ERA ruling raises concerns over 90 day trial

Employers are being urged to be cautious when terminating employment under the 90 day trial law following a recent decision by the Employment Relations Authority.

ERA ruling raises concerns over 90 day trial

A recent Employment Relations Authority judgement which ruled a trial period clause was defective has employment lawyers warning employers to exercise caution when dismissing an employee under the 90 day trial law.

In Hutchinson v Canon New Zealand Ltd, Hutchinson was informed on the 89th day of his 90 day trial his employment was being terminated and received one weeks' pay. According to his trial period clause in his employment agreement Canon could terminate his employment at any time by giving “one week's written notice or payment instead of notice”.

The ERA, however, found the trial period clause to be defective allowing Hutchison to bring a personal grievance of unjustified dismissal against his former employer. The ERA found that as his letter of termination was given three days outside the 90 day rule, it did not meet the requirement in section 67B of the Employment Relations Act that the employee must be given notice of termination before the end of the trial period.

Commenting on the decision, Simpson Grierson senior associate Simon Lapthorne, explained that that ERA held that "payment instead of notice" is unable to be objectively construed as notice when the words "specifically identify payment as an alternative to notice".

“The Authority applied the case of Smith v Stokes Valley Pharmacy (2009) Ltd [2010] NZEmpC 111 which emphasised the importance of strict compliance with the trial period provisions of the Act when removing an employee's right to bring legal proceedings against their employer. The Authority was further persuaded by the Court's comment in Smith that the "the statute does not provide an alternative in the form of payment of money instead of notice",” he wrote.

Lapthorne said the determination has raised concerns.

“There is well established case law to the effect that where an employment agreement expressly provides that employment may be terminated either by notice or, on payment of a sum in lieu of notice, it will not be a breach of contract to terminate summarily, provided payment is made in lieu. This case appears to contradict the well-established principles in relation to the meaning of a payment in lieu or instead of notice,” he explained.

He advises that employers should take a conservative position on this until it is clarified by the Employment Court.

“Therefore when terminating employment under a trial period, rather than making a payment in lieu of notice, an employer should provide the employee with notice and either have the employee work out their notice or gain their agreement to serve their notice period, away from the workplace,” he advised.

* Canon is expected to appeal this determination.

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