The High Court has issued a decision in a case involving a dismissal from the employment during probation that should be a warning for employers.
Background
Donal O’Donovan, the chief financial officer (CFO), was dismissed in January 2020 by Over-C Technology, his employer, and confirmed this decision 10 days later.
Mr O’Donovan issued High Court proceedings seeking an injunction preventing his termination and a number of declarations including that his dismissal was unlawful and invalid, that he remained an employee, damages for breach of contract, breach of duty, and breach of his contractual right to fair procedures.
Mr O’Donovan’s contract of employment, which commenced in July 2019, contained a 6 month probationary period and a notice period of 1 month during the first year of employment, 3 months thereafter.
Mr O’Donovan was given a staff handbook but there was little in it concerning disciplinary procedures.
Mr O’Donovan was on holidays in December 2019-January 2020 and when he returned in January the CEO, Mr Elliot, terminated his employment with immediate effect and advised he would receive 1 month’s pay in lieu of notice.
The termination letter which was sent to Mr O’Donovan claimed his performance as CFO had failed to meet the necessary standard and he had mislead the board about projected sales figures, failed to prepare adequately for the board meeting, failed to answer a question about the cash position of the company.
Mr O’Donovan appealed this decision which was to be heard by a director of the employer.
However, he raised concerns about procedural aspects of the proposed appeal hearing including that the time appointed for the appeal was not suitable for him or his legal representative.
The director responded by saying that “I note you do not now wish to proceed with the appeal today. I now confirm your dismissal stands”.
Mr O’Donovan’s solicitor wrote to the employer claiming the dismissal was unlawful and in breach of his contract of employment. The employer’s position was that he had been dismissed during the probationary period and it was lawful and valid.
Application for injunction
The request for an injunction was based on the argument that his termination was carried out in breach of contract and in breach of his constitutional right to fair procedures.
Test for an employment injunction
The High Court pointed out that the general principles which apply are the Campus Oil principles (Campus Oil v Minister for Industry (No. 2) [1983] 1 IR 88). Put simply those principles are that the applicant must establish that:
(1) there is a serious question to be tried on the applicant’s entitlement to a permanent injunction;
(2) the balance of convenience favours the grant of interlocutory relief, which requires, but is not limited to, a consideration of whether damages would be an adequate and effective remedy for an applicant who fails to obtain interlocutory relief but later succeeds in the action at trial and, if not, whether the applicant’s undertaking to pay damages would be an adequate and effective remedy for a respondent against whom interlocutory injunctive relief is granted but whose defence to the action succeeds at trial.
The Campus Oil principles hold that the applicant must establish a strong case, likely to succeed at the hearing of the action, not just that a serious question is to be tried.
The High Court then looked at whether Mr O’Donovan had, based on the evidence and arguments, established a strong case that he was dismissed for misconduct. The High Court decided
I am not satisfied that Mr O’Donovan has established a strong case, likely to succeed at the trial of the action, that he was dismissed, wrongly and in breach of his entitlement to fair procedures, for ‘misconduct’.
However, the High Court held that he had established a strong case that his dismissal was not properly carried out in accordance the terms of this contract by reason of the failure of the employer to draw his attention to the alleged performance issues which led to his dismissal.
The court recognised that the traditional common law position is that a contract can be terminated by the employer on reasonable notice whether for good or bad reason. However, a misconduct dismissal does give rise to an obligation to conduct the process in accordance with the principles of natural justice.
The High Court found that he had established a strong case that: (1) the stated reason for his dismissal was his sub-standard or unsatisfactory performance during his probationary period; (2) a fair procedures obligation in the conduct of the relevant performance assessment arises under the terms of his contract of employment; and (3) there was a breach of that obligation in this case.
The decision
The High Court decided:
In my judgment, Mr O’Donovan has 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 right was breached in the manner and circumstances of both the decision on 7 January to summarily dismiss him for sub-standard performance and the decision on 17 January to deem his appeal against that decision to have been withdrawn.
67. I am satisfied that the balance of convenience or, differently put, the least risk of injustice favours the making of a Fennelly order in the following terms:
(1) That the defendants are restrained from repudiating Mr O’Donovan’s contract of employment pending the trial of the action on the following specific terms:
(i) That Mr O’Donovan is to be paid his 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 that the defendants may require of him.
(ii) That the defendants are not required to assign any of the duties of CFO to Mr O’Donovan at any time pending the trial of the action but, insofar as they do beyond the period of six months from the end of January 2020 and pending the trial of the action, must pay his salary (and any applicable bonus and other benefit) accordingly.
(iii) That the defendants may choose to put Mr O’Donovan on leave of absence rather than assign any duties to him, but that is without any prejudice to their obligation at (i) above.
(iv) That the defendants are released from their undertaking not to replace Mr O’Donovan by the appointment of a new CFO and may do so as they see fit.
68. I have fixed the period during which the defendants must pay Mr O’Donovan’s salary as one of six months, rather than the entire period pending trial, because, in light of Mr O’Donovan’s acknowledgment that the relationship of mutual trust and confidence between the parties has irretrievably broken down, his claim is, in reality, one for a fair termination process rather than for reinstatement in the role of CFO. It is also significant that, as Carroll J noted in Orr v Zomax Ltd [2004] IEHC 47, (Unreported, High Court, 25 March 2004) (at para. 58), on appeal to the Supreme Court in Fennelly, payment of salary was limited to six months.
Takeaway for employers
Employers need to be careful about affording fair procedures to the employee, even if he/she is on probation. Failure to do so may be a breach of the contract of employment as that contract may contain an implied right to fair procedures in having the employee’s performance assessed, which was the case in Mr O’Donovan’s case.
The employer’s failure in this case to accommodate Mr O’Donovan’s appeal was one of the factors for which the High Court had regard.