August 02, 2018

Revisiting Pound v. iWave: Lessons for Employers

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Pound v. iWave, 2017 PECA 17, a recent decision by the Prince Edward Island Court of Appeal, is a cautionary tale for employers about the legal issues that may arise when standard form employment policies are adopted without management fully understanding their obligations to employees in practice.

Background

In this case, the employee agreed to a three-month probationary period when he was hired.  The Company terminated him before the expiration of the probationary period on the basis that his performance did not meet their expectations. The employee then sued the Company for wrongful dismissal.

Trial Decision

At trial, in Pound v. iWave, 2016 PESC 39, the court dealt with two claims: breach of contract of employment and breach of common law employment obligations with respect to a probationary employee.

For the breach of contract argument, the trial judge considered whether the following sections of the Company’s Policies & Guidelines were complied with:

  • 3.18.1 Termination – this section stated that when a termination of employment occurs, the employee will be given a letter detailing the reason for termination.
  • 3.25 Coaching for Improved Performance – this section stated that the Company will take a progressive discipline approach to performance management (i.e. verbal warning, written warning, final discussion, etc.)

Although the Company had issued a termination letter, they did not provide a reason for termination other than “we do not wish to continue beyond your 3 month probationary period”.  The trial judge determined that the termination letter was “terse” but complied with section 3.18.1 of the Policies & Guidelines. Furthermore, the trial judge found that it was unreasonable to apply the “Coaching for Improved Performance” section to probationary employees and therefore, proportional steps, such as a verbal or written warning, were not required to be taken before termination.  Ultimately, the trial judge found that there was no breach of contract.

The trial judge then considered whether there was a breach of the common law employment obligations with respect to a probationary employee (a discussion of which is set out in a previous article). The trial judge applied the following principles set out in Alexander v. Padinox Inc., [1999] P.E.I.J. No. 88, a leading case on the determination of rights for probationary employees on Prince Edward Island:

  • An Employer must show cause to justify the dismissal of a probationary employee.
  • “Cause” for probationary employees is a lower standard than what is required to terminate regular employees (e.g. unsuitability of character, compatibility and the employee’s ability to meet the standards of conduct reasonably imposed by the employer).
  • The employee must be given a reasonable opportunity to demonstrate his or her ability to meet the standards the employer sets out when hired, including not only a testing of skills, but also the ability to work in harmony with others, potential usefulness to the employer, and other factors as the employer deems essential.
  • “Cause” is satisfied if the assessment of the probationary employee’s suitability for the job is based on the criteria above and determined fairly and reasonably.

Based on the evidence, the trial judge found that the Company had fulfilled its common law obligation to the employee and dismissed the wrongful dismissal claim.

Court of Appeal Decision

On appeal, it was held that the trial judge erred in interpreting the employment contract and applying the contract to the facts. 

The Court of Appeal determined that the Company had breached the terms of its employment contract by failing to comply with the following requirements:

  1. The termination letter failed to detail a reason for termination as required by section 3.18.1 of thePolicies & Guidelines; and
  2. Even as a probationary employee, if there were concerns about the employee’s performance, the Company should have begun to provide the employee with the progressive discipline steps (in the very minimum, a verbal warning) as set out at section 3.25 of the Policies & Guidelines.

Although a breach of the employment contract, the Company’s failure to detail a reason for termination was found to have not been made in bad faith, in light of post-termination correspondence between the employee and the Company.  However, the Company’s failure to provide the employee with progressive discipline steps to improve his work performance issues was found to be a material breach of the employment contract and amounted to wrongful dismissal.  As a result, the employee was entitled to damages for breach of contract, including reasonable notice. 

The Court of Appeal found that the employee was entitled to three months’ reasonable notice, in the amount of $15,625.00. The Company was also ordered to pay costs to the employee for the trial and appeal, totaling over $27,000.00.  

Lessons for Employers

In light of the Court of Appeal’s comments in this decision, employers should ask themselves the following questions:

  1. What documents form part of the terms of employment? Beyond the written employment contract, consider whether you have policies that may also form part of the contractual terms.For example, in this case, the parties expressly acknowledged that the Policies & Guidelines were to form part of the terms of employment.
  2. What is the process for termination under the employment contract and policies? It is important that employers clearly understand their obligations to employees upon termination. A failure to comply with the employment terms, may equate to a finding that the contract has been breached and result in a damages award against the employer. If you do not understand your contractual requirements and obligations, it is important to seek advice from legal counsel.
  3. Who do your policies apply to? Consider whether employment terms in policies should apply to all employees, or if certain groups of employees should be exempt from specific sections (e.g. should a progressive discipline clause apply to probationary employees?).In this case, only one section of the Policies & Guidelines (dealing with Extended Health Care) expressly stated that it applied to employees only after probation. The remaining sections were found to have applied to all employees, including probationary employees.
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