In this short video, Duncan Inverarity, Head of A&L Goodbody's Employment Law Group, discusses the background to, and implications of the recent Court of Appeal decision in the case of Donal O’Donovan v Over-C Technology Limited and Over-C Limited [2021] IECA 37 for probationary clauses and practice.

Related: watch the recording of Duncan Inverarity's Top Employment Cases of 2020 webinar.

Transcript

Hello, and I am delighted to be able to talk to you today about a recent Court of Appeal decision in the case of O'Donovan and Over-C Technology Ltd. Now, in my view, this is a really important case particularly in relation to the termination of employees during a probationary period. And it changes the law from what we have previously understood to be the situation and what employees on probation were entitled to be afforded by way of fair procedures. So, it is a game changer for the way in which employees deal with . . . I'm sorry . . . the way in which employers deal with employees on probation.

Background to the Law on Dismissal During Probation

So just to give you a bit of background to the decision of the Court of Appeal. Clearly, insofar as it's gone to the Court of Appeal, it was initially before the High Court. The facts of this case were Mr O'Donovan was employed by Over-C Technology as its CFO. He was employed under a contract employment, which you'd expect, and he had a six-month probationary period as part of his contractual terms.

He had a right to pay in lieu of notice and the company obviously had a right to terminate by giving him contractual notice. The contract also provided an express probationary period and that his employment would be terminated if his performance was not up to the required standard.

Now, Mr O'Donovan commenced employment in August 2019, and then in January 2020, following a number of, should I say, substandard performance discussions and related issues, Mr O'Donovan was called to a meeting with the CEO. And the CEO in effect told him at that meeting that his performance was below standard and that the board had lost confidence in him, and that as a result, he was being dismissed immediately with payment of his notice period, so payment in lieu of notice, all in accordance with contractual terms. That decision was confirmed in writing, again in accordance with his contractual terms.

Mr O'Donovan appealed the decision of the chief executive. That appeal was set down, there was an appeal manager appointed, but at the end of the day, Mr O'Donovan contacted the company and said that what they proposed wasn't suitable for him or his legal advisors. The company took that to mean that he wasn't prosecuting his appeal and simply affirmed the decision to dismiss him. So Mr O'Donovan went off to the High Court to seek an interim mandatory injunction restraining his dismissal.

Now, it's important to understand what was the law at that point in time. So the law at that point in time was essentially determined by the decision of Ms Justice Laffoy in the case of Naujoks, which dealt with the issue of performance-related dismissals and whether or not fair procedure attached to performance-related dismissals.

So, when this came before the High Court, there was agreement that in order for him to succeed, because it was a mandatory injunction, you need to establish that he had a strong case and a strong case that he would succeed at trial.

Now, Mr O'Donovan claimed that the allegations against him, which related to poor performance, were in fact allegations of misconduct, and secondly that he had an implied contractual right to fair procedures and a contractual right to an appeal hearing, which he was denied based on the facts as I've described.

Now, the company had already confirmed to him on more than one occasion that he was dismissed on the grounds of poor performance and not misconduct, and no mention was there any suggestion of misconduct. It was purely a performance-related dismissal, and this was important, but at the High Court and then certainly at the Court of Appeal.

So the trial judge in the High Court, Mr Justice Keane, held that Mr O'Donovan had not established a strong case that he was dismissed for misconduct. That seemed to be a common case between all parties. However, he had established a strong case that his dismissal was in breach of his contract of his employment on the grounds that the employer had failed to afford him fair procedures.

As I said, Mr Justice Keane relied on the decision of Naujoks, which is Naujoks and the Institute of Bioprocessing Research and Training Limited, which was a decision of Ms Justice Laffoy, and dates back to 2006. So, in fairness to Ms Justice Laffoy, it has stood the test of time, and certainly as a practitioner, that's what we've always followed when it comes to performance-related dismissals during a probationary period.

