Case In Point
Appellate Court: Term “Probation” in Employment Contract Has A Clear Legal Meaning
Date: July 4, 2017
The Ontario Court of Appeal recently confirmed that the term “probation” in an employment contract has a clear legal meaning. It upheld the termination of an employee during a six-month probationary period, who had been dismissed with payment of his applicable entitlements under the Employment Standards Act, 2000 (ESA).
Common law has long recognized a distinction between employment during a probationary period and employment that continues beyond that period. The most significant distinction relates to the employer’s legal obligations upon termination. Generally, employers are required either to establish cause for dismissal or, where no cause exists, compensate dismissed employees with notice or payment in lieu of notice. During a probationary period, however, employers may dismiss an employee for being “unsuitable” in which case, where the probationary period is over three months, they must be given notice or payment in lieu in accordance with their ESA entitlements. It is well-established that “unsuitability” is a significantly lower standard than the “cause” standard that applies to non-probationary employees.
In Nagribianko v. Select Wine Merchants Ltd., the issue was whether a term of the employment contract, which stated “Probation…[of] Six Months,” was sufficient to establish a probationary period at all. The employee argued that the word “probation” alone was not sufficiently clear to create a probationary period because he had not been provided with the employer’s handbook, which specifically stated that his employment could be terminated within the probation period with payment of any ESA entitlements. The Deputy Judge of the Small Claims Court held that the meaning of “probation” was not clear on the face of the contract, and referenced the employee’s subjective understanding of probation.
The Divisional Court reversed that decision. It stated that the existence of a probationary period must be determined on the facts of each case, including the specific terms of the employment contract. In interpreting this contract, the Divisional Court held that “probation” had an established meaning, and it was not necessary for the employee to refer to the employer’s handbook to understand that meaning.
The Ontario Court of Appeal agreed with the Divisional Court that the terms of the contract were clear, and that “probation” had acquired a clear meaning at common law. It was therefore open to the employer to terminate the employment contract during the probationary period upon a good faith determination that the employee was unsuitable for permanent employment. The presumption of indefinite employment was overcome by the parties’ express contractual agreement to a probationary period of employment.
This case confirms that “probation” has an established legal meaning, and that employees who agree to an employment contract with a probation period cannot avoid the application of that period simply by asserting that they did not understand the meaning of the term. However, the mere inclusion of the term “probation” may not be sufficient in every case; each employment agreement will be assessed on its specific terms.
When preparing employment agreements, it is important for employers to understand the significance of a probationary period and their legal obligations, particularly when considering dismissal during a probationary period. It is also important to remember that, for probationary periods of over three months, employees dismissed while on probation must be provided with their entitlements under the ESA.
For further reading on probationary periods, please see our recent FTR Quarterly article, Tips on Avoiding Probationary Period Pitfalls.