Court of Appeal considers the law on notice during a Trial Period… are we all clear now?

In Ioan v Scott Technology NZ Limited, the Employment Court looked at the requirement to give notice during a trial period termination under the Employment Relations Act 2000 (Act).

Mr Ioan’s employment agreement had a termination notice period of four weeks.  It also allowed Scott Technology to “elect to not require the employee to work out the required notice in which case the remaining balance of the notice period shall be paid by the Employer”. 

In a letter dated 7 October 2016, Scott Technology advised Mr Ioan that his employment would end in accordance with the trial period clause.  It also elected to pay Mr Ioan for his notice period of 4 weeks, but did not require him to work.  On 19 October 2016, on his usual pay day, Scott Technology paid Mr Ioan four weeks’ salary together with holiday pay.

Mr Ioan sought to bring a claim of unjustifiable dismissal in the Employment Court. 

The Employment Court held that Mr Ioan was prevented from bringing the claim because section 67B of the Act applied.  That section states that if an employer terminates an employment agreement containing a trial provision by giving the employee notice of the termination before the end of the trial period, the employee may not bring a personal grievance or legal proceedings in respect of the dismissal.

Dissatisfied with the Court’s decision, Mr Ioan obtained leave to appeal to the Court of Appeal on a question of law.  In a nutshell, that was whether paying an employee instead of the employee working the notice period complied with the requirement under section 67B(1) to give notice?  If so, the employee would be prevented from raising a personal grievance. 

The Court of Appeal answered ‘yes’.  It confirmed that the notice of the termination in a trial period termination includes a situation where the employer gives the requisite period of notice, but does not require the employee to work out the notice period, instead making a payment for the period of the notice (commonly referred to as ‘garden leave’).  In this situation, the employee’s employment would still end at the end of the notice period. 

The Court of Appeal did not express a view on whether it is unlawful to pay an employee salary or wages in lieu of notice, which usually means that the employee’s employment ends immediately. We have previously written in some detail on this topic for those who wish to delve into this potentially thorny issue. 

The difference between paying in lieu of notice, and paying instead of working out notice is a very fine distinction.  The legal difference is the point at which employment comes to an end – either when the notice is given (in lieu of notice), or at the end of the notice period (instead of working notice).  The practical difference for an employee is limited; the employee leaves work at the same point and is paid final pay at the same point.

The safest course of action, following the Court of Appeal’s decision, is to have employment terminate at the end of the notice period, even if the employee is not required to work out the notice period.