By Vaughan Granier
Small business owners can use trial periods to terminate an unsatisfactory employee in the first 90 days of their employment. Under a trial period, an employer can terminate an employee on written notice, without having to provide a reason, as long as these three specific requirements are met:
- The employment contract must contain a trial period clause;
- The employee must sign the agreement before they start work; and
- The employer must have less than 20 employees, including the new employee, at the time of employment.
But a recent decision from the Employment Relations Authority (ERA) may be about to change this. Let’s look at this court case and its implication on trial period law as we know it.
The court case
Berea v Best Health [2020] NZERA 474
Background
An employee (Ms Berea) made an unjustified dismissal claim against Christchurch-based company, Best Health after the company terminated her under a 90-day trial period. The employee had only been in the role for three days.
The decision
In Berea v Best Health [2020] NZERA 474, the ERA held that a trial period did not have to be contained in a pre-signed employment agreement to be legally recognised. This decision draws a clear distinction between this case and previous cases where the Courts had held that for a trial period to be lawful, it must be contained in a written agreement and signed before the employee started work. The ERA then found that while the trial period was determined to be valid, it was “inoperable” as a means of termination because of a lack of proper notice given in the termination process.
What are the facts that lead to this decision?
In this claim, the employee had not signed the agreement before starting work – so you could assume therefore that the trial period was illegitimate. But, despite the absence of written agreement, the ERA determined otherwise, and instead observed that the correspondence between Best Health to the employee had indicated “an employment agreement that contains a trial period will be forthcoming” and “there will be a 90-day trial period”.
The employee had replied in emails saying: “I am looking forward to signing the employment agreement”, and separately; “I have read the contract and I am happy with it”.
The ERA consequently held that there was evidence that “offer and acceptance of all terms had been completed prior to Ms Berea commencing employment” and decided that “the subsequent signing of the agreement made no difference to “the bargain the parties had already struck”.
However, even though the ERA accepted the trial period as valid, the final decision still found the termination unfair, and the trial period “inoperable”. The ERA noted that the employer dismissed the employee based on poor performance after only three days and held that it was not possible to assess performance in this time frame properly. The ERA stated that the employer “provided insufficient time for Ms Berea to understand the role she had been provided and no tangible support had been provided”. According to the ERA, Ms Berea had “insufficient time to orient herself and demonstrate her skill level”. Additionally, the decision regarded the dismissal as abrupt with no practical opportunity for Ms Berea to obtain representation or have any input into the decision.
Why is this decision significant to how employers manage trial periods?
The outcome of Berea v Best Health [2020] is significant as it creates an alternative basis for a trial period to be accepted as legitimate. Based on this court decision, if the parties have been bargaining, and a completed bargain “has been struck” before employment starts, this is enough to validate a trial period – regardless of if there is a signed, written agreement or not.
The decision creates the ability for an employer to argue that a trial period exists even in the absence of a signed, written agreement received pre-employment. An employer can strengthen their ability to possibly rely on a trial period – where they previously would not have been able to – if they retain all evidence of negotiations and discussions between parties before employment.
This court case also raises the question of whether external evidence could be used to invalidate a trial period where it has been signed in an agreement but was not agreed to in any correspondence prior. For example, can an employee now argue that a trial period in their signed agreement was invalid as they never agreed to this in their negotiations with their employer before they commenced work? While this is highly unlikely to be a useable argument (as an employee’s signature is recognised as proof of agreement) the door is no longer completely closed and bolted shut on this as a possibility.
While the decision to allow a trial period even though a contract was not signed swings the pendulum of the law slightly towards the employer, the rest of the Berea v Best Health decision swings the law decidedly back towards the employee.
In this case, the employer did not act in good faith towards the employee, rendering the trial period unfair and void as a result. The ERA makes an important note that “payment in lieu is not an alternative to providing notice” and found that the trial period was “inoperable” because proper notice was not given.
The decision, in this case, blurs some previously accepted guidelines around trial periods and, it opens the door to future decisions that create stronger liability on the employer to act in good faith during a trial period; otherwise, the courts may find that their use of trial periods while valid, may “be inoperable”.
If you have a question about trial periods or the information in this blog, contact our HR Advice Line for a confidential chat.
Vaughan Granier is the National Workplace Relations Manager for HR Assured NZ. He has over 24 years’ experience in international human resources, health and safety, and workplace relations management. With over 10 years working in New Zealand and Australian companies, he provides in-depth support to leadership teams across all areas of HR, Health and Safety, and employee management.