26/02/2021 Briefing

In Donal O’Donovan v Over-C Technology Limited and Over-C Limited [2021] IECA 37, the Court allowed an appeal against a decision of the High Court restraining the employer from dismissing an employee during his probationary period on performance related grounds.

 

Background

Mr O’Donovan was employed as the Chief Financial Officer of Over-C Technologies Limited (“Over-C”) in August 2019. Mr O’Donovan’s employment was subject to an initial six month probationary period. His contract stated that his performance would be assessed during this period and, if satisfactory, his employment would continue. The contract incorporated by reference disciplinary rules and procedures contained in Over-C’s employee handbook and it provided for a right of appeal against any disciplinary sanction.

In January 2020 (and within his initial 6 month probationary period), Mr O’Donovan was dismissed on the grounds of poor performance. He instituted High Court proceedings claiming that his dismissal was in fact effected for misconduct and was carried out in breach of the terms of his contract, which he argued included an implied term that any disciplinary procedures would be carried out in accordance with natural and constitutional justice.

 

High Court Proceedings

In a judgment delivered on 12 June 2020, the High Court found Mr O’Donovan had established a strong case that he had an implied contractual right to fair procedures in the assessment of his performance during his probationary period, which was breached in the manner in which he was dismissed. Significantly. the Court did not accept Mr O’Donovan’s claim that he was dismissed on the grounds of misconduct, but nevertheless held that he had established a strong case that his dismissal was not lawful, as it held the obligation to afford an employee fair procedures in relation to his or her dismissal may apply to a ‘poor performance’ dismissal as well as dismissals for misconduct.

The Court granted an order preventing Over-C from dismissing Mr O’Donovan pending the trial of his action and ordering it to pay Mr O’Donovan’s salary for a period of six months from the end of January 2020 (read our briefing on the High Court decision here).

 

Court of Appeal (“CoA”)

In February 2021, the CoA agreed that Mr O’Donovan had not established a strong case that his dismissal was for misconduct. That being so, the issue was whether he had a strong case for an injunction restraining his dismissal where that dismissal was for poor performance. The CoA held that the High Court failed to give adequate weight to the fact that the termination occurred during Mr O’Donovan’s probationary period, a period during which “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.

Diverging from the position taken by the High Court, the CoA did not accept that a court can imply a right to fair procedures in relation to the assessment of an employee’s performance during the probation period, as it held “this would negate the whole purpose of a probation period”.

The CoA held that if an employer has a contractual right to dismiss an employee on notice without giving any reason (as Over-C did in this case), the CoA could not imply a term that the dismissal may only take place if fair procedures have been afforded to the employee. The CoA pointed out that one exception to this is where the employee is dismissed for misconduct (in which case the principles of natural justice apply and fair procedures must be followed).

Although ‘poor performance’ and ‘misconduct’ may overlap at times, the CoA expressed the view that an allegation that an employer is of the view that an employee has not “discharged his duties” is not sufficient to introduce an element of ‘misconduct’ and so justify the implication of the right to fair procedures for a dismissal on these grounds.

The CoA affirmed the common law position that, outside the statutory unfair dismissals framework, an employer can terminate employment for any reason or no reason, provided adequate (i.e. contractual or statutory) notice is given.

That being so, the CoA held that as Mr. O’Donovan was dismissed under an express contractual term, within his period of probation, and was paid his contractual entitlement of one month’s salary in lieu of notice, he had no claim under common law. The CoA allowed the appeal, vacated the order of the High Court and made an order for costs against Mr. O’Donovan in respect of the appeal and the High Court hearing.

 

Key Message for Employers

The CoA decision will be welcomed by employers, reaffirming as it does that, when it comes to employees on probation, fair procedures are only required where dismissal is due to misconduct.

Outside that context, as long as an employer has a contractual right to terminate the employment during a probationary period on notice without giving any reason, it can do so.

Of course, in reality many instances of ‘poor performance’ may also involve some element of what could be termed misconduct. The line between performance based, and a conduct based, dismissal may be a difficult one to draw and in such situations, caution is advised.

In addition, employers must always remember that while this decision narrows the options for employees with less than 12 months’ service on probation who wish to challenge a ‘no fault’ or performance based dismissal, regardless of length of service an employee can still refer the matter to the Labour Court under Section 20(1) of the Industrial Relations Act for a non-binding Recommendation.