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December 2010

Employment Court Rules On 90 Day Trial Periods

A Lesson for Employers

Introduction

Since March 2009, it has been possible for employers employing fewer than 20 employees to agree with new employees that their employment will be subject to a trial period of up to 90 days.  In that event the employee may not bring a claim for unjustified dismissal if they are given notice of the termination of their employment during the trial period (although other types of personal grievance may still be brought).

The forthcoming extension of the trial period regime to cover all employers, regardless of size, has received much publicity in recent months.  However the release of the first decision of the Employment Court relating to the application of the provisions of the Employment Relations Act 2000 (“ERA”) relating to trial periods should serve as a timely reminder to all employers of the difficulties that can be faced if they fail to comply with the relevant requirements.  The employer in that case no doubt effected the dismissal in the firm belief that they would be protected from any unjustified dismissal that might otherwise have resulted.  However, as the outcome of the case shows, the employer in that case was very much mistaken.  It would not be at all surprising if many other employers had been lulled into a false sense of security believing that they could dismiss during a trial period without fear of an unjustified dismissal claim.

Background

The employee had worked for a number of years as a Retail Assistant at a pharmacy.  In late August 2009, the owners of the pharmacy advised all staff that they had sold the business but that the purchasers of the business might be interested in employing the existing staff.  The employee concerned was duly interviewed by the purchaser of the business and approximately two weeks prior to the change in ownership, she was contacted by the purchaser to say that her application for employment had been successful and that she would be sent an employment agreement in due course.  A few days prior to the hand over date (1 October 2009) the employee was provided with the purchaser’s employment agreement which, amongst other things, provided for a 90 day trial period.

In addition, the Agreement contained a number of other provisions that proved to be significant:

  • A provision detailing training that would be provided during the trial period.
  • A provision to the effect that the agreement come into effect on the date upon which it was signed by the employee.
  • A provision to the effect that the terms and conditions of the employment recorded in the agreement replaced any previous arrangements and understandings between the parties.
  • A provision providing for the employment to be terminated by either party giving four weeks’ written notice, together with a provision allowing summary dismissal for more serious cases of misconduct.

When the employee received the employment agreement, she made contact with the purchaser as a result of which it was agreed that she would retain her current hourly rate, that she would be required to give four weeks notice and that targets and goals would be discussed at a later date.  However, by that stage the employee had not noticed that the agreement contained a provision providing for a 90 day trial period.

When the purchaser of the business took over on 1 October 2009, they told the employee to carry on with her job as usual as she would have done with the previous owners.  By that stage, the written employment agreement had not been signed.  The following day, the employee raised her concerns about the 90 day trial period but was reassured that she need not worry about it as it was a standard clause in all contracts.  The agreement was then signed.

It seems that the new employer was less than satisfied with various aspects of the employee’s performance, although there were no regular meetings with the employee to discuss comprehensively her performance and the employer’s expectations.

On or about 8 December 2009, the employee was told she was summarily dismissed and because the dismissal took place within the 90 day trial period, the employer was not required to give reasons, although the employer did indicate that the employee was not what the employer was looking for and that she was inexperienced.  The employer later made payment of two weeks’ wages.

The employee subsequently brought proceedings following which a further two weeks’ wages were paid, presumably in lieu of the four week contractual notice period that the Employer had failed to give.

The Court’s Approach

The Employment Court indicated that the effect of the provisions of the ERA relating to trial periods were to deprive employees of rights they would otherwise have had to bring a claim for unjustified dismissal.  As such, the Court considered that strict compliance with the relevant requirements of the ERA would be required if the employee was to be denied the access to the Courts that was previously available.

“New” Employee

The Court considered whether or not the employee fell within the definition of a “new employee”, which was defined as an employee “who has not been previously employed by the employer”.

The purchaser of the business took over on 1 October 2009 and the Court concluded that it was on that date that she became an employee of the purchaser, even though she had not at that time signed the written employment agreement.  The Court concluded that when she did sign the employment agreement the following day, she was already an employee, having already worked previously for the employer, albeit only for a short period of time.  Therefore, she did not fall within the definition of an employee with whom a trial period could be agreed and therefore there was no prohibition on bringing a personal grievance.

The Court’s findings in this regard was of itself sufficient to decide the case in favour of the employee.  However, there were a number of other problems that sealed the employer’s fate.

Notice of Termination

The Court noted that in order to attract the protection from an unjustified dismissal claim, notice of termination must be given within the stated trial period (even if the notice period does not expire until after the end of the trial period).  If there was no lawful termination, the personal grievance barrier would not apply.

