Just when we thought that the law around trial periods was settling down and we knew where we all stood, the ground has shifted again. The latest wrinkle is, once again, around the concept of giving notice of a trial period termination.
What does the Act say?
To recap, section 67B of the Employment Relations Act 2000 (Act) states:
- This section applies if an employer terminates an employment agreement containing a trial provision under section 67A by giving the employee notice of the termination before the end of the trial period, whether the termination takes effect before, at, or after the end of the trial period. [our emphasis added]
- An employee whose employment agreement is terminated in accordance with subsection (1) may not bring a personal grievance or legal proceedings in respect of the dismissal.
The disqualification from bringing a grievance or legal proceedings in respect of the dismissal under section 67B(2) is dependant on the employer terminating the employee’s employment in accordance with section 67B(1). That section says that an employer can terminate employment "by giving the employee notice of the termination before the end of the trial period".
How was this interpreted?
In Hutchison v Canon New Zealand Ltd, the Employment Relations Authority had to consider whether a trial period provision which stated that employment could be terminated by the employer "giving one week’s written notice or payment instead of notice" was valid, and whether relying on this clause meant notice was validly given under section 67B. Mr Hutchison’s lawyer claimed that the Act did not provide for payment instead of notice, and therefore that Canon’s decision to make a payment in lieu of notice did not meet the requirements of the Act, and Mr Hutchison was free to raise a personal grievance in respect of his dismissal. Canon’s lawyer argued that the parties had specifically agreed in the trial period clause that payment instead of notice was sufficient to terminate the employment relationship.
The Authority agreed with Mr Hutchison. In doing so, it referred to Chief Judge Colgan’s comments in the Employment Court case of Smith v Stokes Valley Pharmacy. In that case, Colgan CJ commented that "The statute does not provide an alternative in the form of payment of money instead of notice…". This, combined with the need to interpret trial periods very strictly, because they essentially remove a right of access to justice, meant that the Authority was convinced that in a trial period termination the employer needs to give notice and not payment in lieu.
From a practical perspective, the Canon determination was bothersome because it meant that employers terminating under a trial period were essentially forced to keep the terminated person hanging around for the notice period, when in most cases, both employer and employee would have preferred to have the employee leave immediately, with a payment. However, at least we knew where we all stood.
What has changed now?
This has changed again (or has it?), with the very recent Authority determination in Ioan v Scott Technology NZ Limited t/a Rocklabs. In this case, the Authority again had to consider whether the employer making a payment in lieu of notice was sufficient to meet the Act’s requirements.
In this case, Rocklabs’ trial period did not contain a specific notice period – this meant that the employer had to refer to the ‘normal’ termination clause to determine how much notice to give when it terminated Mr Ioan’s employment under the trial period. The employer advised Mr Ioan that his employment would terminate that day under the trial period, and that he would be paid four weeks’ pay in lieu of notice. Mr Ioan sought to raise a grievance, alleging that the termination did not meet the strict requirements of the Act in terms of terminating employment under a trial period. Given the Authority’s determination in Canon, and the Employment Court’s comments in Smith v Stokes Valley Pharmacy, this seemed like a slam dunk for Mr Ioan.
This time, however, the Authority found that payment in lieu of notice was sufficient, and did not accept that "a payment in lieu of notice which is made in accordance with an express contractual term in the employment agreement voids the trial period provision". In reaching this decision, the Authority did not reference either Canon, or the Employment Court’s comments in the Smith v Stokes Valley Pharmacy case, or explain the departure from the previous position. As there is no mention of those authorities on exactly that point, it is not clear whether the Ioan v Scott Technology NZ Limited t/a Rocklabs is a change of law or a clean miss.
We would expect the Ioan determination to be appealed. However, we currently have two directly conflicting Authority determinations. One says that you can’t terminate under a trial period by paying in lieu of notice, even where there is a contractual provision; the other says that payment in lieu of notice is fine to terminate pursuant to a trial period. While the Employment Court has commented on the issue in favour of actual notice not a payment in lieu, it has not decided the issue within a judgment.
In our view, the safest course of action is to give an employee actual notice and have the employee work it out. If you have a relatively short period of notice specified in your trial period, hopefully this shouldn’t be too much of an issue. A slightly more risky approach might be to agree with the employee that they are not required to attend work during the notice period – although their employment will not come to an end until the end of the notice period – i.e. garden leave. Alternatively, you could decide to adopt the most recent Authority determination on the issue, and make a payment in lieu of notice. However, may the risk be with you!
Hopefully, we will soon have some clarity from the Employment Court on this issue. However, at the present time, we’re (once again) in a kind of limbo. Trial periods are tricky at the best of times, and this most recent case certainly doesn’t help. If you are planning on terminating under a trial period, we strongly suggest that you seek legal advice first – there are so many pitfalls and issues that a short phone call beforehand may save you a whole lot of time, trouble and money down the track.
We will of course update you, if and when there is any further guidance on this issue – watch this space!