In that case, Ms Justice Laffoy held that an obligation to afford an employee fair procedures prior to dismissal was not confined to allegations of misconduct, but also applied to poor performance dismissals. So an important decision for its time and one, as I say, that has stood the test of time for quite a number of years.

So, insofar as Mr O'Donovan was concerned, he got his injunction. It was granted in June 2020, and it in effect precluded the company from terminating his employment pending the trial of the action and that he was to be paid six months’ remuneration pending the trial.

Appeal to the Court of Appeal

Now, the company, Over-C Technology, then appealed the decision of the High Court to the Court of Appeal, and this is where things get more interesting insofar as we are now seeing change in the law. So the matter was heard by Ms Justice Costello in the Court of Appeal and she, cutting to the chase, overturned the decision of the High Court and she allowed the appeal.

She was of the view that it was highly unlikely that Mr O'Donovan would obtain a permanent injunction at the trial of the matter for a number of reasons. She agreed with the trial judge, Mr Justice Keane, that Mr O'Donovan had not established a strong case, that he was dismissed for misconduct.

As I said, it's an important feature of the case that there was no misconduct asserted. He could not take it that he was being dismissed for misconduct. Had he been dismissed for misconduct, there is no doubt that the requirement to apply fair procedures would have applied.

The company asserted that at no time did they suggest allegations of misconduct, and in fact Ms Justice Costello very much agreed with that, as did Mr Justice Keane in the High Court. Importantly, Mr O'Donovan hadn't appealed that finding of Mr Justice Keane, so it was a matter, by that stage, of common case that there were no allegations of misconduct.

The issue that was left to be decided by the Court of Appeal was whether Mr O'Donovan established a strong case for an injunction in circumstances where he was dismissed for poor performance.

Now, what's really important about this case is Ms Justice Costello declined to follow the decision of Ms Justice Laffoy in Naujoks, and effectively has changed the course in which employees should now deal with probationary dismissals in a significant way.

The Court of Appeal also said that they relied on not following Naujoks, but they relied on the decision in Mahalingam, which is a well-known decision in this area where Mr Justice Fennelly in the Supreme Court confirmed that where allegations of misconduct ground a dismissal, then fair procedures are warranted and must be applied. And in the absence of allegations of misconduct, those fair procedures are not applied.

In the Court of Appeal decision, Ms Justice Costello said separately to that particular issue that she was of the view damages would be an adequate remedy in Mr O'Donovan's case. She said that given the breakdown of mutual trust and confidence, of which had been accepted by both parties, that it would be untenable for a court to grant a permanent injunction restraining the dismissal of Mr O'Donovan. And she said on that basis alone she would have allowed the appeal.

It's important in looking for an injunction or seeking an injunction. You have to address the question of whether damages are an adequate remedy, and she found that in circumstances where, as I say, the breach in trust and confidence had been eroded and indeed evaporated, then damages were indeed the proper remedy for Mr O'Donovan.

The decision of the Court of Appeal really does highlight the importance of a probationary period, and perhaps more so now than in the period since Naujoks. Ms Justice Costello found that it was a critical fact that the employee was on probation, and this was a distinguishing factor in relation to Mr O'Donovan's circumstance.

Dismissal During Probation

She said 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 which they wish to continue. So I think it's a really important quote from the judgement and, as far as employers are concerned, gives a significant degree of confidence in terminating someone during a probationary period for any reason other than misconduct.

Ms Justice Costello said that that the trial judge had failed to give adequate weight to the fact that Mr O'Donovan was dismissed during his probationary period, and she didn't accept that a court could imply a right to fair procedures in relation to an assessment of an employee's performance during a probationary period. She said if that were to be the case, then it would negate the purpose and the benefit of a probationary period.

So, again, it's copper-fastening the idea that a probationary period is an opportunity for an employer to make a decision with respect to a new employee when it comes to their performance and whether they are suitable or capable of doing the job.

