The recent decision of the Chief Judge of the Employment Court in Smith v Stokes Valley Pharmacy has given insight into how the Courts will interpret and apply the trial period provisions in sections 67A and 67B of the Employment Relations Act ('ERA'). Currently the trial period provisions apply only to employers with 19 or fewer employees, but the Government has recently passed legislation that will allow employers of all sizes to use trial period clauses in employment agreements. The ERA provides that in order for there to be an effective trial period, the employee must be a new employee and the trial period provision must be set out in the employee's employment agreement and specify: the specified trial period (not longer than 90 days); that the employee may be dismissed on notice at any time during or at the conclusion of the trial period; and that, if dismissal occurs, the employee cannot bring a personal grievance or other legal proceedings in respect of the dismissal.

Smith v Stokes Valley Pharmacy

In deciding this case the Chief Judge stated that the case raised some of, but not all, the "controversial features" of the new law, and that the trial period provisions in the ERA had to be interpreted "strictly and not liberally". 

Facts

Ms Smith had worked at Stokes Valley Pharmacy for two years prior to it being sold. The purchasers indicated to Ms Smith if she wished to remain at the pharmacy after the purchase, she would be interviewed for her role. Ms Smith was later advised on 14 September 2009 that she had been appointed to the job and a contract would follow. The purchasers were to take over the business as at 1 October 2009.

On 29 September 2009 the vendors gave Ms Smith a letter and a draft employment agreement, on behalf of the purchasers. The employment agreement contained a trial period clause which satisfied the mandatory requirements of the ERA. The employment agreement also contained a clause specifying that the agreement would commence on the day Ms Smith signed it.

Ms Smith did not sign the employment agreement but did start work with the purchasers on 1 October 2009. On 2 October 2009 she met with the purchasers to discuss the employment agreement and signed it that same day.

On 8 December 2009 Ms Smith was told by the purchasers that she was being summarily dismissed, that she would be paid in lieu of notice and that the purchasers were entitled to do so as it was within the 90 day trial period. When pressed for a reason for dismissal, she was advised she was inexperienced and not what the purchasers were looking for. Ms Smith commenced a claim for unjustified dismissal.

Decision

The Court firstly held that the trial period provision did not apply to Ms Smith as she was not a new employee. A 'new employee' is defined in the ERA as someone who has not previously been employed by the Employer. The Court found that Ms Smith was employed by the purchasers on 1 October but did not execute her employment agreement until 2 October. When her written employment agreement was entered into she had been previously employed by the pharmacy, albeit for a very short period (one day). Therefore she was not a 'new employee' for the purposes of the ERA and the trial period provisions could not be used by the parties.

The Court also found the trial period provisions inapplicable on a second ground. Section 67B provides that the trial period protections apply when an employer terminates an employment agreement "by giving the employee notice of the termination". Although Ms Smith was paid two weeks' wages in lieu of notice, she was entitled in accordance with her employment agreement to four weeks' notice. On the basis that "termination of employment on short notice is, unless accepted, ineffective notice," the Court held that Ms Smith was not dismissed on notice as required by the trial period provisions, and accordingly the purchasers could not rely on those provisions. The Court also considered the question of whether an employee who is dismissed during a trial period is entitled to be given an explanation for the dismissal. It held that an employee is entitled to such an explanation, saying that "such employees should not be deprived of the ability to learn from an unsuccessful trial so that they can use its lessons in any future employment opportunities".

Implications

The decision serves as a timely reminder to employers who wish to rely on trial period provisions to ensure that the technical requirements of the ERA are complied with and any employment agreement is signed before the employee commences employment.

(SOURCE: Quigg Partners Newsletter - December 2010)