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Care Required with Trial Periods in employment agreements

March 2019

Under the provisions of the Employment Relations Act (“the Act”), parties to an employment agreement can agree upon a trial period of up to 90 days from the commencement of employment, provided the employer has not previously employed the employee.  In the event the employee is unable to bring any proceedings in relation to any dismissal during the trial period.  Whilst larger businesses will no longer be able to avail themselves of the trial period provisions when recent changes to the Act come into effect this year, trial periods will still be available for small to medium sized employers.  As such, the trial period provisions are likely to have ongoing relevance. 

Many employers see such provisions as something of a “get out of jail free card”, meaning that they do not need to worry about any repercussions if they dismiss the employee during the agreed trial period.  However, as a recent case demonstrates, there are many traps for the unwary and the consequences for an employer for getting it wrong can be quite significant.  This is particularly so in light of the fact that the employer, no doubt acting in the belief that they are protected from any claims by the 90 day trial period, may not have followed the usual requirements relating to procedural fairness with the result that if the dismissal is not protected by the 90 day trial period provisions, it is almost certainly going to be unjustified on procedural grounds.  A recent Employment Court case provides a useful illustration of the pitfalls that can be encountered and should serve as a sobering reminder for employers of the consequences of not getting things right in this area.  

Factual Background

The employee was offered employment as a Business Manager and an employment agreement was duly signed between the employee and the employer.  The agreement contained a trial period and the parties agreed on a start date.  However, before the employee started work as the Business Manager, he was offered and accepted the role of General Manager.  A new employment agreement also containing a 90-day trial period was signed and the employee commenced work on the previously agreed start date in the role of General Manager.

Approximately six weeks after the employee commenced his employment, the employer dismissed the employee.  The employee sought to challenge his dismissal alleging that he had been  unjustifiably dismissed and sought various remedies.  The employer argued that he was precluded from doing so by the trial period provisions contained in the General Manager employment agreement.  

Validity of Trial Period

The employee claimed that the employer was not entitled to avail itself of the 90 day trial period provisions.  The basis for that was that when he signed the employment agreement for the General Manager role that contained a trial period upon which the employer relied, he had been “previously employed” by the employer, due to the earlier signing of the employment agreement for the Business Manager role.  Although the employee had not commenced his duties in the Business Manager role before he was offered the General Manager role, the employee relied on the definition of “employee” in the Act which includes “a person intending to work” and argued that as he had signed the Business Manager employment agreement, he was a person intending to work and therefore captured by the definition of an employee. 

The Employment Court did not accept the argument and held that a correct interpretation of “previously employed” involved the employee having previously undertaken work for the employer.  This was in keeping with the purpose of the trial period provisions, namely to give the employer an opportunity to assess the employee’s suitability for the position.  In cases where the employee had previously undertaken work for the employer, the employee had already had that opportunity and therefore it is considered unnecessary for there to be a further trial period.  However, that was only going to be the case if the employee had actually performed work previously, which was not the case in this instance.  Therefore, the Employment Court dismissed the employee’s argument in this respect.  However, that was not the end of the matter.

Validity of Notice Period

As a fall-back position, the employee argued that in the event that the trial period was found to be lawful, the employer had failed to give the correct notice period when terminating employment and that this failure invalidated reliance on this trial period provision.  The basis of this argument was that employee was given notice of the termination of his employment but not required to work out his notice period and instead paid salary in lieu of notice.  However, there was no express provision in the employment agreement allowing for the employer to pay salary in lieu of notice.  The Employment Court held that because the termination provisions of the employment agreement did not expressly allow for the employee to be paid salary in lieu of notice, the employer had failed to comply with the terms of the employment agreement and was therefore unable to rely on the trial period provision to defend the claim.  

Remedies

No doubt in the belief that it would be protected from any personal grievance claim by the trial period provisions, the employer did not follow the usual processes needed to meet the requirements of procedural fairness.  This placed the employer in some difficulty because, being unable to rely on the 90-day trial period provisions, the employer was required to prove that the dismissal was justified and carried out in a procedurally fair manner.  In this instance, the employee was simply called into a meeting without any prior warning and was simply told that his employment would be terminated during that meeting.  As such, the deficiencies in the procedure that the employer adopted was found to have been significant.

The employee had encountered significant difficulties in finding new employment (evidently, he had applied unsuccessfully for 97 positions).  He was awarded a total of 12 months’ lost remuneration in the amount of $115,000.00, together with compensation for humiliation, loss of dignity and injury to feeling in the amount of $25,000.00.  The employer was also ordered to make a contribution towards the employee’s legal costs.  

Lessons for Employers

In the case in question, the employer appeared to have made the very expensive mistake of assuming that because they had a 90 day trial period, they did not need to apply the same degree of care and attention to detail that would have otherwise been the case.  Certainly, it appears from the decision that had the employer not made the mistake of assuming they could pay the employee’s salary in lieu of notice even though there was no express provision in the employment agreement enabling this, the employer may well have been able to have successfully rely on the trial period provision to defeat the personal grievance claim.  

It should also be noted that the effect of the trial period provisions is to remove what would otherwise be an employee’s right of recourse to the Courts in relation to their dismissal.  As such, the Courts’ approach is that if the employee is to be denied those rights that they would otherwise have had, the employer must strictly comply with the requirements of the provisions denying the employee the opportunity of challenging their dismissal. 

As the case demonstrates, employers contemplating dismissing an employee, even during a trial period, would be well advised to seek advice from us as at the outset as to their rights and obligations under the employment agreement.