Employers may provide for an initial probationary period in a contract of employment, and also provide that the contract can be terminated on shorter notice during that probationary period, but they must follow the contract terms precisely if they wish to take advantage of such provisions.
In Przybylska v Modus Telecom the EAT considered a case where the employment contract provided for termination on one week’s notice during the probationary period and three months notice thereafter. It agreed with the Employment Tribunal that the employer was bound by the longer notice period where it failed to conduct the ‘end of probationary period review’ until after the initial three-month period had elapsed. The probationary period had ended on 2 January and the employer had failed to act earlier because of the intervening Christmas holidays. It had then taken 10 days to arrange the formalities of the interview.
Points to note:
- It is a useful tool for employers to make provision for a probationary period in the contracts of new employees. Some contractual benefits need not be provided until the employee has demonstrated his/her worth. The contracts of employees who are not settling in can be terminated before they have been employed for 12 months, before they acquire the statutory right not to be unfairly dismissed. However, as this case shows, employers must stick to the letter of the contract if they wish to benefit from it.
- Whatever the contract says, and even in the first year of employment, employers must follow the statutory disciplinary and dismissal procedures before terminating any employment contract. However, an employee with less than one years service has no free-standing claim to compensation if a statutory procedure is not followed (Scott-Davies v Redgate Medical Services)
On 2 May 2007, the House of Lords gave its decision in three related cases dealing with economic torts – cases where the claimant alleges that ithas suffered financial loss as a result of some wrongdoing by a third party with whom they have no contractual connection.
The important case for employers was Mainstream Properties Ltd v Young and others. Mainstream (a property development company) wished to claim compensation from an individual who had provided finance for two Mainstream directors to divert a business opportunity (which would otherwise have gone to that company), into a joint venture between him and themselves. The directors’ actions breached their fiduciary duties as directors and also the terms of their employment contracts with the company. The company alleged that the individual was guilty of the economic tort of wrongfully inducing breach of contract by the two directors. He said that he had been assured by the two directors that there could be no breach of their obligations to Mainstream because the company had already been offered the development site in question and refused it. This was, in fact, a lie.
The House of Lords said that, because it accepted the individual’s evidence that he honestly believed that the directors’ actions would not be in breach of their contracts with Mainstream, he could not be said to have induced a breach of those contracts.
Points to note:
- When ‘poaching’ key employees, employers must tread a fine line between needing to know their current contracts terms as to notice periods and post-termination restrictions and laying themselves open to a legal claim that they have induced the employee to break those contract terms.
- The decision in Mainstream may make it harder for claims to be brought against the ‘new’ employer. However, if employers ensure that key employees’ contracts contain appropriately long notice periods and post-termination restrictions, this will act as a deterrent to any employee seeking to leave. Also, where the restrictions are reasonable in extent and duration and the employer has a genuine business interest to protect, they may be enforced through the Courts against the individual employees. We can advise on appropriate contract wording and also, where necessary, on Court action.