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Employers and the 90-Day Trial Period (Important)

If an employee is fired during a 90-day trial period, they can’t raise a personal grievance, right? The answer may surprise you.

When the 90-day period is correctly used, an employer may dismiss an employee within the period without fear of a claim of unjustified dismissal. The Government has extended the 90-day trial period to all employers, rather than just those with fewer than 20 employees*. However, employers must be aware of how to successfully use the 90-day trial period.

The first decision on the 90-day trial period, Smith v Stokes Valley Pharmacy (2009) Limited, demonstrates that an employer must comply strictly with the provisions of the legislation.

In this case Heather Smith was working in the Stokes Valley Pharmacy when it was sold. Heather was offered a job with the new employer and on 1 October 2009 commenced work for them. On 2 October 2009, she signed a new employment agreement that contained a 90-day trial period. The new employer quickly became dissatisfied with Heather’s performance, and in reliance on the trial period provisions, terminated her employment in December 2009.

Heather commenced proceedings against her employer and, despite the existence of the trial period, the Employment Court found that Heather could make a claim for unjustified dismissal.

Under s67A of the Employment Relations Act, trial periods can only apply to a person who has not previously been employed by the employer. When Heather signed her employment agreement on 2 October she had already commenced work, even if it was only for a day, and therefore she was no longer a ‘new employee’. The employer argued that Heather had by her conduct accepted the terms and conditions of the draft employment agreement as it was provided to her on 29 September 2009.

The Court rejected this argument and held that the agreement required execution by signature and until it was signed the agreement remained a draft that could potentially be amended. The result was that the trial period was void and Heather could claim unjustified dismissal, the very action the employer thought they were protecting themselves from.

This decision also discussed the requirement of good faith in relation to trial periods. It was found that an employer is not obliged to notify an employee, who is employed under a trial period, of the employer’s intention to dismiss them. Once dismissed, if an employee requests an explanation for the dismissal, good faith requires that they must be given one.

It was also found that if an employer seeks to rely on a trial period, the employment agreement must be terminated lawfully and in accordance with s67B(1) of the Act, which requires notice to be given. While there is nothing in the Act determining the length or form of this notice, in this case Heather’s contract required 4 weeks’ notice. Therefore, the Court found that the two weeks notice period given was deficient and subsequently the agreement was not lawfully terminated.

If you are considering hiring a new employee, why not take a few minutes to talk to one of our experienced employment law team? We can identify and discuss any areas of concern, and provide practical and cost-effective solutions. A few moments spent before hiring may save hours (and dollars) later on.

Please call Michael Robinson or Helen Wendelborn.

* To take effect from 1 April 2011

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