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Employment trial periods: termination on notice or payment in lieu

14 June 2017

An employer and employee are entitled to enter into an employment agreement that provides for a trial period of up to 90 days (Section 67A of the Employment Relations Act). The trial period provision must be written into the employment agreement. And, that agreement must clearly state when the period commences and when it expires. Further, the employer and employee must sign the agreement before the employee commences their employment.

When the employee’s employment is terminated during the trial period, an employee may not bring a personal grievance or legal proceedings in respect of their dismissal.

Recently, the Employment Relations Authority (“Authority”) has been giving some attention to the practical application of giving notice of termination during a trial period. What the Authority sees as essential is that the notice of termination is given before the trial period expires. Do that and the employer will be able to avail themselves of the protections offered under the Act.

A second issue the Authority has considered is whether an employer can make a payment instead of giving notice. The Authority considered whether a provision in an employment agreement that required the employer to give “one week’s written notice or payment instead of notice” was valid. The Authority also considered whether relying on this clause satisfied the requirements of Section 676B of the Employment Relations Act (Hutchinson v Canon New Zealand Ltd). In doing so, the Authority referred to previous comments by the Chief Judge who had stated the statute does not provide an alternative in the form of payment of money instead of notice. The Chief Judge added that there was a need for trial periods to be interpreted very strictly. Accordingly, it was held that the employer needs to give notice and not payment instead.

However, in a more recent case (Ioan v Scott Technology NZ Limited t/a Rocklabs), the Authority again considered whether payment instead of notice fulfilled the employer’s obligations under the Act. In this case, the trial period clause did not specify the notice to be given. So, the Authority reached a different conclusion: it found that payment instead was sufficient.

As a result, there are currently two conflicting decisions by the Authority, which we hope will be resolved by the Employment Court shortly. In the meantime, having two conflicting decisions reinforces the difficulties with applying trial periods. We recommend you seek legal advice before you act to your potential detriment.

Source: InBrief Winter 2017

Author: Brett Vautier

InBrief Winter 2017

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