In a helpful determination for employers, the latest word from the Employment Relations Authority on the enforcement of trial periods is that all was not lost where an employee failed to sign a written employment agreement containing a trial period provision before commencing employment.

Last month, the Authority upheld a contractual 90 day trial period provision as valid, notwithstanding that the employment agreement containing the term was signed by the parties two weeks after the employee's start date (Simmons v Collins Stainless Steel Fabricators Limited). Importantly, at the time of offering employment to Mr Simmons, the company had discussed, and he had acknowledged his agreement to, a trial period. As a result, Mr Simmons was precluded from pursuing an unjustified dismissal claim against the company.

Based on these facts, the Authority distinguished a decision of the Employment Court (last year) disregarding a trial period provision because the employee had signed the agreement containing the provision on day two of employment (Smith v Stokes Valley Pharmacy Limited). See our August 2010 update.

Prudent practice for employers

In Stokes Valley Pharmacy, the Court adopted a strict approach to the statutory requirement for a valid trial period that an employee must not have been previously employed by the employer. It may have been relevant in that case (although it was not decided on this point) that the employee was only new to the employer because of a change of ownership of the business. Prior to the sale of the business, Ms Smith had been performing the same role in the same location for the vendor. The Court held that she only qualified as a new employee in a "narrow and technical sense".

In adopting a somewhat different approach in Collins Stainless Steel, the Authority focussed on the fact that before starting work for the company, Mr Simmons had orally agreed to a trial period and received a written employment agreement containing a trial period provision.

What does this mean for employers wanting to use trial periods? The Court's decision in Stokes Valley Pharmacy is of course still a valid authority and binding. However, as demonstrated by the more recent Simmons decision, the specific facts of a case can render the strict approach of the Court inapplicable.

Therefore, if a trial period is agreed, recommended best practice is to require the employee to sign a written employment agreement containing the relevant provision prior to starting work. Ensuring that employees sign their employment agreement before they commence work will achieve certainty from the outset of employment in respect of all applicable terms and conditions including trial periods. Employers should ensure that robust systems are in place to check that employment documentation for new employees is signed and returned before day one of employment.

Before dismissing an employee pursuant to a trial period, it is equally important to remember that good faith obligations continue to apply. Section 4 of the Employment Relations Act 2000 (the Act) requires an employer to be responsive and communicative throughout the employment relationship.

While the trial period legislation discharges an employer from statutory obligations to consult regarding a proposal to dismiss and to provide written reasons for a dismissal, an employer may still be required to provide reasons for a dismissal in accordance with its general obligations of good faith. In addition, any applicable contractual and/or policy obligations should be complied with (for example, in relation to training and/or poor performance processes) before giving notice of termination.

Statutory requirements for a valid trial period

For a trial period to be effective, section 67A of the Act requires that:

  • The parties agree to a written trial provision in an employment agreement.
  • The trial provision specifies the period (not exceeding 90 days), starting at the beginning of the employee's employment, and states that during that period the employer may dismiss the employee, and if the employer does so, the employee is not entitled to bring a personal grievance or other proceedings in respect of the dismissal.
  • The employee has not previously been employed by the employer (i.e. the employee is a new employee).

Authority distinguishes Court's decision in Stokes Valley Pharmacy on the facts

The Employment Court held in Stokes Valley Pharmacy that Ms Smith was not a new employee when she signed the employment agreement as she had already worked for the pharmacy for one day. Thus, the Court determined that the statutory benefits of a trial period should not apply, and it went on to uphold Ms Smith's claims of unjustified dismissal and disadvantage.

On the other hand, in Collins Stainless Steel, the Authority justified a departure from the Court's approach by reference to the following specific facts in the case before it:

  • At the time of offering employment, (before the employment commenced), the company discussed with Mr Simmons, and Mr Simmons acknowledged his agreement to, a trial period.
  • Prior to Mr Simmons commencing employment, the company provided him with a written employment agreement containing a trial period provision.
  • In response to each of several attempts by the company to follow up on execution of the written agreement, Mr Simmons confirmed that he had no problem with its terms.

The Authority was satisfied that the parties intended at all times leading up to and on commencement of employment to be bound by the terms of the written employment agreement, including the trial period provision.