Extension of an Employee’s Probationary Period

An employer’s extension of a recently-retained employee is not an action employers summarily or frequently take.  Oftentimes the employer is afraid to modify its probationary period policy for fear of repercussions if it/he/she does so.  Other times, the employer simply does not have sufficient information to form a viable decision.   Nonetheless, employers may reach this fork in the road as a result of performance issues regarding the new employee that become evident at the end of the probationary period.

In the litigious State of California, we can’t really blame the cautious nature of those employers.

California law does not specifically govern the termination of an employee during his or her probationary period.  Rather, the extension of an employee’s probationary period largely relies on the nature of the employment relationship.

If the terms of the employment relationship are set forth in a contract for a specific period of time, which provides that the employer can only terminate the employee for cause, the employer is bound by the contract terms regarding lawful termination during the term of the contract, including the probationary period.  The employer’s breach of those terms subjects it/him or her to the contractual remedies to which the employee is entitled.  If, on the other hand, there is no such employment contract, the employment is “at will”, which allows the employer to terminate the employment with or without cause.

This is clearly set forth in California Labor Code § 2922, which states that an employment having no specified term may be terminated at the will of either party on notice.  Thus, extending an introductory period does not change the “at will” status of an employment relationship that is not based on a contract for a specified period of time.

The courts in recent holdings have followed California Labor Code § 2922. For instance, the court in Miller v. Pepsi-Cola Bottling Co. held that when an employment contract expressly provides for “at will” employment terminable “at any time,” any additional contractual provisions regarding the employee’s probationary period and annual reviews do not expressly or impliedly create a right to be terminated only for cause (See, Miller v. Pepsi-Cola Bottling Co. (1989) 210 Cal.App. 3d 1554, 1559).

In the Miller case, the court held against an employee who had sued his employer, Pepsi, because Pepsi terminated him.  In holding against the employee, the court found several elements of the case highly relevant in determining that Pepsi had not created an implied contract: a) Pepsi’s lack of written and unwritten policies governing the termination of employee; b) the fact that the employee had not supplied additional consideration to Pepsi for his employment contract beyond the usual performance of his job; and, c) the fact that Pepsi had not assured him of any job security while he was employed by Pepsi.

While employers can take heart given the Miller decision, they should not entirely rely upon it, given that these matters are fact-based.  Thus, despite the statutory presumption that an employment contract with no specified term may be terminated at the will of either party, a written acknowledgment of at will status can serve to rebut a contention by an employee that the employer had impliedly agreed to exercise its right to terminate only for good cause.

The case of Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391-392 illustrated this concept given that the court held that when an employment contract expressly provides for “at will” employment terminable “at any time,” any additional contractual provisions regarding probationary period and annual reviews do not expressly or impliedly create right to be terminated only for cause.

The Dore holding is consistent with the Court’s ruling in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, where the Court held that a “clear and unambiguous at-will provision in a written employment contract, signed by the employee, cannot be overcome by evidence of a prior or contemporaneous implied-in-fact contract requiring good cause to terminate.” Dore, 24 Cal 4th, 384, 389 (citing Guz v. Bechtel, 24 Cal.4th 317, 340.)  Chin

A California employer can, according to recent precedent, extend an employee’s probationary period to address performance issues regarding the employee that have arisen during that period.  In doing so, the employer should ensure that it/she/he has provided the employee with all of the requisite information and documentation such as employee policies, job descriptions, training manuals, etc., that will allow the employee to effectively perform her or his duties.  The employer should likewise take the opportunity during the extension period to meet with the employee and determine what needs he or she has that the employer can accommodate or with which it/she/he can assist.  By the same token, the employer should discuss with the employee any issues or problems regarding the employee’s job performance.  These actions by the employer will prove beneficial to both the employee and the employer.

Extension of an Employee’s Probationary Period