Guy Castegnaro Ariane Claverie December 23 2015 New position in same group of companies: new probation period? Castegnaro | Employment & Immigration - Luxembourg Guy Castegnaro, Ariane Claverie Employment & Immigration IntroductionFactsProbation period for new position?Key takeawaysIntroductionIn principle, a probation clause cannot be renewed.(1) However, even though this prohibition seems perfectly clear, its application in practice still gives rise to disputes. This is particularly true in cases where an employee's functions are altered – whether with the same employer or with a new employer belonging to the same group of companies.The Court of Appeal recently ruled on the validity of a probation clause inserted into a new employment contract, where the employee had been engaged by a company belonging to the same group as her previous employer, but to perform different duties.(2)The court thus had the opportunity to recall the essential factors to assess in determining whether such a probation clause is valid, in order to determine whether the dismissal during probation was well founded.FactsThe employee had been working for Company 1 since June 20 2008 as a grade six senior administrator in the portfolio administration unit. The employment contract contained a six-month probation period.In February 2010, the employee applied for the post of investment advisor, special-interest groups and non-Troika clients, advertised by Company 2. When her application was accepted, the employee was deregistered from the social security system by Company 1 and she signed an employment contract with Company 2, including a three-month probation period. Company 2 subsequently terminated the employment contract during the probation period.The employee strongly contested this termination, arguing that the probation clause included in the employment contract into which she had entered with Company 2 was void. The employee's arguments were as follows:The first employment contract (with Company 1) had not been terminated;Both companies belonged to the same group of companies;The posts occupied in both companies corresponded to the same grade; andHer years of service and overtime had been taken over by Company 2.Consequently, there had been a continuation of the previous contract, and Company 2 had not been entitled to insert a new probation clause.Company 2 did not dispute the factual aspects of the above, but contended that there was indeed a new employment contract, a new employer and new functions that were radically different from the previous functions performed by the employee in Company 1.Moreover, the change of function had been made on the initiative of the employee, who had asked to change company and position. Further, the employee had never contested the insertion of a probation clause in her employment contract, which she had signed.The main purpose of a probation period is to allow the employer to assess the employee's professional skills and test his or her capabilities and aptitudes before entering into the definitive contract. Consequently, in order to rule on the validity of the probation clause, it was appropriate to compare the tasks and responsibilities of the employee in the two positions occupied and assess whether a fundamental difference exists between the two functions performed by the employee (as contended by Company 2 and disputed by the employee).Probation period for new position?In order to assess whether a fundamental difference existed between the two functions, the Court of Appeal carried out a precise and specific analysis of the two positions held by the employee, finding that:Company 1 employed the employee as a senior administrator. As such, she had been responsible for managing the activity of clients' (ie, fund managers') accounts and placing orders in funds in accordance with instructions given by these clients. Thus the post previously held by the employee had been of an administrative nature, linked to the back office.Company 2 recruited the employee as an investment adviser, special-interest groups and non-Troika clients. Her responsibility was to review and manage the portfolios of clients (ie, high-net-worth individuals) and increase revenues by actively selling products and services to clients. This new function was thus linked to the front desk, with a significant sales component entailing actively providing recommendations and investment advice to clients.Whereas a senior administrator executes orders received by clients without having any say in the matter, an adviser must give clients the best possible advice. The adviser is thus involved at the direct source of orders passed, and as such binds the company.The court thus found:"it follows from the foregoing that the two functions are fundamentally different, so the Court finds, upon review, that the insertion of a probation clause in the employment contract signed between Company 2 and the employee was justified."Key takeawaysThe principle that a probation clause cannot be renewed remains intact. Indeed, the parties cannot circumvent this prohibition by means of successive, slightly different contracts.(3)For example, in the case of the transfer of an employee within a group of companies, it has been held that the employment relationship with the second employer was merely a continuation of that with the first, since the employee performed the same function in both companies, and that the probation clause in the employment contract entered into with the second employer was void.(4)However, the courts do not wish to impair the purpose of the probation clause, which is to allow assessment of an employee's fitness to perform his or her functions. Consequently, in the case of a change of position, a new probation clause might be justified; the courts will look at whether the two functions performed by the employee are fundamentally different from one another in order to assess the validity of such a clause.In its latest decision, the Court of Appeal thus confirmed its prior position, as the new probationary period may concern a new employer or the same one.In a previous case, the Court of Appeal had found that "by reason of the fundamental difference between the two tasks of works coordinator and window cleaner", the new contract entered into by the same parties was "not a continuation of the previous contract but a new contract". The two employment contracts were "consequently to be considered as two entirely distinct contracts". Thus, in view of the specific nature of the work of a window cleaner, the company was entitled to insert a probation clause in the second contract.(5)Another interesting example concerned an employee who sought to have the probation clause included in an addendum to his employment contract held void on the basis that his employer, in demoting him, had unilaterally amended an essential clause of his employment contract to his disadvantage, without complying with the procedure provided in Article L 121-7 of the Labour Code.In this case, the employee had obtained a nursing diploma and his functions had been changed by means of an addendum, which included a new probation clause. However, as a result of certain incidents, the employee had been notified of his demotion to his former position as "nursing assistant". The labour tribunal found that, even if the employee had "retained his years of service with the defendant company, the work performed by him following said addendum [could not] be considered as the continuation of his previous work". The judgment continued:"Inasmuch as the addendum of 1 February 2011 conferred on the plaintiff the position of nurse, which involves powers and responsibilities which appreciably exceed those of the position of nursing assistant, the tribunal finds that the agreed probationary period, which relates to the new position and not to the labour relationship between the parties per se, is valid."(6)Consequently (and analogously with a termination during probation), "an employer who, during the probationary period, amends, with prior notice, an essential clause of the employment contract to the detriment of the employee [ie, effecting a demotion] is not obliged to respond to any demand for reasons by said employee".In conclusion, in light of the Court of Appeal's latest judgment, a probation clause is entirely valid, provided that the employee occupies a new position. However, Luxembourg courts will penalise any abuse of such period in derogation of the rules applicable to the employment contract by declaring them null and void.For further information on this topic please contact Guy Castegnaro or Ariane Claverie at Castegnaro by telephone (+352 26 86 82 1) or email ([email protected] or [email protected]). The Castegnaro website can be acessed at www.castegnaro.lu.Endnotes(1) Article L 121-5(3) of the Labour Code.(2) Court of Appeal, April 30 2015, Case 39882. All the rulings cited in this article can be consulted at www.legiwork.lu.(3) Court of Appeal, February 19 1998, Case 21099.(4) Court of Appeal, May 20 1999 Case 22136.(5) Court of Appeal, November 17 2005, Case 29546.(6) Luxembourg Labour Tribunal, May 21 2012, Case 2084-2012.