Trial Periods - Act with Caution

Employment

The 90 day trial period provisions were first introduced for companies with less than 20 employees under new sections 67A and 67B of the Employment Relations Act 2000 in 2009. On 1 April 2011 the 90 day trial period provisions were extended to all businesses.

For those not familiar with the 2009 amendments, sections 67A and 67B provide that a new employee subject to a 90 day trial period who is dismissed within that period cannot bring a claim (or even a personal grievance) for that dismissal.

On the face of it this appears to give employers the power to act with immunity when dismissing new employees.  It is this power that has caused many to question the appropriateness of the amendments, but is this concern well placed?  Is it really that easy for employers to dismiss new employees?

A closer analysis of section 67A and section 67B of the Employment Relations Act 2000 and an Employment Court decision on these provisions (Smith v Stokes Valley Pharmacy (2009) Limited (2010) 7 NZELR 444) indicate that it is not.

Act Fairly

The first and perhaps obvious point is that an employer must comply with contractual and statutory obligations when exercising the rights it has under the trial period provisions.  Notably from the Smith decision this means:

  1. the trial period can only apply to new employees;
  2. the trial period must be recorded in a written and signed employment agreement; 
  3. the employer must meet its notice requirements when terminating employment; and 
  4. the employer must act in a manner consistent with its overriding duty of good faith.

The 90 day trial period does not mean an employer no longer needs to be honest and open with its new employees and tell them when they are not performing or show them what is required. An employee subject to a trial period is to be treated no differently from an employee whose employment agreement has no trial period.  Whilst there is no obligation to consult over whether the proposed dismissal is the correct course of action and no obligation to provide reasons for dismissal if requested after the termination of employment, the overriding duties mean an employer still has an obligation to treat an employee fairly and inform them of the dismissal including the reason for the dismissal at the time that the dismissal is to be implemented.

Other Claims

The second and less obvious point is that the prohibition on personal grievances and claims is in fact only restricted to the dismissal i.e. unjustifiable dismissal.

The Smith decision indicates that a new employee who is subject to a trial period and is dismissed may still bring a personal grievance for unjustified disadvantage in employment, a claim for discrimination and/or a claim at common law for breach of contract.

Experience in the United Kingdom, where an employee’s right to bring the equivalent of a unjustifiable dismissal claim (unfair dismissal) is restricted by a 12 month qualifying period, shows that employees can (and will) bring discrimination claims in circumstances where they are dismissed without a valid reason if there is then some basis for inferring the termination was based on one of the prohibited grounds and therefore is discriminatory.  The lesson from this – employers should always have a valid reason for terminating an employee’s employment.

Advice

If you are an employer and are considering implementing the 90 day trial period then you must:

  • Ensure that employment agreements are drafted correctly in terms of the rights under the 90 day trial period; and 
  • Proceed with caution when exercising rights under a 90 day trial period and seek some advice – a failure to meet contractual requirements will invalidate the trial period and a failure to follow a fair process and have a valid reason for dismissal could expose the employer to alternative claims.

 

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.