Posted on: Feb 03, 2012
This article was originally written in 2012. We have revised and updated the content according to further developments in case law.
The 90-day trial period has been extended to all employers regardless of the number of employees. All employers can now hire new employees on a trial period of 90 days or less without the risk of the employee taking a personal grievance for unjustified dismissal (they may still take a personal grievance on other grounds) in the event that the employee is dismissed during the trial period. This all sounds wonderful in theory, but what is being discovered through the Courts is that it’s not as easy as it sounds.
When an employee is dismissed under a trial period, there is no fair process and no justifiable substantive reasoning. Because of this, if any part of the trial period dismissal process is incorrect the termination will most likely be unjustified, and the consequences for the employer are huge. If the trial period is rendered invalid for any reason, there is no protection for the employer and the result would be an unjustified dismissal with the maximum compensation payable. This can be up to three months wages, plus 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) effectively removes some important protections from an employee, the provisions need to be interpreted strictly. The threshold for a legislatively compliant trial period dismissal is set high. A variety of cases have gone through the Courts, providing guidelines to applying 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 on 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. This extinguishes any claim that the employee was an employee “previously employed by the employer” (ie 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, in doing so, 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.
Trial period dismissal
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.
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 significant setback – the employee shouldn’t be deprived of the ability to learn from a failed trial period. Further, the reason for the dismissal shouldn’t come as a complete surprise, the employee should have been given some previous indication that things weren’t going well (informally).
As trial periods are proving to be much more complex than what Government intended, it’s important to seek advice before embarking on any trial period dismissal. Seek advice from our team at the onset of the employment relationship to ensure the clause in the employment agreement is adequate, and seek further advice before invoking the clause. A five minute phone call to us could literally save you thousands!
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.