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Brief Counsel

Caution for employers in court decision on 90 day trial period

27 August 2010

The Employment Court, in the first significant case dealing with the 90 day trial period, has sent an implied warning to employers that they need to be very careful in how they use the provision.

This Brief Counsel looks at the decision and examines its implications.

What happened

Heather Smith had worked for over two years as a retail assistant in a Stokes Valley pharmacy.  On 1 October 2009 the pharmacy was sold and Ms Smith was employed by the new owners.  Her new contract contained a 90 day trial provision.

Crucially, Ms Smith started working for the new owners on 1 October but she did not sign her employment agreement until the next day.

Just over two months later, Ms Smith was dismissed under the 90 day rule.  The new owners were reluctant to give any reason for their decision, having been advised they were not required to do so. 

Ms Smith successfully challenged her dismissal, with the Employment Court finding that her trial provision was not effective, and that it had not been correctly used at the point of dismissal.

What are the key lessons?

The Employment Court says it will interpret the statutory trial period provisions strictly, because they remove long-standing employee protections.   Therefore it has put the employer’s actions (and the clause itself) under a high level of scrutiny. 

Employment agreements with trial provisions must be signed before the employee starts work

To be safe, employers should make sure the 90 day provision is clearly agreed before the employee commences work.  Indeed, we would go further and suggest that prospective employees should be advised either when (or before) they are offered the job that it will be subject to the trial period.

Employees who are dismissed under the trial provision must be given notice strictly within the terms of the employment agreement 

Ms Smith’s employment agreement said that four weeks of notice had to be given.  Importantly (and unusually) the agreement did not give her employer the right to pay the notice in lieu.

Instead, Ms Smith was dismissed immediately.

The Court said the failure to allow Ms Smith to work out her four weeks' notice meant the pharmacy had not complied with the trial period clause, and therefore could not rely on its protections.

Trial conditions should stipulate a notice period (usually this will be shorter than the normal notice period), and should also clearly state that this can be paid in lieu.

The Court clarified that it is fine if the employee works past the end of the trial period – the important point is that notice of dismissal has to be given before the 90 days expire.

If asked, you have to give a reason for the dismissal 

This has been a topic of some political controversy.  The trial period provisions exempt employers from having to provide formal written reasons for dismissal, but stipulate that general obligations of good faith still apply.  Those obligations mean employers (and employees) must be “responsive and communicative”.

The Court says this means an employer will have to give an answer if the employee wants to know (at the time) why they are being dismissed, and this answer cannot be misleading.

Keep trial provisions simple

In this case the employer’s trial clause promised to provide assistance, full training, encouragement and regular appraisal meetings.  Regular appraisal meetings apparently did not occur and the Court found that this failure meant that dismissal was unjustified, and also constituted a separate disadvantage.

Although it did not matter in this case, we do not think that the dismissal could have been unjustified if the lack of appraisal meetings was the only issue.  However, this probably would have amounted to a disadvantage, meaning the employee would have had a (small) claim.

Work in progress

The Employment Court has taken a very strict approach first up.  It is not at all clear that the section permitting trial periods should be interpreted any more strictly than any other section in the Employment Relations Act.  The Court’s reasoning - that this was necessary, because the provision constitutes an incursion into long-settled rights - fails to recognise that all those rights arise from statute, which is open to amendment as the legislature chooses. 

Similarly, it is arguably quite wrong to convert an obligation of good faith into an obligation to explain why the employee is being dismissed: it is just as responsive and communicative to reply to such a request by saying ‘We will not be providing such an explanation, because we are not required to do so in the circumstances’.  

There must be a reasonable prospect of correction either by Parliament or the appeal courts.  However this case will not be the last word on trial periods.  Several more court decisions will be needed before all the issues are ironed out, and we get a clear sense of how these provisions can and cannot be used. 

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