Canada: "You Gotta Have (Good) Faith" ... Terminating Without Notice During The Probationary Period

A recent decision from the Supreme Court of British Columbia, Ly v. British Columbia (Interior Health Authority) 2017 BCSC 42, provides helpful clarification of the law on termination of probationary employees on the basis of "suitability" and sends a cautionary note about the importance of fair and objective assessments during probationary periods. Considered in concert with a recent case from the Alberta Court of Appeal, it may be more predictable for employers to rely on a well-drafted termination clause and simply terminate without cause, instead of rolling the dice and terminating without notice based on a probationary employee's "unsuitability". 

The facts

Mr. Ly was hired as the Quality and Patient Safety and Client Experience Manager at the Interior Health Authority ("Health Authority") in November 2014. He was terminated 2 months later, in January 2015, without notice, pursuant to the probationary clause in his employment contract on the basis that he:   

  • Took no time to learn about the department; 
  • Disregarded the direction of his supervisors; 
  • Had insubordinately imposed his vision of how things should be done, which impacted morale and employee retention in the department; and 
  • Failed to take steps to fully and clearly comprehend the expectations of him.   

The probationary clause at issue was simple and provided:   

"Employees are required to serve an initial probationary period of six (6) months for new positions".     

There was no termination clause in Mr. Ly's employment contract. At trial, Mr. Ly alleged that his employment contract did not contain a valid probationary period, the probationary clause violated employment standards legislation, and that he was wrongfully dismissed on the basis that the Health Authority did not conduct a good faith assessment of his suitability.   

The decision

Justice Morellato held that the probationary clause in Mr. Ly's employment agreement was valid – meaning that he could be dismissed without notice during the probationary period, provided the Health Authority acted in good faith in its assessment of his "suitability". However, the Court held that the Health Authority had not carried out a good faith assessment and awarded 3 months' notice on the basis that:  

  • Mr. Ly made genuine and concerted attempts to better understand the expectations and standards upon which he was assessed; the Health Authority did not respond to these attempts with sufficient clarity.
  • The workplace was complex and there was significant difficulty with undertaking the responsibility of managing an established group. 
  • When he expressly asked for the opportunity to clarify the basis upon which his suitability was being assessed, the Health Authority did not meet the requisite standard of good faith. As such, Mr. Ly was not given a reasonable opportunity to demonstrate his suitability for the position.   

Although the action was ultimately allowed, the case provides employers with helpful confirmation of the standards that apply to assessing probationary employees. Acknowledging the lack of clarity in the law on probationary periods, the Court held:

  • A probationary period is part of a contract where the employee is held to a requirement that, for a specific period of time, they must demonstrate a certain degree of suitability as set by the employer. 
  • The common law presumption of reasonable notice can be rebutted by a valid contractual probationary clause; however, employers cannot contract out of minimum statutory notice. 
  • During a probationary period, the employee can be dismissed without reasonable notice if the employee does not meet "suitability" requirements, as opposed to a "just cause" standard, subject to any required statutory notice of termination.
  • While an employer is not required to give reasons for the dismissal of a probationary employee, the employer's conduct will be assessed on the basis of: 

    • Whether the probationary employee was made aware of the basis for their assessment;
    • Whether the employer acted fairly and with reasonable diligence in assessing the employee;
    • Whether the employee was given a reasonable opportunity to demonstrate their suitability; and
    • Whether the employer's decision was based on an honest, fair and reasonable assessment of the employee's suitability, considering job skills and performance as well as character, judgment, compatibility and reliability.   

Notably, Mr. Ly's suggestion that the simple reference to the probationary period in his employment agreement was not sufficient to create a valid contractual term was rejected. The Court recognized that "probation" is "well understood in business and industry" as a period where an employee is being assessed for their permanent suitability.   

What this means for employers

Although the damages awarded in this case underscore the disproportionately high notice periods that can be awarded to short service employees (i.e., 3 months' notice was awarded Mr. Ly after only 2 months of employment), the analysis supports the validity of contractual probationary periods and the ability of employers to terminate employment, without notice, if an employee is found to be "unsuitable", subject to a good faith assessment and provision of any applicable statutory notice.   

The downside is that "unsuitability" carries inherent uncertainty and will be closely scrutinized. In the Alberta Court of Appeal's recent decision, Styles v. Alberta Investment Management Corporation 2017 ABCA 1, the Court reinforced the ability of employers to terminate an employment contract without cause, without providing reasons. This decision overturned the finding by the trial judge that employers could not terminate the employment relationship unless there was a reasonable basis for doing so. The decision confirms that no explanation needs to be provided when electing to terminate the employment relationship without cause and that properly drafted clauses limiting notice of termination will be upheld. 

Read together, these decisions suggest that, provided there is a valid contractual term limiting notice of termination, it may be more predictable to simply terminate without cause, as opposed to relying on the "unsuitability" of a probationary employee. Care must be taken to ensure that the termination term complies with applicable employment standards legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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