Terminating during probation – Significant Judgement from Court of Appeal restores balance

Last year we updated employers on the risks associated with terminating employment during probation. The High Court issued an unusual decision in the case of Donal O’Donovan -v- Over-C Technology Limited and Over-C Limited placing employers on high alert about probationary dismissals. A copy of our Insight at the time can be found here.

This week, the Court of Appeal overturned the High Court’s decision, restoring certainty to the limited circumstances in which the Court will interfere with a dismissal and grant an employment injunction.

Background

By way of brief background, Mr O’Donovan (“the employee”) commenced a role as CFO of Over-C Technology (“the employer”) in July 2019. His contract of employment included an express probation clause, a termination clause and clauses setting out disciplinary procedures available to him.

The probationary clause stated as follows:

“An initial probationary period of six months applies to this position. During this period your work performance will be assessed, and if it is satisfactory, your employment will continue. However, if your performance is not up to the required standard, we may either take remedial action, or terminate your employment”.

The CEO met the employee when he returned from leave in January 2020 while he was still within his probation. During the meeting the employee’s poor performance was brought to his attention, having previously been flagged at earlier points.The CEO terminated his employment with immediate effect and confirmed that the employee would be paid in lieu of notice (one month’s pay).

The employee appealed the decision and he was invited to attend at an appeal. The employee did not attend, stating that the time did not suit him. The Appeals Officer appears to have ignored this and upheld the employer’s original decision to dismiss.

The employee issued injunction proceedings in the High Court seeking to be immediately re-instated into his role and preventing the appointment of any other person into his role. In effect, this was an application for a mandatory injunction. The High Court granted an injunction directing that the employee’s role be re-instated.

This was a significant step for the Court to take. It meant that the Judge believed that the employee had a strong case that was likely to succeed at the main hearing. The Court also directed payment of the employee’s salary, bonus and contractual entitlements for a six-month period. The employer was permitted to appoint a new CFO. This was in the context of Court recognition that the relationship of trust and confidence and had irretrievably broken down. The case was in reality a claim for “a fair termination process rather than for reinstatement in the role of CFO”.

From an employer’s perspective, this was the worst possible outcome. In addition, the efficacy of probation clauses came under close scrutiny.

Court of Appeal

The Court of Appeal decision has restored the uncertainty created by the High Court’s original decision.

1. It was accepted that the dismissal during probation was for poor performance, not misconduct.

2. The contract of employment included an express clause which permitted termination during probation for no reason.

The Court helpfully commented that the trial Judge had failed to properly consider the fact that termination occurred during the probation period. The Judge commented “During a period of probation, both parties are – and must be – free to terminate the contract of employment for no reason, or simply because one party forms the view that the intended employment is, for whatever reason, not something with which they wish to continue”.

3. The Court refused to imply a right to fair procedures into a contract.

This does not prevent an employer from including an express term providing a contractual right to fair procedures, even during a period of probation. Fair procedures must be applied in circumstances relating to misconduct.

4. The employee was dismissed pursuant to an express contractual term which entitled the employer to dismiss him if his performance was substandard.

5. The employee was appropriately paid his notice.

Conclusion

For employers, this decision restores confidence that an employer may dismiss for no reason, provided adequate notice is given. This applies whether or not dismissal occurs during the probationary period.

Further than that, during probation, it is possible to dismiss for poor performance without a requirement to use fair procedures (unless the contract so provides). Should the dismissal relate to misconduct issues, fair procedures should be applied. The net result is that the number of employees seeking injunctive relief from the Court will be restricted to circumstances relating to misconduct in which no fair procedures are used.

Take away tips

In light of the Court of Appeal’s clarification, we are once again reminded to consider the following practical tips:

1. Ensure that probationary clauses contain scope to terminate the contract for no reason.

2. Although not required, termination for poor performance is permitted without the requirement to use fair procedures. This does not prevent an employer from using fair procedures during a probationary period, but it may wish to use an abridged version for such circumstances.
3. Termination in circumstances of misconduct, even during probation, should be conducted in line with the Company’s disciplinary procedures. It is worthwhile to consider expressly addressing the misconduct/behavioural issues arising during probation as a distinct section within your disciplinary process.