Should You Have Probationary Employees?
Recently, a very good business client of mine asked for my advice about their plan to set up a probationary classification for new employees. The idea was that if you classify a new employee as a probationary employee, it would be easier to terminate them if they don’t work out by the end of their probationary period and you would have a basis for contesting that employee’s unemployment benefits application. In short, I don’t think having a “probationary” employee category is a good idea for a private, non-union business.
Under Michigan law, all employees are presumed to be “at will” employees, meaning you can terminate them for a good reason, a bad reason, or no reason at all (so long as you’re not violating a specific law like a civil rights or whistleblower statute). You don’t need a probationary classification to protect your right to terminate an employee.
Moreover, classifying an employee as a “probationary” employee can actually have the opposite of your desired effect, and make it more difficult to terminate an employee. That’s because an exception to the employment “at will” general rule is that if you give your employees an expectation that they will only be fired “for cause”, they can be converted from an “at will” employee to a “just cause” employee. A ”just cause” employee can be terminated only if you have a good reason (usually related to their job performance).
The problem with having a “probationary” classification is that when someone is classified as a “probationary” employee, the typical assumption on their part is that once they pass probation, they will not be terminated unless their job performance is unsatisfactory. There is a Michigan court case that says when an employee is put on “probationary” status and then moves to “regular” status, such an expectation on an employee’s part can be legitimate, and the employer has to live with the consequences (i.e., conversion of that employee’s employment from “at will” to “just cause”).
Would classifying a new employee as “probationary” help reduce a company's unemployment benefits obligations? Unfortunately, I don’t think so. I haven't found any legal authority standing for the proposition that classifying an employee as “probationary” would relieve a Michigan company of its unemployment benefits obligations. The definition in the law itself (The Michigan Employment Security Act) seems to me to clearly include probationary employees. I'm not aware of any exception for a probationary employee when it comes to a company’s being charged for unemployment benefits for that employee. If an employee is terminated after a short time of working at a company, Michigan law provides that, typically, the company’s account will be debited for the first two weeks of the employee’s unemployment benefits, and the rest of the benefits will be apportioned among the employee’s previous employers that fall within the base period for calculating the employee’s unemployment benefits. And remember, it is illegal for an employer to try to have an employee waive their right to unemployment benefits.
Even if a company could reduce its unemployment benefits obligations by having a “probationary” category, I stil don’t think it would be worth it. I think that company would be letting “the tail wag the dog”. In my opinion, preserving a company's employee’s “at will” status is more important than saving a few bucks on unemployment compensation.
