Trial Periods - probably for the last time?

26 October 2017

GrantWith Labour/Greens/NZ First having worked out a deal then most likely the ‘fire at will’ trial provisions will be replaced next year with what the Labour Party Policy Document i calls “Fair Trial Periods”. That is of course if NZ First and the Greens agree which appears likely.

But back to trial periods. Let’s remind ourselves of the current position. At the moment you are able to put both a probationary and/or a trial provision into employees’ agreements.

Probationary periods have been around via case law for a long time and well before they were even put into the Employment Relations Act 2000 (“the Act”) in the year it was enacted. An employee on probation “…may be taken to realise that being on ‘probation’ he or she will be under close and critical assessment and that permanent employment will be assured only if the employer’s standards are met”. On the other hand the employer “…must be ready to point out shortcomings, to advise about any necessary improvement and to warn of the likely consequences if its expectations are not met”.ii The general requirement for a robust process and good reason to dismiss are still in place with an employee on probation. But note that until 2011 the terms ‘probationary’ and ‘trial’ were used interchangeably. I put ‘probation’ above to reduce confusion but the Court of Appeal actually used the word ‘trial’ demonstrating that, at the time the two words were used interchangeably.

In 2011 the then Government decided to give different meanings to the two words that until then had been synonymous: probationary & trial periods. Probationary periods remained as set out above.iii Two new sections of the Act, ss67A & 67B created a new meaning for ‘trial periods’. Provided certain rules were followed an employee on a trial period cannot bring a personal grievance and so some called this a ‘fire at will provision’.

If the Labour party policy is implemented as described in the Policy papers iv it appears that a new “referee service will be established for claims of unjustified dismissal during trial periods” will be established. The papers go on to state:

“The referee will hold short hearings without lawyers and be able to make decisions to reinstate or award damages of up to a capped amount. This simple, fast, and fair service will be provided free for the parties involved, at a cost to the Government of $4m.”

Of course as I said the other coalition/support parties will have to agree and in addition the amending legislation will have to be drafted and will almost certainly have to go through the Select Committee process which often results in change, sometimes substantial change.

There will of course be many more changes to the employment landscape with the new government. In the coming months we will let you know about foreshadowed changes and the actual changes as they occur.

In the meantime we can continue to use trial periods. Remember however that when using a trial period clause we need to strictly adhere to both a defined timeline and to the words of the Act. Just how strictly these matters are interpreted is demonstrated by Ms Welch’s recent claim of unjustified dismissal against her employer Auckland Glass.v She was unhappy with her employer’s actions shortly after starting work and so resigned. Rather than simply letting the notice period expire (or probably even paying her notice period out) the employer decided to dismiss her for alleged serious misconduct. The Employment Relations Authority decided that the dismissal was unjustified.vi The employer pointed out that the agreement contained a trial period but the Authority member did not like that the trial period was ‘buried’ in the depths of the employment agreement but more importantly did not state when it was to start or ‘words to that effect’ as required by s67A(2) of the Act. The employer was not helped by the fact that the start date (which was provided for in the agreement) was not completed. The cost to the employer was $6,000.

And yet we know that there are many dismissals during the trial period that have successfully used the trial period provision. A clause based on our precedents was reviewed in a recent Authority case and ‘did the job’ vii although there is still argument about whether the employer can lawfully pay the employee out rather than the employee working out the notice.

Final hints: Don’t make changes to technical clause such as trial periods in employment agreements without good reason and then having the changes checked by us. Get the employment agreement completed and signed before the employee starts work. Remember that the employee must be ‘new’ to the employer. Make a diary note of both the actual date the trial period ends and some weeks before that. Just one day late and it is too late. Consult us well before the end of the trial period if things are not working out. It is safest at the moment to get the employee to work out the notice so we currently suggest a short notice period be specified in the agreement.

And of course make sure you review your recruitment process in the coming months so that you choose the ‘right employee’; that is what I think you will have to do when the new Government gets into action.

 

Grant Walker | Employer Advisor

 

Legal Team

 

Diana Hudson | Managing Solicitor | 03 456 1804 | 021 816 469 | diana@osea.org.nz

David Browne | Solicitor | 03 456 1812 | 021 225 6938 | david@osea.org.nz

Angela MacKenzie | Solicitor | 03 218 7962 | 021 756 809 | angela@osea.org.nz

Grant Walker | Advocate | 03 455 5165 | grant@osea.org.nz

 

i http://www.labour.org.nz/workplacerelations

ii both from Nelson Air Ltd v New Zealand Airline Pilots Assoc [1994] 2 ERNZ 665 (CA), at 669

iii See s67 of the Employment Relations Act 2000

iv http://www.labour.org.nz/workplacerelations

v Welch v Auckland Glass Ltd [2017] NZERA Auckland 279

vi Note that this case also demonstrates again that you can still be vulnerable to a claim of unjustified dismissal for actions that happen while an employee is working out a notice period.

vii Ioan v Scott Technology NZ Limited t/a Rocklabs [2017] NZERA Auckland 106

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