Court of Appeal overturns High Court decision on dismissal of under-performing employee during probation

Employers have welcomed the Court of Appeal (“CoA”) decision of Ms. Justice Costello in O’Donovan v Over-C Technology Limited and Over C Limited.  The decision provides clarity of the termination of employment for poor performance during probation.

Background

Mr O’Donovan commenced a role as Chief Financial Officer (“CFO”) of Over-C Technology (the “Over-C” or the “Employer”) in July 2019. His contract of employment provided for a six-month probationary period with one months’ notice and the right to pay in lieu of notice. It also included provision for the Employer to terminate the contract during the probationary period if the performance of Mr O’Donovan was “not up to the required standard”.

Following a number of performance related issues, the Chief Executive Officer (“CEO”) met with Mr O’Donovan in January 2020 while he was still on probation. The CEO informed Mr O’Donovan that his performance was below standard, and he was being dismissed immediately with payment in lieu of notice.

Mr O’Donovan requested to appeal the decision. An appeal hearing was set up however it did not go ahead due to Mr O’Donovan’s availability. Over-C took this as Mr O’Donovan wishing not to proceed with the appeal and confirmed that the decision to dismiss him stood.

High Court

Mr O’Donovan issued interim mandatory injunction proceedings in the High Court restraining his dismissal and seeking to be immediately re-instated. Mr O’Donovan claimed that (i) the allegations of poor performance were in fact allegations of misconduct and (ii) that he had an implied contractual right to fair procedures and a contractual right to an appeal hearing which he said was not offered to him. Over-C confirmed that the reason for his dismissal was based on performance issues and not misconduct.

Justice Keane relied on Naujoks v. Institute of Bioprocessing Research & Training Limited [2006] IEHC 358, that the obligation to afford an employee fair procedure prior to his dismissal was not confined to allegations of misconduct but also applied to poor performance dismissals. Justice Keane held that Mr O’Donovan’s dismissal was in breach of his contract of employment on the grounds that Over-C had failed to afford him fair procedures. The High Court granted the injunction and directed Over-C to pay Mr O’Donovan’s full salary for a period of six months rather than reinstate the him to his position as CFO as the relationship of trust and confidence between the parties had been destroyed.

Court of Appeal Decision

Over-C appealed Justice Keane’s decision to the CoA and argued:

1. O’Donovan’s employment was already terminated when proceedings commenced;
2. the termination was within the six-month probationary period;
3. Justice Keane had accepted that the termination was not for misconduct but rather simply poor performance;
4. Justice Keane had accepted that mutual trust and confidence between the parties had broken down; and
5. Justice Keane had failed to correctly apply the common law principles applicable to termination of employment and had wrongfully implied a contractual term requiring fair procedures for termination in O’Donovan’s contract of employment.

The CoA considered the nature of the complaints against Mr. O’Donovan and whether these amounted to allegations of misconduct or merely poor performance. The CoA held that natural justice did not arise in this situation as Over-C terminated Mr. O’Donovan’s contract pursuant to an express contractual term that entitled Over-C to dismiss him for poor performance, as opposed to misconduct. As no right to fair procedures existed, it was not possible for Mr. O’Donovan to establish that he had a strong case likely to succeed and on that basis no injunction should have been granted.

The CoA held that the High Court gave insufficient weight to the fact that Mr O’Donovan’s dismissal occurred during his probationary period which it described as a “critical fact”. The CoA held that during a probation period both parties must be free to terminate employment for no reason simply because it forms the view that the intended employment is, for whatever reason, not something with which they wish to continue. Otherwise it would negate the purpose of probation.

The CoA further held that no injunction should have been granted in circumstances where both parties acknowledged that the relationship of trust and confidence had been destroyed.

The CoA made an order for costs against Mr. O’Donovan in respect of the appeal and the High Court hearing. This demonstrates the high stakes involved for both parties when an application is made for an injunction restraining an employee’s dismissal.

Key Takeaways

Employers should ensure contracts of employment provide for:

1. a probationary period (usually three to six months in duration);
2. the possibility of extending the probationary period (at the employer’s discretion);
3. that performance and suitability will be monitored and assessed during probation;
4. the employer is entitled to dismiss the employee for any or no reason during or at the end of probation (if dismissal is in relation to misconduct fair procedures must be afforded); and
5. that the employer’s disciplinary policy does not apply to employees on probation. However, an employer’s disciplinary policy shall apply where allegations of misconduct have been made.

Once an employer has a contractual right to terminate an employee’s employment during a probationary period on notice without giving any reason, it can do so without the requirement to follow fair procedures, provided the reason is not for misconduct. It is paramount for employers to check the employees’ contract of employment in this regard prior to dismissing an employee during their probation period.

The principles of fair procedures and natural justice must always be afforded to an employee in advance of the employer reaching the decision to dismiss on the grounds of misconduct, i.e. giving fair notice of any disciplinary hearings and a fair opportunity to reply.

In reality poor performance could be linked to misconduct in some cases and employers must be cautious when dismissing an employee during their probationary period.

While employees on probation may not have the required 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.

• Even if they have less than 12 months service, an employee can bring a claim for Unfair Dismissal where they are dismissed for certain reasons for example, 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, the Carers Leave Act 2001, the Parental Leave Acts 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 Workplace Relations Commission and the Labour Court under the Industrial Relations Act 1969 for a Recommendation.  The Recommendation is not enforceable in law they can give rise to industrial relations issues and Labour Court recommendations are public.
• Discriminatory Dismissal based on any of the nine grounds under employment equality legislation.
• As this case demonstrates, an employee may also take a claim for wrongful dismissal in the High Court and may look for injunctive relief.

For further advice on employee contracts or related queries, please contact Emer Murphy, Senior Associate on the Employment Team.