June 23, 2017

The Ly Decision: Dismissing Probationary Employees in British Columbia

A landmark decision released earlier this year carries significant implications for employers in British Columbia who place their new hires on probation periods.

In Ly v. British Columbia (Interior Health Authority), 2017 BCSC 42, the plaintiff was hired by Interior Health into a senior management position. The employment contract included a probation clause permitting the employer to dismiss the plaintiff without any severance pay within his first six months of employment.

Unfortunately, the plaintiff had difficulty with his new position from the very beginning. The employees under his supervision chafed at his management style and criticized him behind his back. The situation deteriorated to the point where two of the employees the plaintiff was managing threatened to quit.

To address these difficulties, the plaintiff reached out to his own supervisor in a genuine effort to improve his performance. In an email that proved decisive to the case as a whole, the plaintiff requested a meeting to discuss his progress, receive constructive feedback and create a plan for improving his job performance. After seemingly ignoring this email for a number of weeks, the plaintiff’s supervisor eventually responded by setting up a meeting with the plaintiff, as requested. However, instead of opening a dialogue or discussing the issues outlined in the plaintiff’s email, the supervisor simply dismissed him. The plaintiff had only been on the job for two months.

The plaintiff decided to challenge the employer’s actions in court, claiming unjust dismissal. Interior Health argued that the plaintiff had been let go because he was unsuitable for the position. Because he was dismissed for unsuitably during the six-month probation period, so the argument went, the plaintiff was not entitled to any severance pay.

The BC Supreme Court disagreed with Interior Health. In doing so, the Court clarified the law relating to probation periods in British Columbia. A significant portion of the decision was dedicated to pinning down exactly what “unsuitability” is for the purposes of a probation period.

First, the Court confirmed that “unsuitability” is an entirely different standard than “just cause”. Just cause, which entitles an employer to terminate an employee without severance during the regular course of an employment relationship, constitutes quite a high bar to meet. Although the exact meaning of just cause could easily fill another blog post, suffice it to say that it requires a fundamental breakdown in the relationship between employer and employee.

“Unsuitability”, on the other hand, is not so rigorous a standard. It can be evaluated on the basis of more intangible factors such as “fit” and attitude of an employee. For example, imagine you have a new hire. He is fully qualified for the position, picks up the required skills on the job quite quickly and has a great work ethic. However, this employee does not fit well with the company’s culture and does not get along with his co-workers. Surprising as it may seem, this alone could be grounds for unsuitability during a probation period, although it would almost certainly not qualify as just cause for dismissal.

Unsuitability, then, is a somewhat nebulous concept that is a far cry from just cause. Nevertheless, the Ly decision also confirms that the test of unsuitability in no way provides employers the power to dismiss their employees arbitrarily. In fact, Ly affirms that there are significant procedural components an employer must meet before letting an employee go for unsuitability. In short, the employer must approach the task of assessing suitability in good faith and with some measure of transparency.

More specifically, Ly states that an employer’s conduct in dismissing an employee for unsuitability during a probation period will be scrutinized for various factors, including:

  1. whether the probationary 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 suitability for the position; and,
  4. whether the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of the employee, including not only job skills and performance but also character, judgment, compatibility, and reliability.

It is clear, then, that the result in Ly likely would have been very different, and much more favourable to the employer, if the employer had communicated its expectations and standards to the plaintiff and given him an opportunity to meet these standards. Instead, the employer could not rely on the probation period clause and was ordered to pay three months’ severance to the plaintiff. This is a significant payout in light of the fact that the plaintiff had only worked at Interior Health for a total of two months.

So what are the practical implications for employers?

One of the major implications of the Ly decision is that implementing probation periods may be of little use to employers. The Ly case demonstrates the dangers of engaging in a probationary period where the parameters are not clearly communicated and not properly developed in the employment contract. To avoid large severance awards such as that awarded in Ly, it is likely simpler and safer to restrict severance payments to the minimums required by the Employment Standards Act.  For example, under the Employment Standards Act, one week’s severance pay is required after three months of employment. Probation periods are required to comply with these statutory minimums, and if they fail to do so, such clauses are null and void, leading to the possibility of even greater severance awards. It may be better to avoid these risks altogether.

However, for employers who continue to use probation periods, the Ly decision underscores the need for employers to prepare a clear, written statement as to their expectations of new employees and to communicate such expectations to the employee at the commencement of the employment relationship. Moreover, employees must be given a fair chance to demonstrate that they are suitable.

Regardless of which method employers use to limit their liability for severance pay, a carefully considered and well drafted employment contract is essential to avoiding the legal pitfalls exposed by the Ly decision. Ultimately, a strong employment contract used at the beginning of the employment relationship can help employers avoid countless legal and financial headaches once that relationship comes to an end.

Scott Payne is a lawyer with CBM Lawyers. To learn more about employment law or to schedule a consult with Scott, please contact us at 604.533.3821.