Trial period provisions continue to cause headaches for employers

Employment

The recent Employment Court case of Roach v Nazareth Care Charitable Trust Board [2018] NZEmpC 123 provides a timely reminder that caution is required when relying on a 90 day trial period.

The facts:

Mr Roach was offered the job of Business Manager at Nazareth. Mr Roach signed an employment agreement which contained a trial period, and the parties agreed on a start date.

However, before Mr Roach started work as the Business Manager, he was offered the job of General Manager by Nazareth. Mr Roach accepted this offer and signed a new employment agreement, which also contained a trial period. The parties agreed that Mr Roach would start working on the previously agreed date, but as the General Manager.

Mr Roach worked for approximately six weeks before he was called into a meeting where he was told that his employment would be terminated. Nazareth relied on the trial period provision contained in his General Manager employment agreement to justify termination of his employment.

Mr Roach raised a personal grievance for unjustified dismissal in relation to the termination of his employment. He claimed various remedies, including reimbursement for lost wages plus interest and compensation for humiliation, loss of dignity and injury to feelings.

The issues:

Was the trial period valid?

Mr Roach claimed that his employment agreement as the General Manager could not lawfully contain a trial period because he had been “previously employed” by Nazareth due to the fact that prior to accepting the offer for the General Manager’s position he had accepted the offer of employment for the Business Manager position.

Section 67(A)(3) of the Employment Relations Act 2000 (the Act) states that an “employee” for the purpose of trial period provisions “means an employee who has not been previously employed by the employer”.

Section 6 of the Act however states that the definition of “employee” includes “a person intending to work” (emphasis added). Arguably, having signed the Business Manager employment agreement, Mr Roach was a person intending to work.

The Court had to consider whether Mr Roach had been previously employed by Nazareth by virtue of accepting the offer of employment as the Business Manager.

The Judge noted the difficulty in interpreting section 67(A) of the Act and explained that the purpose of a trial period is to allow an employer to assess an employee while working. A correct interpretation of “previously employed” in this regard is whether the employee had been offered a previous opportunity by an employer to assess the employee’s suitability for the work.

As Mr Roach had not performed work for Nazareth in any capacity before starting work as the General Manager, he had not been previously employed, so his employment agreement for his role as the General Manager could lawfully contain a trial period provision.

Notice

Mr Roach claimed that in the event the trial period was found to be lawful, Nazareth had failed to provide him the correct period of notice when invoking it. Mr Roach claimed this non-compliance invalidated the trial period.

Mr Roach was terminated and paid in lieu of notice. This was not permitted by the provisions of Mr Roach’s trial period.

The Court held that because the trial period did not expressly allow for payment in lieu of notice, the notice was deficient, and in accordance with earlier case law re-stated that deficient notice is not lawful notice.

The failure to comply with the terms of the employment agreement meant that Nazareth was unable to rely on the trial period to justify its decision to terminate Mr Roach’s employment.

Unjustifiable dismissal

Given the trial period was unable to be relied on, Nazareth was required to show that the decision to terminate Mr Roach’s employment was both procedurally fair, and substantively justified.

Mr Roach was called into a meeting without warning and was told that his employment would be terminated during the meeting. He was otherwise unaware that his employment was in jeopardy. The deficiencies in the process were found to be significant. The Court found that any factors suggesting a possibility that Mr Roach may have been dismissed in the future were trivial. As such, there was no substantive justification for the dismissal.

Mr Roach was found to have been unjustifiably dismissed and was entitled to remedies.

Remedies

Mr Roach received a total of 12 months’ lost remuneration ($115,000) plus interest due to his difficulties in finding new employment (he had unsuccessfully applied for 97 positions), compensation for humiliation, loss of dignity and injury to feelings in the sum of $25,000 and legal costs. These remedies are reflective of the general upward trend in remedies awarded we have witnessed recently.

Key points for employers

1. A trial period does not begin to run until the employee has commenced actual work for the employer. If an employee has previously been employed (see discussion above) the employee’s employment cannot lawfully contain a trial period provision.

2. Payment in lieu of notice and payment in lieu of working a period of notice are not the same thing. Payment in lieu of notice is unlawful when providing notice pursuant to a trial period. The case law is unclear on whether payment in lieu of working a period of notice is lawful when giving notice pursuant to a trial period. We suggest employers err on the side of caution and give the notice specified in the relevant employment agreement and have the employee work out that period of notice. 

3. A trial period allows an employer to circumvent the usual fair and reasonable process required by the Act when terminating an employee’s employment. This means that in almost all cases where a trial period is relied on, but is later found to be invalid, the process will be found to have been flawed and therefore will expose the employer to the risk of a personal grievance. It is therefore crucial that employers consider whether they are able to rely on a trial period before doing so.

This case illustrates the narrow interpretation and application of trial periods by the employment institutions. Anything less than absolute legislative and contractual compliance is likely to render a trial period invalid.

The remedies awarded in this case follow in the wake of significant recent case law that has seen an increased willingness by the employment institutions to invoke their discretion to impose lost wage awards as they see fit pursuant to s 128(3) of the Act, and to make comparatively greater compensatory awards for the humiliation, loss of dignity and injury to feelings suffered by employees in personal grievance cases.

Given the quantum of remedies available to employees in personal grievance cases, and the relative ease in which an employer can inadvertently fail to adhere to the legislative and contractual requirements of a trial period provision, we strongly suggest that an employer seeking to rely a trial period takes legal advice before doing so.

The Employment Team at Cavell Leitch are specialists in all areas of employment law. Please get in contact with cavell@cavell.co.nz, if you have any employment law related queries. 

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