Termination during Probation - What are the risks?

Proceed with caution! Terminating during probation was always one of the more straightforward ways in which to terminate an employment relationship, given that employees did not have the requisite 12 months’ service to bring an unfair dismissal claim. Two years ago, employers were given a wake-up call when the “At Your Service” Brennan brothers of the Park Hotel, received a Labour Court recommendation that they pay their general manager €90,000, following his unfair dismissal during probation. Employers carried on, confident in the knowledge that it was recommendation (not binding decision) from the Labour Court under the Industrial Relations Act, and not an enforceable unfair dismissal decision.

Last month, things got more serious, when the High Court granted an interlocutory injunction following the purported dismissal of a chartered management accountant during his probation. The case is Donal O’Donovan –v- Over-C Technology Limited and Over-C Limited [2020] IEHC 291.

Background

Mr O’Donovan (“the employee”) commenced his role as CFO of Over-C (“the employer”) in July 2019. He was given a written contract of employment including a probation clause, a termination clause and clauses addressing disciplinary procedures. It is worthwhile to set out the probation clause in full:

An initial probationary period of 6 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 employee returned from annual leave after Christmas this year, and was called to a meeting with the CEO, during which he was told that his employment would terminate with immediate effect, and he would be paid in lieu of notice (one month’s pay). The follow up letter sent to the employee to confirm his summary dismissal referred to sub-standard performance that was brought to his attention in earlier meetings. (This point is strenuously denied by the employee.)

The employee replied to the termination letter enquiring about his contractual entitlement to appeal the decision to dismiss him. The CEO promptly replied and confirmed that he had a right of appeal, advising that a person from the Board of Directors would contact him to set up that hearing. An invitation to attend the appeal issued, but the employee replied indicating that he could not attend that the time given, and he requested an early hearing. The appeal officer appears to have ignored this request, and issued a finding noting that the employee did not wish to proceed with his appeal. She upheld the employer’s decision to dismiss.

High Court application

Prior to commencing litigation through the High Court, the employee and his employer engaged in correspondence through their solicitors. In summary, and for the purpose of this advice only (as there are many other layers to the claim before the court), the employee alleged that he was unfairly dismissed in breach of his contractual and constitutional entitlement to fair procedures in two ways:

1. A right to reply to the allegation that his performance was sub-standard.
2. A right to appeal the decision of the employer to terminate his employment.

The employer made arguments suggesting that the employee’s role was appropriately terminated in line with the contract of employment, he was paid one month’s notice, and had been advised that his performance was sub-standard.

Strong case?

The Court granted an interlocutory injunction directing that the employee’s role be reinstated. This is a significant step for a Court to take, and it was not done so lightly. The Court held, applying the relevant high test to grant a mandatory injunction, that it was likely that the employee would be successful at the main hearing. It held that he was not afforded his contractual right to have his performance assessed and/or have any issues about it brought to his attention prior to his dismissal. He did not receive the right to comment (or be heard) on any issue his employer had with his performance. He did not get the chance to exercise his right to appeal at all.

The following factors were relevant to the Judge in reaching that decision:

1. The employee has a contractual entitlement to remedial action, or termination if his performance did not reach the required standard.
2. This is a senior role within the organisation.
3. There is potential for serious damage in the event of a poor performance finding against the employee (from both an economic and reputational perspective).
4. While not necessarily a contractual entitlement in this case (and perhaps just a courtesy on the part of the employer, as it pleaded), it was agreed that the employee has a right to appeal the decision.

Poor performance – due process

The Judgement clearly reminds employers that a decision to dismiss for no reason (no-fault dismissal), in accordance with the provisions of a contract of employment is permissible. To dismiss for misconduct, or as relied upon by the Court here, to dismiss for poor performance, is entirely different. An employer must follow a process to ensure fair procedures are granted to an employee, should an allegation of misconduct or poor performance be made. The employee in this case received no such entitlement.

Court conclusion

In granting the interlocutory injunction reinstating the employer until the main hearing takes place, the Court was influenced by two strong points:

1. The employee will not be able to pay his bills pending the hearing of the case if his salary is not reinstated.
2. The employer needs to appoint a new CFO to operate its business.

In addition to this, the Court was mindful that the relationship of trust and confidence has completely broken down between the employee and his employer. To achieve the best balance to address the above concerns, the Court directed the employee’s reinstatement, without any obligation on the employer to assign any work to him (they could even place him on leave). The Court directed payment of his salary, bonus and all contractual entitlements for 6 months. The Court permitted the employer to appoint a new CFO in the meantime.

From an employer’s perspective, this is a disaster. The employee remains on the books, possibly achieving one year’s service with the direction to pay his salary for six months, and it needs to appoint another person into the role, essentially paying on the double. Everything is now on hold until the main trial, when the Court will look at the termination process applied, and assess whether it was fair. It is clear to all that the employee will not be seeking reinstatement to his old role. On the face of it, he just wants the opportunity to clear an allegation of poor performance by his employer.

Takeaway tips

In light of the above decision, employers electing to terminate for poor performance without a process during probation should think again. We suggest that you consider the following practical tips:

1. Review your probationary clause and ensure that it permits termination for no reason.
2. Although abrupt, termination for no reason, if allowed under the contract, is better (and safer) than terminating for poor performance without due process.
3. Even in the event that there are performance issues, seek legal advice prior to commencing any form of performance improvement plan during probation.
4. Ensure that policies and processes around the operation of the disciplinary process, to include the right of appeal and how that is conducted during probation, is fully outlined in the Employee Handbook.