good faith in their assessment of the employee’s suitability for permanent employment: Jadot v. Concert Industries Ltd., [1997] B.C.J. No. 2403 (C.A.).

In determining whether an employer has acted in good faith, courts will examine the employer’s decision-making process. Although reasons for the employer’s decision are not required, a court will consider factors such as:

  1. whether the employee was made aware of the basis for the employer’s assessment of suitability before or, at the commencement of, employment;
  2. whether the employer acted fairly and with reasonable diligence in assessing suitability;
  3. whether the employee was given a reasonable opportunity to demonstrate his or her suitability for the position; and
  4. whether the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of an employee, including not only job skills and performance but also character, judgment, compatibility and reliability.

The Court found that Mr. Ly had made genuine efforts to understand his employer’s expectations and the standards upon which he was being assessed. However, the employer had not adequately answered his questions or given him a fair opportunity to demonstrate his suitability for his position.  The employer had therefore not met the requisite standard of good faith and Mr. Ly was entitled to damages based on a reasonable notice period of three months in addition to damages for relocation expenses and travel expenses incurred in the course of his employment.

Tips for employers

It remains important to draft probationary clauses as clearly and unambiguously as possible, particularly if they will exceed three months. Ensuring that probationary clauses do not contravene the minimum standards set out in the applicable employment standards legislation is critical to their enforcement.

Further, in assessing whether an employee is suitable for ongoing employment, the employee must be clearly informed of the standards against which he or she is being assessed and given a fair opportunity to demonstrate his or her suitability. Failure to do so may result in damages being awarded to the employee for wrongful dismissal.