3.05.2018

Trial Period Notice – What Notice?

If you are planning on terminating under a trial period, we strongly suggest that you seek legal advice first

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:

  1. 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]
  2. 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.

What now?

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!

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Getting the Deal Through: Construction 2019
Partners Nick Gillies, Helen Macfarlane and Christina Bryant are the contributing authors of the New Zealand Chapter of the 2019 edition of “Getting the Deal Through Construction”. Getting...
19.09.2018 Posted in Construction Law
UAE COMPANIES LAW UPDATE
New Zealand businesses looking to establish a foothold in the UAE have many options
10.09.2018 Posted in Trade and Commodities
When You Can’t Have it Your Way
Antares Restaurant Group Limited (which owns and operates Burger King in New Zealand) has received a whopper of a sanction – a ban on the company supporting visa applications until July next year.
4.09.2018 Posted in Employment Law
Getting the Deal Through: Shipping 2019
The Marine team at Hesketh Henry have again contributed to Getting the Deal Through: Shipping 2019.
30.08.2018 Posted in Maritime Law
A Guide to Concurrent Delay
Hesketh Henry was pleased to host the New Zealand Institute of Quantity Surveyors on 14 August 2018, where one of our construction partners, Nick Gillies, presented on concurrent delay.  The same pre...
22.08.2018 Posted in Construction Law
Update – New Zealand’s New Biofouling Standards
New Zealand has introduced a new standard requiring all vessels to have a “clean hull” on arrival in the country after 15  May 2018.[1]  The objective is to minimise the introduction of ...
21.08.2018 Posted in Maritime Law
No Longer Stumped: The Health and Safety at Work Act 2015 Sentencing Guidelines
The High Court at Auckland has released its first and much-awaited decision under the Health and Safety at Work Act 2015 (HSWA).
21.08.2018 Posted in Health & Safety Law
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.