Latest News:
First Employment Court Decision on Trial Periods
In view of the current public debate over the merits of extending the ‘grievance-free’ trial period scheme to all employers, it is quite timely that the Employment Court has issued its first judgment on the relevant statutory provisions.
Relevant Facts
The employee in Smith v Stokes Valley Pharmacy (2009) Limited was described by the Court as an experienced retail assistant. She commenced employment at Stokes Valley Pharmacy in 2007. In 2009, the business was sold and the new owners offered Ms Smith ongoing employment. She was however required to sign a new employment agreement, which included a 90-day trial period. While Ms Smith raised some concerns with the new owner regarding the trial period provision, she subsequently signed the agreement.
Importantly, the new owners took over the business on 1 October 2009, but Ms Smith did not sign her new employment agreement until the following day.
Ms Smith was subsequently dismissed in December 2009, within the first 90 days and in reliance on the trial period provision. The employer was given legal advice that they were not required to give Ms Smith reasons for her dismissal. However, Ms Smith asked for reasons and was told that she was not what they were looking for and was “inexperienced”.
Ms Smith raised a personal grievance, which was not resolved at mediation. Because her claim raised important questions of law relating to the correct interpretation of the trial period provisions, the Employment Relations Authority removed the matter to the Employment Court.
The Court’s Decision
The Court made a number of interesting observations as to the use of trial periods and an employer’s obligations when terminating in reliance on them.
The first is that trial periods are only available in respect of “new” employees. The Court held that because the new owners took over the business on 1 October 2009 and Ms Smith did not sign her agreement until the next day, she was not a new employee.
Interestingly, the Court noted that even if Ms Smith had signed the agreement before the new owners took over, she would not be a new employee, except in a “narrow and technical sense”, because she had been in the same position (albeit for a different owner) for approximately two and a half years.
The second point of note is that the Court determined that the trial period provisions in Ms Smith’s employment agreement gave no protection to the employer because it had failed to give the proper period of notice. The employment agreement provided for four weeks’ notice of termination, but Ms Smith was given only two weeks’ pay in lieu of notice. The Court noted that s 67B(1) Employment Relations Act 2000 (“ERA”) provides that the various protections afforded by that section only apply where an employee is given “notice of termination” prior to the expiry of the trial period. In the absence of statutory guidance as to the appropriate period of notice, this will be governed by the applicable employment agreement.
The third point of note relates to the application of the duty of good faith. Section 67B(5) ERA places limitations on the duty of good faith as it applies to termination of employment during a trial period. Specifically, it excludes the operation of the provisions requiring consultation regarding any proposal “that will, or is likely to, have an adverse effect on the continuation of employment”. It also expressly excludes the requirement to give a “statement of reasons for dismissal” if one is requested.
The Court noted that the intent of the trial period legislation is not that employers are able to “dismiss arbitrarily or capriciously”. Instead, the stated aim of the legislation is to remove the right to challenge dismissal during a valid trial period by way of personal grievance.
The Court went on to hold that while some aspects of the duty of good faith have been excluded, the remainder “tend to favour” a requirement for employers to give employees dismissed during a trial period reasons for dismissal. It referred specifically to the requirement imposed on employers to be “active and constructive” and “responsive and communicative”.
In this case, the Court found that the trial period in Ms Smith’s employment agreement did not prevent her from raising a personal grievance, because she was not a new employee and her employer had failed to give her proper notice in accordance with her employment agreement. It went on to hold that Ms Smith had been unjustifiably dismissed.
Commentary
This decision is a timely reminder that employers need to take care when implementing trial periods and also when dismissing in reliance on them.
The Court has issued a word of warning regarding the use of trial periods when purchasing or otherwise taking over a business. Existing employees may not be considered “new employees” and therefore may fall outside the scope of the trial period provisions. This remains an issue for clarification; the Court was not required to conclusively determine it, in view of its finding regarding the effect of Ms Smith signing her agreement the day after the new owners took over. That particular part of the Court’s judgment highlights the desirability of having the relevant employment agreement signed before the employee starts work.
To gain the protection of a trial period, employers should also ensure that the proper period of notice of termination is given. In the absence of a contractual notice period, reasonable notice must be provided.
Finally, the case serves as a reminder of good faith obligations. The employer is not relieved entirely of its good faith obligations when implementing a dismissal during a trial period. Most importantly, the employer is still required to give reasons for dismissal.
We recommend that employers seek specific advice when considering whether to implement trial periods. Care should also be exercised in any dismissal situation, regardless of the existence of a trial period.
Please do not hesitate to contact us if you have any queries as to how the Court’s judgment in this case may affect your business.
