A 2018 Employment Court judgment has simplified the legal position around payment in lieu for employees on trial periods.

Currently, termination by giving notice under a valid trial period bars employees from bringing a personal grievance to challenge their dismissal.  To rely upon that bar, employers must comply strictly with all of the requirements applicable to trial periods including the requirement that the employer give notice.

Whether notice can be paid in lieu has been a vexed question until recently.

In Ioan v Scott Technology NZ Ltd t/a Rocklabs [2018] NZEmpC 4 the Employment Court held that, when giving notice to an employee during a valid trial period, employers are entitled to pay in lieu of the employee working out the notice period if:

  • Notice is given, and accords with the employment agreement
  • The notice is clear and unambiguous, and explains how and when employment will be terminated.

The Court was careful to emphasise that employers are still required to give notice of termination in the usual way (ie, payment in lieu of notice is not sufficient notice in and of itself). 

The Court's pronouncement on payment in lieu comes at a time when trial periods are likely to change.  The Employment Relations Amendment Bill, currently with the Select Committee, proposes to restrict trial periods to employers with fewer than 20 employees.  This change is likely, in our view, to go ahead and to take effect later this year.