07/07/2020 Briefing

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Employees dismissed while on probation typically will not have the necessary service (12 months) to bring a claim under the Unfair Dismissals Acts. However this case is an important reminder that dismissals during a probationary period are not risk free and must be carried out in line with the requirements of natural justice.

Facts

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. Importantly, the terms of his contract required Over-C to assess Mr O’Donovan’s performance within his probationary period and, if it was not up to the required standard, permitted it to either take remedial action or terminate his employment. The contract provided:

During this period [i.e. his probationary 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 contract provided that the disciplinary rules and procedures that applied to Mr O’Donovan’s employment were those in the Employee Handbook and that such rules, which formed part of his contract, incorporated the right to lodge an appeal in respect of any disciplinary action taken against him. In fact, as the Court later noted, the Employee Handbook contained “little in the way of disciplinary rules and nothing on disciplinary procedures.”

Mr O’Donovan began work in August 2019. On 7 January (during his probationary period) he was called to a meeting with the CEO where he was informed that his employment was terminated with immediate effect and that he was to receive one month’s pay in lieu of notice.

Termination letter

The termination was confirmed by letter the following day. This letter stated that Mr O’Donovan’s performance in the role of CFO was sub-standard and had been identified to him as such by Over-C board members at earlier meetings. In particular, the letter identified a number of specific incidents of alleged poor performance including alleging Mr O’Donovan had provided inflated projected sales figure at a board meeting; failed to prepare adequately for a board meeting and failed to answer a question from the board about the company’s basic cash position.

Appeal deemed withdrawn

Mr O’Donovan lodged an appeal against the decision with the company’s CEO. However when he could not attend at the company’s specified time for the hearing of his appeal, the company did not arrange a new time but replied noting that he did not wish to proceed with the appeal on that day and confirming that the dismissal stood (in effect deeming his appeal against the dismissal to have been withdrawn).

Proceedings

Mr O’Donovan brought proceedings for, amongst other things, breach of contract, misrepresentation and defamation. He also brought an application for injunctive relief. In that application he sought a declaration that he continued to be employed as CFO or that his purported dismissal was invalid, or both, on the basis that his dismissal was in breach of his (1) contract and (2) constitutional right to fair procedures.

Mr O’Donovan argued that Over-C never raised any issues regarding his performance before the 7 January meeting when he was summarily dismissed. Further the procedures used to effect his dismissal (that is to say (i) effecting his dismissal before affording him an opportunity to appeal; (ii) failing to adequately notify him of the arrangements for the conduct of the appeal; and (iii) wrongly and unreasonably deeming his appeal to have been withdrawn when he could not attend) breached both (1) the express terms of the ‘disciplinary rules and procedures’ and ‘disciplinary appeal procedure’ referred to in his contract; and (2) an implied term of that contract that those rules and procedures would be fair and in accordance with the requirements of natural and constitutional justice.

The High Court

Applicable legal test

Mr Justice Keane reiterated that where an injunction restraining dismissal (which is, in effect, a mandatory injunction) is sought, the general principles that apply are those set out in American Cyanamid Co v Ethicon Ltd and approved by the Supreme Court in Campus Oil v Minister for Industry (No. 2), as modified by Maha Lingam v Health Service Executive. That is, the applicant must show:

  1. at least a strong case, likely to succeed at the hearing of the action; and that
  2. the balance of convenience (which includes, following Merck, a consideration of the adequacy of damages) favours the grant of interlocutory relief.

On the first limb of the test, the court held Mr O’Donovan had established a strong case likely to succeed at trial that his dismissal on the grounds of performance was not carried out in accordance with his contractual terms. Specifically, it held there was a strong case that in the particular circumstances of his contractually required performance assessment, Mr O’Donovan was entitled to a level of procedural fairness that he did not receive, most obviously in the context of both a right to be heard and a right of appeal. In reaching this conclusion the court placed particular emphasis on:

  1. the fact that the performance assessment was a mandatory requirement under Mr O’Donovan’s contract and depending on the outcome, was capable of resulting in either remedial action or the termination of his employment;
  2. the specific nature of Mr O’Donovan’s probation, whereby he was directly appointed to a senior role;
  3. the potential seriousness of an adverse performance assessment on Mr O’Donovan, reputationally and economically, as a qualified person in a professional role; and
  4. the fact that there was a contractual entitlement to an appeal process (which was acknowledged by the company).

The court then considered the second limb of the test. On the adequacy or otherwise of damages, the court considered the reputational damage that Mr O’Donovan claimed he would suffer as a result of an allegedly unfair (and consequently inaccurate) performance assessment, which it noted monetary damages might not be a “precise and perfect” remedy for. It also noted Mr O’Donovan’s position that without remuneration pending trial he would be unable to keep up with his monthly mortgage payments, insurance premiums and family expenses.

While the court found that there was a total breakdown of the relationship between the parties which meant that even if Mr O’Donovan were to succeed at trial he would be highly unlikely to ever resume his role, it noted that what he was seeking was not reinstatement forever. Mr O’Donovan recognised that Over-C had the right to terminate his employment on one month’s notice in accordance with the terms of his contract of employment, but sought the annulment of the existing decision to terminate for sub-standard performance.

Court order

The court found that the balance of convenience (or “the least risk of injustice”) lay with granting a Fennelly Order (which the court said should no longer be regarded as an exceptional form of relief) in the following terms:

  1. Over-C to pay Mr O’Donovan’s salary for a period of six months from the end of January 2020 (and any applicable bonus and other benefit arising during that period), on the provision by him of an undertaking to carry out any of the duties of CFO required of him. This period was fixed at 6 months rather than the entire period pending trial in recognition that the claim was one for a fair termination process rather than for reinstatement;
  2. Over-C not to be required to assign any of the duties of CFO to Mr O’Donovan pending the trial, but if it did, it must pay his salary (plus bonus and benefits) accordingly;
  3. Over-C may choose to put Mr O’Donovan on leave of absence rather than assign any duties to him (but still must pay his salary, bonus and benefits for 6 months); and
  4. Over-C may appoint a new CFO as it sees fit.

Advice to Employers

Employers should proceed with care when effecting a dismissal of an employee on probation, particularly where the employee involved is in a senior role. Where there are contractual provisions around performance assessment or the process for dismissal these need to be adhered to carefully and fair procedures cannot be dis-applied.

While probationary employees may not typically have the necessary 12 months service to bring a claim under the Unfair Dismissals Acts, there are still a number of options open to an employee who wishes to challenge a decision to dismiss and these should be kept in mind. For example:

  • Even if they have less than 12 months service, an employee can still bring a claim for Unfair Dismissal where they are dismissed for trade union membership or activity; pregnancy, giving birth, breastfeeding (or any matters connected with pregnancy or birth); availing of certain statutory rights (such as those under the Maternity Protection Acts 1994 and 2004, the Adoptive Leave Acts 1995 and 2005 or the Paternity Leave and Benefit Act 2016); or making a protected disclosure under the Protected Disclosures Act 2014.
  • Regardless of length of service an employee can refer the matter to the Labour Court under Section 20(1) of the Industrial Relations Act for a Recommendation.
  • As this case demonstrates, an employee may also take a claim for wrongful dismissal in the High Court and may look for injunctive relief.