Trial Period Notice – What Notice? Redux

Confusion continues to reign supreme in the application of trial periods: see our previous article from 12 May 2017.

The latest Employment Court decision, Ioan v Scott Technology NZ Ltd focuses on the requirement under the Employment Relations Act to give notice.

The Employment Relations Act contains two sections dealing with trial periods. The first section (s67A) sets out what a trial period provision must contain and which employees they may apply to. Most trial period cases have considered compliance with this part.

The next section (s67B) deals with the effect and application of a trial period. It is this part, particularly how notice is given and what notice is given, that this case has focused on. It is not the first to do so; in Smith v Stokes Valley Pharmacy notice was also a central feature.

In Scott Technology the parties accepted that "notice" under s67(B) of the Employment Relations Act meant contractual notice. That was entirely consistent with Stokes Valley where the Employment Court had previously commented that notice must mean at least contractual notice or, in its absence, reasonable notice.

Mr Ioan's point was that Scott Technology did not give him any real notice because he was required to leave work, and was, in effect, dismissed immediately.

On 7 October 2016 Scott Technology provided Mr Ioan with a letter that included:

Your employment with Scott Technology … will end in accordance with the 90 day trial period … effective immediately.

Your notice period, as outlined in your employment agreement, is 4 weeks however, we have decided to pay you in lieu of working out your notice period. Therefore, your effective last day of work is today.

Despite Mr Ioan's argument that he had been deprived of any notice, the Employment Court had other ideas:

My conclusion on this issue therefore is that the employment agreement was validly terminated by the letter of 7 October 2016 pursuant to Cl 11(a) of the employment agreement; Mr Ioan was given notice of termination of the employment agreement of 4 weeks' notice but also advised he was not required to work during the period of his notice and that he would be paid for that period.

While it is possible that the Employment Court is making a fine distinction between ‘in lieu of notice’ and ‘in lieu of working notice’, the practical effect in Scott Technology appears to be exactly the same. On its face the decision appears to give employers a green light that paying in lieu of notice will satisfy the "notice" requirement of s67(B) of Employment Relations Act, as long as the employment agreement provides for it.

Which ever way you cut it, the first problem is that it reduces the statutory requirement of "notice" to nothing more than notification as long as the agreement allows for payment in lieu. The reality for the employee, which was as Mr Ioan's point, is that this is an immediate dismissal.

The further problem is that the Judge did not squarely address the comments made by the then Chief Judge in Stokes Valley that supported Mr Ioan’s point - these were mentioned in passing and reduced to a footnote reference. At first blush, without knowing what was said in Stokes Valley, a reader would be blissfully unaware of the significance of the comments that have been swept aside, which include:

… "notice" must be more than simply advice of dismissal. Rather, the subsection contemplates that it will be advice of when, in future, the dismissal will take effect.

… there is the inescapable fact in this case that Ms Smith was given no notice of the termination of her employment. The statute does not provide an alterative in the form of payment of a sum of money instead of notice …

… Nor can the statutory requirement for notice be interpreted as is its antithesis, no notice, which is the essence of summary dismissal …

Rather, trial provisions or trial periods conclude for reasons of unsatisfactory work performance or incompatibility or reasons of that sought. These are ones that the law has traditionally treated as giving grounds for dismissal on notice and not summarily.

There are some differences. In Stokes Valley Ms Smith was also terminated immediately and paid in lieu of notice, there was no provision in her employment agreement that allowed for her notice to be paid instead of worked. In Scott Technology there was. As a consequence, Stokes Valley contained a breach of the employment agreement whereas Scott Technology did not.

While every decision depends on its facts, Stokes Valley was written in a way that was of general application. The then Chief Judge did not go directly to the simple answer but provided a considered commentary of the two trial period sections in the Employment Relations Act; how they fit in with the good faith and justification obligations within the Act, and how they should be applied. If the comments in Stokes Valley were not to be followed, at the very least, they deserved some robust discussion as to why that was the case.

The practical effect on both Ms Smith and Mr Ioan was exactly the same. They were both, in effect, dismissed immediately and paid in lieu of notice. If Stokes Valley is correct and “notice” under s67(B) of the Act “must be more than simply advice of dismissal”, where does that leave Scott Technology? All that Mr Ioan seemed to receive was advice of his dismissal, and he was immediately sent home. The Employment Relations Act cannot be contracted out of but Scott Technology has apparently reduced “notice” to a payment instead of working.

Where we are left is entirely unsatisfactory. We have two decisions of the Employment Court that provide two different answers in extremely similar circumstances. If the Scott Technology decision had been made by the full court, squarely faced up to the issue from Stokes Valley and declared it wrong or inapplicable (where a notice provision allowed for payment in lieu), then that would have been a binding precedent.

However, we now have two apparently conflicting Employment Court decisions of equal status. The Employment Relations Authority can elect to follow either one by making fine distinctions between them.

No doubt some employers will focus on Scott Technology and pay in lieu of notice, whereas more risk-averse employers will provide actual notice, and allow it to be worked as per Stokes Valley.

Employers just want to know what the right answer is, and unfortunately, we are still looking. We do still not have an answer as to whether "notice" under s67(B) of the Employment Relations Act, is real notice (notice given, worked and paid in the ordinary way) or whether virtual notice (payment in lieu of working out notice) will suffice.

Comparative Guide

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Important Changes Last Week

Legislation Updates

  • Minimum Wage rates: please note that from 1 April 2018, the new minimum wage rate is $16.50 per hour, and starting out/training wage is $13.50 per hour.
  • Parental leave: a reminder that primary carer leave is set to go up from 18 weeks to 22 weeks where the expected delivery date or birth of the child is on or after 1 July 2018. The primary carer entitlement will have a further increase to 26 weeks from 1 July 2020.
  • Still on the parental leave front, “Keeping-in-Touch” days (paid days where work is performed by the employee on parental leave) are extending from 40 to 52 hours from 1 July 2018, and up to 64 hours from 1 July 2020.
  • Health and Safety: the requirement to have an asbestos management plan for all PCBUs who manage or control workplaces came into effect on 4 April 2018.