Compliance/Best Practices Employment Law Legal Topics

Watch Out for Probationary Employees Getting Implied Contract Rights

thinkstockphotos-537228660Employers often set up an “introductory” or “probationary” period for initial evaluation of new employees. There’s often a performance evaluation at the end of this period, and employers may believe they have every right to let an employee go if this evaluation is negative. But watch out: Unless employers take the proper precautions, probationary periods may create implied contractual rights to employment on successful completion of the probationary period. In other words, employers may be stuck with the employee despite a poor post-probationary period evaluation.

Here’s a cautionary tale for employers: In Walker v Northern San Diego County Hosp. Dist. (1982) 135 CA3d 896,  the employer had included a “Probationary Period” policy in its employee handbook. The policy provided that the employer reserved the right to terminate the probationary employee’s employment at any time within the period. The court took this provision to imply that the employer would no longer have the unfettered right to discharge the employee on completion of the probationary period. By including that provision, there was a triable issue of fact as to the existence of an implied-in-fact contract requiring just cause for termination.

The lesson for employers who want to have “probationary” or “introductory” periods of employment is to reaffirm in that policy that it’s not intended to alter the at-will employment relationship. And of course, the lesson for employees is to look for at any such provision in the employer’s policies.

Given the potential for unintended contract rights, employers need to carefully draft provisions for an introductory or probationary period policy. For example:

Newly hired employees at _ _[name of employer]_ _ will serve an introductory period of _ _[e.g., 3 months, at the end of which time their performance will be evaluated]_ _.

_ _[Name of employer]_ _ may extend the introductory period at its discretion. Employment is not guaranteed for the entire _ _[e.g., 3 months]_ _ of the introductory period. Satisfactory completion of the introductory period does not alter the at-will nature of the employment relationship with _ _[name of employer]_ _. Employment is at will and may be terminated at any time with or without cause or notice both during and after the introductory period.

Employers may also want to include a statement about the accrual of benefits during the introductory or probationary period: “During the probationary period, employees will receive no paid vacation [; however, paid vacation will accrue at the normal rate during the probationary period if your employment continues beyond it]_ _.” The California Labor Commissioner allows employers to provide that employees don’t accrue vacation during the probationary period as long as it’s not a “subterfuge” for avoiding the rules on forfeiture of vacation pay. See Department of Industrial Relations, Division of Labor Standards Enforcement, Interpretive Bull 86–3 (Sept. 30, 1986).

Under the Healthy Workplaces, Healthy Families Act of 2014 (Lab C §§245–249, 2810.5), an employee who works in California for 30 or more days within a year from the commencement of employment is entitled to paid sick days. Lab C §246(a). The benefit begins to accrue on the first day of work, but an employee can’t use it until the 90th calendar day of employment. Lab C §246(a). Unlike unused vacation time, an employer isn’t required to provide compensation to an employee for accrued, unused paid sick days on termination or other separation from employment (such as failing to “pass” a probationary period). Lab C §246(f)(1).

Learn more about what policies to include in employee handbooks in CEB’s Advising California Employers and Employees, chap 10. And get a sample form handbook in CEB’s Drafting Employment Documents for California Employers, chap 9.

Other CEBblog™ posts on employer policies:

© The Regents of the University of California, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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