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PROBATIONARY PERIODS

 

Change in Ownership of the Company
A Problem of Terminology
Significance of Probationary Periods in Unemployment Claims

 

There is no Texas or federal law that either prescribes or prohibits employers from treating employees as probationary, initial, trial, introductory, or provisional employees. No matter what name a company assigns to new employees, that is up to a company to determine through its policies. That issue primarily has relevance with respect to whether new employees have seniority of any kind for purposes of a benefit plan. The only type of benefit for which those incoming employees would potentially have to be granted immediate access to your company's benefit plan would be health insurance, due to the federal law known as HIPAA (Health Insurance Portability and Accountability Act). To determine whether HIPAA would apply in your company's case, ask your company's health insurance carrier for guidance. No other types of benefits would have to be immediately granted.

The other major reason for classifying employees as new, probationary, initial, trial, introductory, or provisional is to let them know that during that time, they will be subject to special scrutiny and must turn in successful performance in order to continue with the company and become "regular" employees. As noted above, there is no obstacle to the company classifying the incoming employees in such a manner. There is also no particular legal significance to such a classification, since Texas is an employment at will state, and an employer can subject any at-will employee at any time to special scrutiny, consistent with express employment agreements and specific statutes such as employment discrimination laws.

 

Change in Ownership of the Company    Top of Page

 

Sometimes a company changes ownership, in which case the predecessor's employees may be hired by the successor company. In such a case, the new owner of the company would have the legal right to consider the predecessor's employees as new employees of the new company. Of course, the new owner would have to ensure that the predecessor entity fully pays the employees through their ending date with that company, or else be prepared to assume such obligations itself. If a company acquires the organization, trade, and business of the other company, it also acquires whatever obligations the predecessor entity owes to its employees and to TWC (under Section 204.086 of the Texas Unemployment Compensation Act, the successor company acquires any state unemployment tax debt the predecessor owes to TWC). The division of such liabilities is usually accomplished via the contract of acquisition.

 

A Problem of Terminology    Top of Page

 

The problem with using a term such as "probationary period" or "probationary employee" is that over time, such terms have acquired a certain amount of semantic baggage that tends to mislead some employees into thinking that once they have "passed" the probationary period, their jobs are "safe" or even guaranteed, and they cannot be fired except for cause. In other words, some people think, however erroneously, that during a probationary period, their employment is at will, and they can be fired at any time for any reason that doesn't violate a specific law, and that passing a probationary period actually modifies the at-will employment relationship to where their employer can no longer fire them at will, but rather must have some sort of good cause before it can fire them. Such employees, if they are fired after completing the initial period of employment, often think they have a good case for bringing a lawsuit against the company. As a rule, such lawsuits are extremely difficult to sustain and are usually dismissed.

 

Under general Texas employment law, the presumption is that all employment is at will, unless the employer has done or said something tangible that would modify the relationship. Usually, that kind of thing is something like a formal written employment contract, wherein certain procedures are laid out that must be followed before someone can be terminated from employment, such as a prescribed series of warnings and a notice period, or else specified offenses that can lead to immediate termination. Most employment relationships are not on the basis of a formal contract, and employment at will is the rule followed. A general statement of the Texas employment at will rule is found in the topic "Pay and Policies - General" in this book.

 

With the above issues in mind, most employment law attorneys in Texas these days advise against calling the initial period of employment a "probationary period", simply because it is so often misunderstood by employees, and for that reason can lead to unnecessary, and expensive, lawsuits. Rather, many attorneys advise calling the initial period an "initial", "trial", "introductory", or "provisional" period, not because those are magic words or are required by law, but because they have not resulted in the same level of misunderstanding by employees. No matter what the initial period of employment is called, though, it is a good idea to make it clear in the section of the policy handbook defining such a period that completion of the period does not change the employment at will relationship and that either party may terminate the employment relationship at any time, with or without notice. That would be in addition to the standard employment at will disclaimer that should be in any good employee handbook. See "Disclaimers - General" in the Outline of Employment Law Issues at the start of this section of the book.

 

Significance of Probationary Periods in Unemployment Claims    Top of Page

 

Put simply, probationary periods, by themselves, have no significance in unemployment claims and can actually mislead an employer into a false sense of security if they think that a probationary period will insulate the company from such claims. The UI law does not care how long someone worked for a particular employer prior to filing a UI claim. Anyone who is no longer working for pay can file a basic UI claim, but must satisfy several different wage, work separation, and eligibility criteria in order to actually draw any benefits.

 

Where probationary, initial, trial, introductory, or provisional periods can come in handy with respect to UI claims is in the area of chargeback liability. The key is in whether the employer is a base period employer. That, in turn, depends upon the timing of the initial claim with respect to whatever period of employment the claimant had with the employer. Basically, if the claimant worked a relatively short period of time with the company, and filed the initial claim fairly soon after losing that short period of employment, the employer might not be a base period employer at all, meaning that it will have no potential chargeback or reimbursement liability if the claimant draws benefits. This subject is fully explained in the topics "Date of the Initial Claim" and "Length of Time Worked Prior to the Initial Claim" in the article "How Do Unemployment Claims Affect an Employer?" in part IV of this book. Below is a chart showing what the base period of a UI claim looks like:

 

Base Period
Quarter 1
Base Period
Quarter 2
Base Period
Quarter 3
Base Period
Quarter 4
Lag Quarter Quarter In Progress When
Claim Is Filed
Included Included Included Included Not Included Not Included

 

As an example, if an employer hires an employee in February, and lets the employee go after 30 days, and the claimant files an initial claim prior to April 1, then the base period would not include the first quarter of that year (the quarter in progress), nor the fourth quarter of the preceding year (the lag quarter), but would consist of the fourth quarter of the year before the year preceding the current year, and the first three quarters of the year preceding the current year. Since the employer did not report wages during that base period, it will have no financial involvement in the claim. The same would apply if the claimant waited until April, May, or June to file the initial claim - in that case, the base period would omit the second quarter of the current year, the first quarter of the current year, and consist of the four quarters of the preceding year. If the ex-employee files an initial claim after June 30 of the current year, then the employer could be a base period employer, but its chargeback liability would be limited due to having paid only 30 days' worth of wages.

 

Conclusion

 

Observing a probationary period has elements of both benefit and risk. The risk lies in misunderstandings and false expectations that employees can develop unless the employer carefully explains what is entailed. The benefits are that using such a period can make it psychologically easier to discharge an employee who is not a good fit for the job or the company, and can help an employer limit its potential chargeback liability in an unemployment claim. No matter what, using probationary periods does not relieve an employer of its responsibility to properly manage new employees and their expectations.

 

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