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The traps hidden within trial periods

Many workers will have commenced their current job on a 90-day trial period. Most small-to-medium employers rely on a trial period when taking on new staff.

90 day trialA great deal of care needs to be taken. Trial periods are intended to encourage employers to take risks on workers they might not otherwise employ. The cost of this job creation is putting the employees in a position of greater vulnerability for up to 90 days. The legislation, the Employment Relations Authority and the Employment Court all understandably take a strict approach to applying this law.

A recent case involving Best Health Foods Limited will help you understand what I mean.

Yi Zhou started work as a full-time accountant with Best Health Foods on 20 January. Within three days he was emailed a letter dismissing him under a purported 90-day trial period. The letter told him he was not required to work further and that he would instead be paid a three-day notice period.

The worker raised a claim for unjustified dismissal by letter to the company on 11 February.

The trial period is only available to employers with fewer than 20 employees. We are not told how many employees Best Health Foods had at the time of Zhou’s brief employment with them, but the company says it is one of the largest OEM milk powder blending and packaging companies in New Zealand. We are not talking about the corner fish and chip shop.

The employer had a bigger problem at the hearing. Zhou pointed out that the employment agreement he signed did not include a trial period clause. Best Health Foods says the trial period clause was omitted by clerical error. This was to no avail. An employee cannot be subject to a trial period that is not included in their employment agreement. The trial period could accordingly not be relied upon.

The employer's fallback position was that Zhou had regardless breached his obligations under the employment agreement. The key benefit to an employer during a valid trial period is that the need to justify a dismissal is removed. The employee cannot raise a personal grievance for unjustified dismissal or otherwise challenge a dismissal under a valid trial period, although they can challenge other areas of the employment relationship. Sexual or racial discrimination and bullying are examples of unacceptable actionable behaviour during the trial period.

Without the trial period, the employer’s fallback argument was never going to get anywhere. The dismissal was unjustified because the worker did not get a hearing prior to his dismissal.

The company also argued that the worker’s poor performance meant that he contributed to the dismissal and any remedy should be reduced accordingly. The Employment Relations Authority carefully analysed these criticisms and was not prepared to find sufficient fault on the worker's part to reduce remedies. The conclusion that Zhou was unjustifiably dismissed was inevitable and the one month’s pay he missed out on while looking for work came to just over $4000. He was awarded that along with $10,000 as compensation for distress. The worker also had some of his costs reimbursed.

Interestingly, this is the second time within four months that Best Health Foods has failed to successfully defend a purported 90-day trial period dismissal.

In the earlier case the authority found the trial period was valid, despite some contention on the point. The employee had not signed the employment agreement before commencing work. Ordinarily this means the trial period is invalid, as a trial period can only apply to a new employee. As soon as an employee starts working, they are no longer considered new. The trial period cannot be entered into after that point.

Here the authority held that there was clear email evidence of agreement to the trial period prior to the employee starting, despite the employment agreement being signed later. Despite this, the dismissal was unjustified because the employer failed to give notice as required under the legislation. Another example of how strictly trial periods are interpreted, both at the point of agreement and at the point they are exercised.

Unfortunately for Best Health Foods, the facts giving rise to the two claims took place within days of each other. They had no opportunity to learn from the first authority decision in order to avoid the second.

This has become a technical area of law. The 90-day trial period provisions are read critically by the employment institutions because of the significant imbalance in power they create. Of course, in an overwhelming majority of cases the employees who have already gathered some skills for the job are kept on. But where they are not, particularly where the worker has been treated harshly, rest assured our employment institutions will look very closely at what happened. This is an area of law where proper professional advice can be invaluable.