Posted on February 27, 2024 by Dimitrious Havadjia and Lindsay Taylor 5

Employment law: what is a ‘reasonable’ period of probation?

For the first time in the context of a local council, the recent decision of the NSW Industrial Relations Commission (IRC) in Shrestha v City of Ryde Council [2024] NSWIRComm 1005 has considered the interactions between differing lengths of probationary periods and what constitutes a ‘reasonable’ probationary period for a council employee.

A probation period is the period at the beginning of an employee’s employment, during which either party can terminate the employment contract without the usual notice requirements.

The provisions of the Industrial Relations Act 1996 (NSW) (IR Act) and Industrial Relations (General) Regulation 2020 (IR Reg) cover most local and State government employees. Clause 6 of the IR Reg (Clause 6) precludes employees from making unfair dismissal claims in some circumstances, such as if an employee is subject to a ‘reasonable’ probationary period. This is different to federal employment legislation (such as the Fair Work Act 2009), which does not contain any specific exemptions for probationary periods.

The scope of Clause 6 was considered by the IRC as outlined below. 

Background

Mr Shrestha (the Employee) and the City of Ryde Council (Council) entered into an employment contract on 17 July 2023, with a commencement date of 14 August 2023. The contract related to a senior engineering position at the Council and included a six-month probation period.

The Employee was terminated nine weeks after the commencement of his employment. He lodged an unfair dismissal claim with the IRC. The Council contended that the following jurisdictional matters needed to be determined before the substantive merits hearing:

1. the Employee was unable to make an unfair dismissal claim because the Employee was terminated within the three-month statutory period in Clause 6, or
2. the six-month probation period was reasonable in the circumstances.

The Employee argued in response that:

1. the Council could not rely on the three-month period in Clause 6(1)(c) as it had set six months in the contract,
2. because the Employee was dismissed after nine weeks, slightly more than two months into a six-month probation period, and based on the Council’s evidence that six months was needed to assess the Employee’s performance, it was not possible to fairly dismiss the Employee, and
3. the IRC needs to assess the circumstances of the dismissal to determine the reasonableness of the probation period.

What is a ‘reasonable’ probationary period?

Clause 6 of the IR Reg relevantly includes the following exemptions from unfair dismissal protections:

6   Other exemptions from unfair dismissal

(1) For the purposes of section 83(2) of the Act, the following classes of employees are exempted from Part 6 of Chapter 2 of the Act—

…

(c) employees serving a period of probation or qualifying period if—

(i) the period, or the maximum duration of the period, is determined in advance, and

(ii) the period, or the maximum duration of the period, is either—

(A) 3 months or less, or

(B) if the period, or the maximum duration, is more than 3 months—reasonable, having regard to the nature and circumstances of the employment,

…

The was no dispute that the six-month probation was determined in advance, so the IRC was tasked with determining whether the six-month period was ‘reasonable’.

The IRC rejected the Employee’s arguments, and found that whether a probationary period is reasonable is to be based almost exclusively on the nature and circumstances of the employment at the time of commencement, citing the following passage from Nicholson v Heaven & Earth Gallery Pty Ltd [1994] 57 IR 50 with approval:

‘Probably the most important consideration in determining what is a reasonable period will be the nature of the job. In the case of a person employed to carry out repetitive duties under close supervision, a reasonable period may not exceed a week or two. In the case of a person employed in the marketing or managerial position, working with little or no direct supervision and his qualitative performance cannot be immediately apparent, it may be reasonable for an employer to specify a probationary period measured in months… The size, location and mode of operation of the employer being relevant factors, along with personal characteristics and circumstances of the employee.‘

The IRC found that potential issues with the termination process (such as non-compliance with awards) are not relevant to the consideration of reasonableness in Clause 6. It also ruled that a previous case suggesting post-commencement matters should be considered was wrongly decided (Levy v New South Wales Fire Brigades [2009] NSWIRComm 1011).

The Employee was a senior employee who was unsupervised on a day-to-day basis, led a team of six engineering staff, and worked in an environment where project or task life cycles exceeded six months. On that basis, the IRC found that six months was a reasonable probationary period in these circumstances.

As the probationary period was reasonable under Clause 6, the IRC had no jurisdiction to determine the unfair dismissal application.

Could Council still rely on the three-month period in Clause 6?

Though it did not change the outcome for the Employee, the IRC also considered how the statutory three-month probation period interacts with a longer period, if the longer period is found to be unreasonable under Clause 6.

The Council contended that if a longer period was unreasonable, it could rely on the three-month period in Clause 6. The IRC rejected this argument and determined that the Council was unable to ‘fall back’ on the three-month provision in Clause 6. The IRC held that employers can only seek protection from either Clause 6(1)(c)(ii)(A) or (B) but not both, based on the express wording of Clause 6. Because the employment contract included a six-month probation, the IRC determined that Council had elected the protection of Clause 6(1)(c)(ii)(B).

Therefore, on the facts of the case, if the six-month probation had been considered unreasonable, then the Employee would have been able to bring an unfair dismissal claim against Council. This was despite the termination having occurred within three months of his employment commencing.

Implications

Councils and other employers subject to the IR Act and IR Reg should carefully consider the probationary periods included in their employment contracts to ensure they are tailored to the specific needs of the role. While the facts of this case suggest a longer period may be reasonable under Clause 6, the IRC was clear that each position must be considered individually and that a six-month period may not be reasonable for less senior roles.

If an employer does not turn their mind to this issue, it may not be able to rely on the Clause 6 protections from unfair dismissal claims. If a probationary period of longer than three months is found to be unreasonable, then an employee will be able to make an unfair dismissal claim even if the termination occurs within the initial three-month period.

You can read Shrestha v City of Ryde Council [2024] NSWIRComm 1005 here.

If you have any questions about this post, please leave a comment below or email Dimitrious Havadjia or Lindsay Taylor.