In the present case, the purchaser summarily dismissed the employee, the employer however agreed to pay two weeks wages in lieu of notice.  However, the employment agreement provided for a four week notice period and as the Court noted a termination of employment on short notice is ineffective.  Whilst the employer subsequently made payment of the remaining two weeks wages, it was by that stage too late.  The Court concluded that because the employee had not been given proper notice of the termination of her employment (either because she had been summarily dismissed or because she had been given an insufficient notice period or payment in lieu thereof) the employer had not given the employee notice of the termination of their employment and therefore had not terminated the employment in the manner required to attract the protection against claims for unjustified dismissal.  This finding also would on its own have been sufficient to dispose of the case in favour of the employee.

Unexecuted Employment Agreement

In an endeavour to avoid the difficulties referred to above, the purchaser sought to argue that the employee was in fact employed on 1 October 2009 on the terms of the written employment agreement that had previously been handed to her, even though that agreement had not been signed.  In that regard, the purchaser argued that there was no requirement in the ERA that the employment agreement be signed (merely a requirement that it be in writing).  However, the Court concluded that there was nothing in this case that indicated that the parties intended to be bound by the draft written agreement unless and until it was executed by them.  The Court also noted that the form of the agreement was altered by the parties between when the employee commenced working for the employer and when the employment agreement was signed.  In this regard the Court might also have noted that the agreement also contained a provision that specifically stated that it would only come into force the day that it was signed by the employee.

Breach of Trial Period Requirements

As noted above, the employment agreement contained various provisions relating to training and feedback to be given during the trial period.  These provisions, whilst described by the Court as “laudable”, were not necessary for the agreement to comply with the requirements for a valid trial period.  However, the Court decided that having imposed such obligations on itself, the employer was required to provide a performance assessment by regular meetings undertaken for that purpose and, having failed to do so, breached the provisions of the agreement.  The Court found that such a breach could give rise to a personal grievance of unjustified disadvantage (which was not precluded by the trial period provisions).

Failure to Give Reasons

As noted above, the employer, when requested to do so pursuant to the provisions of the ERA, declined to give a written statement for the reasons for the employee’s dismissal on the understanding that the provisions of the ERA did not apply when an employee was dismissed during a trial period.  The Court noted that whilst that was strictly speaking correct, an employer dismissing an employee during a trial period was still required to comply with the provisions of the ERA relating to good faith, with the exception of those specifically excluded by the ERA in the case of trial periods (which relate to providing access to information and an opportunity to comment prior to a decision being made to dismiss an employee).  However, the ERA does not exclude compliance with other good faith obligations, such as the obligation to be “responsive and communicative”.  The employer’s failure to respond in any meaningful way to the employee’s request for an explanation for her dismissal was found to be in breach of this obligation.  Furthermore, the employer did not act towards the employee as a “fair and reasonable” employer would have done in the circumstances by refusing to discuss the reasons for dismissal with her and by dismissing her summarily in breach of the employment agreement, which reserved summary dismissal for only the most serious cases of misconduct.

Conclusion

It is respectfully submitted that some of the findings of the Court may be open to question.  In particular, the finding that the employee had previously been employed by the employer is perhaps a little surprising.  It seems clear that the rationale for previous or existing employees being excluded from the trial period regime is that the employer, by virtue of having already employed the employee will already have had an opportunity to assess the employee’s suitability for permanent employment.  To suggest that such issues would have been satisfied by the employer having employed the employee for one day seems unrealistic.  In this case, prior to making the offer of employment that was ultimately accepted, the purchaser had not employed the employee at all.  On the other hand, the Court noted that the trial period provisions deprived employees of their right of access to the courts and as such should be narrowly construed and on this basis the strict approach to interpretation taken may be justified.

Another issue arising from the Employment Court’s findings is the requirement for the employment to be terminated by giving notice.  If the effect of the decision is to provide that unjustified dismissal claims are only prohibited where the employment is terminated during a trial period by giving notice, this would lead to the somewhat curious result that an employer who summarily dismissed an employee during the trial period for serious misconduct could find themselves facing a personal grievance claim, whereas an employer who terminated the employment of an employee on notice for something much less serious would be protected against such a claim.

Notwithstanding the above question, it is clear that in the present case the purchaser of the business made a number of critical errors which contributed to the outcome.  Many employers will no doubt have thought that the provisions of the ERA relating to trial periods provided them with some type of “get out of jail free card” but as the case illustrates, nothing could be further from the truth.  Indeed, as the case amply demonstrates, there are many traps for the unwary.

If employers learn nothing else from the decision, they should at least note the following:

  • Always seek legal advice when drafting employment agreements and prior to contemplating dismissal of an employee, even one employed on a trial period.
  • Never commit the cardinal sin of having a new employee start work without first signing their employment agreement.