October 2014: Employment - Trial period on trial

Ashleigh Nelson highlights the importance of knowing and understanding the strict interpretation of 90-day trial periods.

Ninety-day trial periods have been in place a number of years, but employers are still not quite getting them right. As trial periods take away an employee’s right to raise a personal grievance in relation to a dismissal, the Employment Court has interpreted the legislation narrowly, enforcing the requirements strictly.

A recent example is Hutchison v Canon New Zealand Ltd (Canon). Mr Hutchison was employed by Canon on an individual employment agreement, subject to a trial period. Canon dismissed him in reliance on that trial period. However, Hutchison claimed that the trial period was invalid and could not be relied on to prevent him from raising a personal grievance.

Hutchison received and signed his employment agreement on 1 February 2013. He then started work on 4 March 2013. The trial period clause stated that the trial was “up to 90 days from the commencement of [his] employment”.

On 30 May 2013, day 88 of the trial period, Hutchison was given a letter inviting him to attend a meeting the next day to discuss concerns around his employment (detailed in the letter). At the meeting on 31 May he was given an opportunity to comment on his employer’s performance concerns. There was a brief adjournment before he was told that his employment was being terminated under the “90-day rule”. He was paid one week’s notice and his holiday pay. The termination was confirmed in writing on 4 June 2013.

Hutchison claimed the trial period was invalid on a number of grounds. First he claimed that he was an employee before he signed the agreement. He based this on the wording of the letter of offer he received that began “Congratulations Brent on your success in joining Canon NZ Limited”. He claimed that as he was an employee from this point he could not then be subject to a trial period.

The Authority disagreed. There was no wording in the letter of offer that suggested he had already accepted employment. The Authority found the letter was an “enthusiastic overstatement in the context of the recruitment process”. This was not sufficient to show that he had been offered and accepted employment at this time.

Hutchison next argued that the wording of the trial period clause did not comply with section 67A of the Employment Relations Act 2000. The Authority did not accept this claim.

Hutchison’s final argument was that Canon had not complied with section 67B of the Act as he had not received notice of termination of his employment before the expiry of the 90 days. The clause in his agreement stated that he would receive “one week’s written notice or payment instead of notice”.

The Authority examined the wording of the clause in light of the wording of section 67B of the Act. The clause provided for two ways for the employment to be ended during the notice period. The first was with “one week’s written notice”. This was held to comply with the wording of section 67B. Unfortunately for Canon, as they did not confirm the termination in writing until three days after the end of the trial period, it could not rely on this part of the clause to terminate Hutchison’s employment.

The second way for the employment to come to an end could be for a “payment instead of notice”. The Authority accepted that an agreement could provide for a payment in lieu of notice generally however, payment as an alternative to notice was inconsistent with the requirements of section 67B. That part of the trial period clause was therefore held to be invalid.

The Authority noted that the Court has made it clear that the obligations in sections 67A and 67B are to be strictly interpreted where there is a removal of the right of access to natural justice.

As Canon failed to give written notice of termination to Hutchison before the end of the trial period he was not barred from raising a personal grievance.

This case highlights the importance of understanding the strict interpretation of trial periods. An employer must comply with the Act and the requirements established through case law. These include:

The trial period being for no more than 90 calendar days;
The employment agreement clause stating that the employer may dismiss or give notice of dismissal before the expiry of the trial period;
The employment agreement clause stating that in the event the employer does dismiss the employee that the employee cannot bring a personal grievance claim in relation to the dismissal;
Ensuring the parties sign the agreement before the employee starts work;
Applying the good faith obligation to raise concerns with the employee and allowing them the opportunity to improve;
Advising the employee of the reason for dismissing at the time of termination (although this does not have to be in writing); and
Giving notice of termination in writing to the employee before the expiry of the 90-day trial period.

Employers are advised to seek advice if they are unfamiliar with using a trial period clause in employment agreements.