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Employment Law Update – Trial Periods

  • 12 September 2014

When a trial period is correctly used, an employer may dismiss an employee during or at the end of that trial period without the risk of an unjustified dismissal claim. Trial periods must meet strict requirements under section 67A of the Employment Relations Act 2000(Act).

The recent Employment Relations Authority (ERA) determination of Fagotti v ACME & Co Limited1 demonstrates that some employers are still falling foul of the Act’s strict requirements, particularly the condition that an employee cannot have been previously employed by an employer (they must be truly ‘new’ employees).

Background

ACME owns the popular Wellington café, Prefab. On 9 February, Mr Fagotti completed a paid eight-hour work trial for Prefab and was verbally offered a job after completing his shift. On 23 February, he started working at Prefab. The ERA accepted that he was handed an employment agreement shortly after arriving at Prefab on the morning of 23 February and that he signed it in front of Ms Dunn, a director of ACME.

On 12 March, Mr Fagotti was handed a letter by his manager. He was told it was “not good news” and that his employment had been terminated. No reasons were given. Mr Fagotti subsequently raised unjustified dismissal, unjustified disadvantage personal grievances and an unfair bargaining claim. ACME sought to rely on the trial period as a bar to the unjustified dismissal claim.

Decision

The ERA found that the eight-hour trial Mr Fagotti had worked meant that he had been previously employed by Prefab when he was offered his employment agreement containing a trial period on 23 February. This meant the trial period could not be relied on as a bar to the unjustified dismissal claim by ACME. The ERA Member reached this conclusion after deciding that on 9 February Mr Fagotti had “performed duties at Prefab that provided an economic benefit to ACME for which he expected, and received, remuneration.”

The ERA was also scathing of the fact that Mr Fagotti was not provided with a copy of his employment agreement in advance of commencing work, and that he was not informed of his right to seek advice about the agreement or provided with a reasonable opportunity to do so.

Mr Fagotti was successful in his unjustified dismissal and unfair bargaining claims, and was awarded a total of $8,598 in lost wages and compensation.

Noteworthy points

  • Communication is key – provide the prospective-employee with the intended employment agreement in advance and give them a reasonable amount of time (2-3 days) to seek advice. Draw the employee’s attention to the fact that the employment agreement contains a trial period. Set this out in writing in a cover letter.
  • Timing is everything – make sure that the employee is truly ‘new’. It is imperative that the employment agreement is agreed and signed-off by both parties before the employee starts work. Previous case law has said that even a few hours of work prior to signing an employment agreement is enough to invalidate a trial period clause.
  • Beware of pre-trial period trials – if a trial is really necessary, call it something different (we recommend a ‘pre-employment observation’), make it unpaid and for no reward (not even lunch), for a short period only (not an eight-hour shift) and for ‘your eyes only’. The lines become very blurred when an individual is paid and their actions benefit the company. For a café, an employer could get the prospective-employee to take a mock order and make them a coffee, but not deal with any paying customers. This could take place outside of the café’s trading hours.
  • Good faith is still number one – while employers are not required to provide written reasons as to why dismissal has occurred, they must be responsive and communicative if asked. A flat out refusal to explain will be inconsistent with the employer’s statutory obligations of good faith, which still apply in a trial period scenario.
  • A trial period is only a partial shield – a correctly executed trial period prevents an employee from bringing a personal grievance or other legal proceedings in respect of the dismissal. However, they can still bring a personal grievance for unjustified disadvantage, or a claim of harassment or discrimination.

What must be included in a trial period clause?

The Employment Relations Act 2000 requires a trial period clause to state the following:

  • The employee is to serve a trial period (not exceeding 90 days), starting at the beginning of the employee’s employment. The duration of the trial period must be set out (a maximum of 90 days is possible). In some instances, a period of less than 90 days may be appropriate.
  • The employee may be dismissed during the trial period.
  • If the employee is dismissed during the trial period, the employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

What else should be included?

  • The trial period clause should ideally specify a shorter notice period (one week is sufficient). If no notice period is provided, the employer must give the notice period specified in the employment agreement. If no notice period is specified, a ‘reasonable’ period of notice must be given. The clause should specify whether verbal or written notice must be given.
  • It is worthwhile to include wording in the trial period clause that enables payment in lieu of notice to be made. This would allow for the immediate removal of the person from the workplace if necessary.

Reproduced with the kind permission of DLA Phillips Fox

 

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