What the Court of Appeal didn't consider, because it wasn't required to, was how does the decision to the effect that fair procedures don't apply to performance-related dismissals apply to determinations beyond probation, but within the first year of employment? So that's somewhat of an open question, and is the decision simply one for a probation as opposed to someone who has the 12 months' service?

Clearly, someone with more than 12 months' service has a statutory remedy, can go to the WRC for an unfair dismissal. They have remedies in the Labour Court by way of a trade dispute because procedures weren't followed. So those remedies are still available to them, but is it still available for an employee to go to the High Court when they are being dismissed for performance reasons?

I do think that's an open issue not just for the first 12 months of employment, but beyond, if they are being dismissed for performance-related reasons. And it will be interesting to see where the law on that does in fact go.

But if you would come before the High Court based on this decision, this certainly is an arguable case to say that any performance-related termination does not attract fair procedures for the purposes of the High Court injunction.

What is clear is that employers will be more comfortable in not affording employees on probation the benefits of fair procedures when dismissing them for any or no reason, provided the reason for the dismissal is not misconduct.

Implications for Employers

So what does this mean for employees and what should employees do now on foot of this decision? So, prior to dismissing any employee on probation, employers should review the employee's contract to ensure they are contractually free to terminate for any or no reason during probation, except for misconduct, without allowing any fair procedures for doing so. So does the contract of employment provide a contractual entitlement to fair procedures?

Employers should be aware of and should comply with any contractual obligations, so include contractual notice periods or payment in lieu of notice so as to void a claim for wrongful dismissal. Very important feature. They should be alive to and comply with any contractual process for employees who are on probation, and circumstances where performance issues arise, or indeed disciplinary/misconduct issues arise.

In terms of reviewing your situation at the moment, it would be prudent in my view for employers to look at a number of aspects of their probationary period requirements. I suggest that all contracts have an initial period of probation. It's a matter for a company as to how long they want the probationary period to be. Obviously, not to exceed 12 months and to include notice periods, but an initial probationary period somewhere between 3 to 6 months.

It's also suggested that you have a facility, a contract to be able to extend the probationary period at the employer's discretion, and that extension, from an employer's perspective, be done prior to the expiration of the probationary period. It's often the case that employees are not dealt with during the course of probationary periods, or they're not reviewed during the course of a probationary period, and almost by default they fall over the line and satisfy the probationary period.

So it's very important that there is regular engagement with employees during a probationary period, and in the event that you intend to extend it, that it is extended before it expires.

The employers should be free to terminate the employment of a probationary employee for any or no reason during or at the end of the probationary period, provided that it's not for misconduct, because as I've said, that's where fair procedures will attach. There's no doubt about that.

Disciplinary Procedure During Probation

You should ensure that your disciplinary policy doesn't apply to employees on probation, save for if allegations of misconduct are made, and that during the probationary period, there should be a shorter notice of period, usually one to four weeks, remembering that you can't go below the statutory minimum during that period.

So there are just some hopefully helpful suggestions to take away and learnings from the decision in O'Donovan and Over-C Technology.

Management and HR should be made aware of the consequences of dismissing an employee while on probation having regard to the decision and on the grounds of misconduct to make sure that there is no slip-up there.

So, just by way of summary and closing, the Court of Appeal decision in my view has altered the way in which employers will approach dismissal during probationary periods for performance. As I've said, since the Naujoks decision in 2006, employers have been forced to comply, and perhaps wrongfully so now in retrospect, with the principles enunciated by Ms Justice Laffoy in Naujoks, which essentially required fair procedures applied to performance-related dismissals.

As I said, what's yet to be determined by the Court of Appeal is the applicability of this decision to the period up to the access to the Unfair Dismissal Act and indeed in relation to any performance-related dismissal. So it's a really interesting point and it'll be interesting to see where that goes.

The decision in O'Donovan clearly raises some very interesting issues and may well find its way to the Supreme Court, so it may not be the final word. But in the event that there are further developments in this area, we will certainly bring them to you.

So thanks very much for listening and I hope it's been useful.

Full case decision is available here.