Last summer, we reported on a High Court decision involving a technology company’s decision to dismiss a senior executive during his probation period.
The High Court granted an injunction to the employee on the basis that the technology company did not follow fair procedures or the principles of natural justice prior to terminating the contract of employment.
The Court of Appeal has recently overturned the High Court ruling. The Court of Appeal found that the employee’s right to fair procedures is limited during the probationary period. The Court stated that to imply a right to fair procedures into all dismissals during a probationary period would effectively negate the whole purpose of probationary periods.
The Court of Appeal concluded that the right to fair procedures only arises “in cases involving dismissal for misconduct, but not to termination on other grounds” such as poor performance.
We examine this case in more detail below.
Facts of the case
Mr O’Donovan was appointed Chief Financial Officer of Over-C Technology Limited (“Over-C”) in July 2019, subject to an initial probationary period of six months.
The terms of his contract allowed Over-C to assess Mr O’Donovan’s performance during his probationary period. If the level of performance did not meet the required standard, the contract allowed Over-C to either take remedial action or terminate employment.
The contract provided that the pertinent disciplinary rules and procedures were those contained in the Employee Handbook. The Employee Handbook formed part of the employment contract and provided the employee with a right to lodge an appeal in respect of any disciplinary action taken against him.
O’Donovan was called to a meeting in January 2020 (within his probation period) at which he was dismissed with immediate effect and paid one month's salary in lieu of notice as required under the contract. A dismissal letter issued the next day stating that his performance had been sub-standard. The employee subsequently failed to agree a time for an appeal meeting and Over-C took this as confirmation that he was withdrawing from the appeal process.
O’Donovan sought an injunction on the basis that his dismissal was defective for the following reasons:
- The initial dismissal was confirmed without any formal hearing and was in breach of the company’s own disciplinary procedure.
- The dismissal was confirmed without affording the employee an opportunity to appeal.
- The employer failed to adequately notify him of the arrangements for the appeal hearing.
- The employer wrongly and unreasonably deemed his appeal to have been withdrawn when he merely notified the board that he was not available to attend on the proposed date for the hearing.
High Court ruling
The High Court granted an injunction on the basis that the defects cited above breached the express terms of the ‘disciplinary rules and procedures’ and ‘disciplinary appeal procedure’ referred to in the contract of employment.
The High Court also found that there was a breach of the implied terms in the contract requiring all such disciplinary processes and procedures to be conducted fairly and in accordance with the principles of natural justice.
Court of Appeal ruling
The Court of Appeal recently overturned the High Court’s decision to grant an injunction.
The Court of Appeal noted that the case involved “poor performance” and not misconduct. The High Court likewise stated in its judgment that the facts did not support the conclusion that the termination involved a “misconduct dismissal case”.
The Court of Appeal therefore confined its judgment to consideration of the issue of whether Mr O’Donovan had “…a strong case for an injunction restraining the termination of his contract of employment … in circumstances where his dismissal…. was for poor performance.”
The fact that the dismissal took place during the probationary period was a key determining factor. The Court explained that “…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”.
The Court of Appeal noted that the contract of employment included an express clause allowing Over-C to terminate employment during the probation period if the employee’s performance didn’t meet the standard required. Over-C acted within its contractual powers by terminating employment on one month’s notice and confirming that the dismissal was performance-related.
In relation to fair procedures, the Court stated that “…If an employer has a contractual right – in this case a clear express right – to dismiss an employee on notice without giving any reason, the court cannot imply a term that the dismissal may only take place if fair procedures have been afforded to the employee, save where the employee is dismissed for misconduct.” The Court explained that “…There is no suggestion that the principles of natural justice must be applied where an employer terminates the employment contract of an employee on the grounds of poor performance.”
As Mr O’Donovan’s dismissal contained no allegations of misconduct, the Court confirmed that he did not enjoy a right to fair procedures prior to termination within his probationary period. The employer’s appeal succeeded on that basis and the High Court order was overturned.
What does this decision mean for employers?
The decision is helpful for employers as it clarifies that employers may dismiss employees for performance reasons during a probation period without the need to go through formal hearings and without having to afford a right of appeal.
If a dismissal during probation relates to misconduct however, fair procedures must still precede any confirmation of termination.
While this decision reduces the scope for employees to seek injunctive relief in these particular circumstances, employers should consider reviewing their contracts of employment to remove any ambiguity that might exist around the right to dismiss during probation.
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