Posted on: Aug 21, 2014

Beware – this law is interpreted strictly and employers need to get it right!

Since 1 April 2011, the 90-day trial period has been available to all employers regardless of the number of employees.  Employers now have the opportunity to hire new employees subject to a trial period of 90 days or less. In the event that an employee is dismissed during the trial period, they are prevented from taking a personal grievance for unjustified dismissal.  However, employees can still still take a personal grievance on other grounds.

This all sounds wonderful in theory, but what is being discovered through the Courts is that it’s not as easy as it sounds. The same message has continued to be consistently applied by the Courts – that is, the law will be strictly applied to trial period cases. All elements need to be perfect or the employee will not be prevented from raising a personal grievance for unjustified dismissal, which leaves employers in a potentially risky position.

When an employee is dismissed under a trial period, there is no requirement for a fair process or substantial reasoning.  Because of this, if any part of the trial period dismissal is incorrect the employee may be able to bring a personal grievance against the employer, for which the consequences can be huge.  If the trial period is rendered invalid for any reason, there is no protection for the employer and the result would likely be an unjustified dismissal with lost wages and compensation being payable to the employee.  This can be up to three months’ wages, plus ‘hurt and humiliation’ compensation averaging around $5,000, plus legal costs.  It pays to get it right!!!

Because the trial period legislation (section 67A of the Employment Relations Act 2000) removes important protections and rights from an employee, the provisions are to be interpreted strictly.  The bar for a legislatively compliant trial period dismissal is set high.  A variety of cases have gone through the Courts, providing guidelines for interpreting the trial period legislation.  A summary of the important factors is outlined below:

• The appropriate trial period clause must be in the employment agreement
• Trial periods do not apply to employees “previously employed by the employer” (including any    subsidiaries)
• The employment agreement must be signed before the employee commences work
• Dismissal must be with notice (and not payment in lieu of notice)
• But for the ability to dismiss “grievance-free”, there must not be any differential treatment of employees    on a trial period versus those not on a trial period
• Employees on trial periods can still access mediation services
• The employee can still bring other types of grievances against the employer, for example unjustified    disadvantage (the most common), discrimination, sexual harassment, etc

The employment agreement

For the trial period to be valid, the employment agreement must include an appropriate trial period clause stating:

• For a specified period (not exceeding 90 days) starting at the beginning of the employee’s employment, the employee is to serve a trial period
• During the trial period the employer may dismiss the employee; and
• The employee is not entitled to bring a personal grievance or other legal proceedings in respect of that dismissal.

It is recommended that the employer provide the employee with the proposed employment agreement at the same time the offer of employment is made, this should be well in advance of the employment commencement date.

If an offer of employment is made verbally, the potential employee must be told at the time of the offer that the employment will be subject to a trial period. Immediately after making the verbal offer we recommend following up in writing by providing the details of the offer in an email or letter.  This extinguishes any claim that the employee was an employee “previously employed by the employer” (i.e. due to the definition of employee provided for in section 6 of the Employment Relations Act 2000 extending to “a person intending to work”.)

Also, by doing this, the new employee has the opportunity to seek independent advice prior to signing the agreement and commencing work.

Good faith during the trial period

Employers are still required to act in good faith during a trial period but are exempt from section 4(1A)(c) – access to information; and section 120 – written reasons for the dismissal. The good faith obligations require both employers and employees to be pro-active and constructive in all aspects of the employment relationship.  Both parties must not do anything to mislead or deceive the other.

Good faith obligations necessitate that employers are active and communicative with all employees, including those serving a trial period. This means that prior to dismissing under a trial period, employees should first be warned (just informally, but take note of the date of the conversation and the matters discussed) that the trial is not going well and given an opportunity to improve. A dismissal under the 90 day trial period should not come totally ‘out of the blue’.

Trial period dismissal

Section 67B of the Act relates to dismissals under the trial period.  In summary, to dismiss under a 90-day trial period employers:

• do not have to follow any of the usual procedural fairness requirements;
• need to say why they are terminating (carefully, so as not to open themselves up to a disadvantage or other grievance); and
• must give notice of dismissal in accordance with the grievance free trial period provisions in the    employment agreement.

We note that in a recent Employment Relations Authority case (Hutchison v Canon New Zealand Limited [2014] NZERA Wellington 72), “payment instead of notice” was held to be invalid under a trial period. The Authority accepted that an agreement could provide for payment in lieu of notice generally, however a payment as an alternative to notice was inconsistent with the trial period requirements under section 67B.  This is a previously unexplored area of the trial period legislation, and while it is not a Court decision, we recommend following this guideline to minimise any potential risk.  The Authority noted that the obligations set out in sections 67A and 67B were to be interpreted strictly, as a trial period removes the right of access to natural justice and a “payment instead of notice” was not consistent with the obligation to give notice under section 67B.

Employers do not need to give a written reason for the dismissal but are required to give an explanation at the time notice of dismissal is given.  It’s natural for people to seek to understand reasons for such a significant setback – the employee shouldn’t be deprived of the ability to learn from a failed trial period.

Conclusion

It is important to seek advice before embarking on any trial period dismissal. There are many technical areas that need to be perfect in order for the grievance-free provision to be applied.  We recommend you seek advice from our team prior to offering employment subject to a trial period, and seek further advice before considering invoking the dismissal clause.  A five minute phone call to us could literally save you thousands!

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.