The recent High Court decision in O'Donovan v Over-C Technology Ltd & Anor  demonstrates that terminating an employee's employment before the employee has accrued twelve months' continuous service can still create significant risks for an employer.
Employers generally seek to conclude an employee's probationary period (and any extension) before the employee has accrued twelve months' continuous service. This is because, in most cases, an employee is prevented from bringing a claim under the Unfair Dismissals Acts, 1977 to 2015 unless they have accrued twelve months' continuous service with their employer. However, there are a number of claims that an employee may take challenging their dismissal from commencement of employment, which are discussed below.
In this case, the employer (“Over-C”) dismissed its CFO during his probationary period. The CFO's contract of employment included a six month probationary period, during which time the CFO's work performance would be assessed and if his performance was not up to standard, remedial action could be taken or the employment terminated. The contract also referenced Over-C's disciplinary procedures and stated that the CFO had a right of appeal in the event of disciplinary action.
The CFO was informed that his employment was being terminated at a meeting which was followed by a letter confirming the CFO's summary dismissal. This letter referred to sub-standard performance which it was alleged had been brought to the CFO's attention and an incident in which it was alleged he had provided misleading sales figures at a board meeting. The CFO emailed the CEO of Over-C asserting that he had a right to appeal his dismissal under his contract of employment. The CEO replied confirming that the CFO was entitled to appeal his dismissal. However, the date and time proposed for the appeal did not suit the CFO and when he alerted Over-C of that fact, Over-C deemed his appeal to have been withdrawn. The decision to dismiss the CFO was confirmed and he received a payment in lieu of his entitlement to one month's contractual notice.
The CFO brought a wrongful dismissal claim before the High Court alleging that the decision to terminate his employment and the subsequent decision to deem his appeal withdrawn were in breach of his right to fair procedures and he sought an interlocutory injunction restraining his dismissal pending the full hearing of his wrongful dismissal claim.
Decision of the High Court
The High Court found in favour of the CFO and granted an injunction restraining his dismissal, requiring Over-C to pay his full salary and benefits for a period of six months but it permitted Over-C to replace the CFO role and allowed Over-C to place the CFO on a leave of absence during the six month period. The injunction was granted on the basis that the CFO had a strong case that he was dismissed due to alleged performance issues and that, under his contract, the CFO had a right to fair procedures in the assessment of his performance during his probationary period, including a right of appeal in the circumstances and Over-C were in breach of these rights.
The High Court held that, the balance of convenience required a limit to be placed on its order requiring Over-C to pay the CFO's salary and benefits pending the hearing. The cap of six months was based in part on both parties acknowledging that the relationship of mutual trust and confidence had broken down and that it was therefore most unlikely that the CFO would return to his role with Over-C. Previously, unsuccessful employers have been ordered to pay an employee their full salary and benefits up to and including the full hearing of the action, on top of any award made for damages for failure to give reasonable notice under the contract and the costs of both parties. It is still to be seen whether such a limit will be followed in subsequent cases, however this may be a helpful precedent in the settlement of injunction proceedings as it adds a greater degree of predictability on liability and costs.
Probationary Clauses in Employment Contracts
There is currently no legislation in Ireland that expressly governs probationary periods. An employee's probationary period is governed by the wording of the contract of employment. As outlined above, employers often seek to conclude probationary periods before an employee accrues twelve months' continuous service. Ireland is expected to introduce legislation capping probationary periods at six months (or proportionate to the term of the contract) in 2021 in order to comply with the Directive on Transparent and Predictable Working Conditions in the EU.
Importantly, in the Over-C case, the High Court explicitly recognised that employers have a right to dismiss an employee during an employee's probationary period by providing the requisite period of notice. The CFO's contract of employment was breached due to the wording of the probationary clause which stated that the CFO's performance would be assessed and if not up to standard, action taken. Including a probationary clause in contracts of employment that state that the employment can be terminated during the probationary period by providing one week's notice will permit an employer to dismiss an employee on probation without undergoing a performance assessment exercise in accordance with the full requirements of fair procedures. This would be particularly useful in the current remote working environment where proper performance assessment may prove more difficult than usual.
Other Possible Claims arising from Dismissal in the First Year of Employment
There are several exceptions to the requirement under the Unfair Dismissals Acts, 1977 to 2015 for an employee to accrue twelve months' continuous service. There is no service requirement for claims in relation to dismissals alleged to relate to an employee's gender, family status, civil status, disability, age, race, religion, sexual orientation, pregnancy, trade union membership, or where the employee has made a protected disclosure. Employees are protected from penalisation (including dismissal) under the Organisation of Working Time Act 1997 and the Safety, Health and Welfare at Work Acts 2005 and 2014 from their first day of employment.
Employees may also bring a dispute in relation to their dismissal to the Workplace Relations Commission under the Industrial Relations Acts, 1946 to 2019. Where the employer objects to such a claim being heard by an Adjudication Officer, the matter can proceed to the Labour Court which can only issue a non-binding recommendation. In one such recent case, Beechside Company Limited T/A Park Hotel Kenmare v A Worker , the Labour Court found in favour of an employee who had been dismissed after approximately four months' service and recommended that the employer pay the employee €90,000 compensation. The Labour Court held that while employers have a right to choose not to retain an employee during the employee's probationary period, this can only be carried out where the employer adheres strictly to fair procedures. The Labour Court held that the employer had not afforded the employee fair procedures by failing to provide the employee with details of any performance issues, failing to warn the employee that his employment was in jeopardy, and failing to provide the employee with an opportunity to respond to the allegations of poor performance. Although the Labour Court is only empowered to issue a non-binding recommendation, the attendant public sharing of the employee's dismissal may cause reputational damage and industrial unrest.
Key Takeaways for Employers
- Employers may lawfully dismiss employees without twelve months' service during or at the end of their probationary period by serving notice in line with the employment contract. However, where performance issues have been raised with an employee, the employer is required to act reasonably and follow some form of fair procedures before effecting a performance related dismissal;
- Employers should review employment contacts and ensure their probationary clauses do not require the employer to assess the employee's performance before dismissing the employee during probation. Instead, the probationary clause should simply permit the employer to dismiss the employee at any time during or upon expiry of the employee's probation by providing one week's minimum notice;
- Employers should seek legal advice before attempting to dismiss an employee on probation to ensure a proper “no fault dismissal” or if attempting to dismiss on performance related grounds, that a proper process which includes fair procedures is followed;
- If seeking to dismiss an employee during the employee's probationary period on the grounds of performance, then the employee's performance and suitability for continued employment should be regularly monitored and reviewed to identify strengths and weaknesses and areas where improvement is required. If improvement is required, this should be notified to the employee and the employee should be informed that if the employee fails to make adequate improvements, the employer reserves the right to take all necessary steps, including termination of employment. The employee should be afforded an opportunity to respond to the allegations of poor performance before a dismissal is affected; and
- Disciplinary procedures should explicitly allow the employer to apply an abridged form or to otherwise modify the procedures as appropriate during an employee's probationary period.
Originally published 24 July, 2020
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.