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Why employers should consider getting rid of probationary periods

Many companies have historically included language in their new hire contracts and employee handbooks about "probationary periods." This time frame usually spans around 90 days and outlines the employee and employer's right to terminate their employment relationship for any reason during the period.

Employers should consider removing these policies from their paperwork, as the term "probationary period" is a bit of a misnomer. California is an at-will employment state, so the legal right to terminate an employment relationship at any time with or without cause already exists for both parties This right of course excludes terminating the employment relationship for a discriminatory or retaliatory reason. It also excludes terminating the relationship in breach of the terms of a contract, which is further discussed below.

The practical implication of probationary periods to employees is that an employer who wishes to terminate employment must have some specific reason for doing so if the termination occurs outside of the probationary period. The implication to employers is that a termination is always "safe" inside of the probationary period. Neither of these assumptions are true.

Probationary periods and implied contracts

While a probationary period may seem to protect the employee and employer, it often has the opposite effect. Employers who include probationary periods in their handbooks or other documentation could be subject to legal action if they are worded in such a way that implies terminations must be for a good reason after the period is finished or if they do not offer an end-of-period benefit.

In 1988, the California Supreme Court decided a case, Foley v. Interactive Data Corp., which outlines the legal sufficiency of an oral or implied-in-fact contract. Foley lays the foundation for breach of employment contract claims arising out of employer statements, policies, and practices (whether in writing, like in a handbook, or not), including claims that the existence of a probationary period in an employee handbook implies that an employee's termination must be for a good reason outside of that period.

This is not to say that some kind of introductory period may not be used for the purposes of benefits, such as access to paid time off, sick leave, or a 401(k) plan at the time of completion. In that case, it may be wise to clearly articulate that the period is for purposes of access to additional benefits, and not meant in any way to abrogate the at-will nature of the employee's employment. Such disclaimer language may go a long way in protecting against employee wrongful termination claims based on an ill-defined probationary period.

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