Care needed with trial periods

19:53, Aug 25 2014

One of the key areas of divergence between the major political parties leading into the election is in the employment relations space. There is change on the horizon whatever the shape of the next government, but the most emotive issue relates to the use of trial periods to dismiss workers.

As part of its ‘hundred days' programme, a Labour-led government would restore employees' right to raise personal grievances for unjustified dismissal where a 90-day trial period is in place. In other words, it has signalled a clear intention to abolish what it refers to as National's "fire at will" law.

Business New Zealand's lobbying to extend the trial period to six months or a year hasn't found favour with either of the major parties. While it can be difficult to make sound hiring decisions off the back of a CV or an interview, the general view is that three months should be enough.

Statistics from the Ministry of Business, Innovation and Employment indicate that 72 per cent of employers using trial periods have not dismissed staff in reliance on them. In this regard the impact may not be as great as some feared. In saying that, there is undoubtedly a significant and silent minority of employees who have been badly treated but have assumed the trial period was lawful, shrugged their shoulders and moved on.

In practice, 90-day trial periods are putting many employers on trial, as well as the employees subject to them.

The Employment Court has recognised that a trial period, allowing an employer to dismiss an employee without risk of an unjustified dismissal claim, is a blunt-force instrument.


Consequently, the court has been very clear that the requirements of the legislation must be strictly complied with by employers seeking to rely on trial periods.

In a number of cases the Employments Relations Authority or court have found that trial periods have been unlawful and dismissals unjustified. In particular, the courts have identified that some employers are not bargaining fairly when it comes to the way trial periods are being included in employment agreements and presented to prospective employees.

Rather than simply pushing the paper across the table for the employee's signature, the law requires the employer to provide the employee with a copy of the intended employment agreement, advise them of the right to seek advice and give them time to do that. In many cases that is not happening.

David Fagotti was offered a front-of-house role at Wellington cafe Prefab after he successfully completed an 8-hour paid work trial in February last year. Two weeks later when he arrived for his first day at work, he was given an employment agreement containing a trial period and signed it in front of his employer.

A few weeks later Fagotti was called to see the director of Prefab's parent company, ACME, and was handed a letter and told it was "not good news" and that his employment had been terminated. No reasons were given. No performance issues had been raised with him and only positive comments had been communicated to him during his short stint. Fagotti claimed he had been unjustifiably dismissed. ACME relied on the trial period in his agreement.

The authority did not doubt there was a genuine belief on ACME's part that it could terminate Fagotti's employment within 90 days, but the problem was the dry run at Prefab a few weeks earlier. Because it was a paid work trial, and Fagotti performed work that was of commercial value to Prefab, he was found to have entered an employment relationship with ACME at that point.

It followed that when he signed his agreement on his first day of work, he had been previously employed by Prefab in the eyes of the law, and therefore couldn't be subject to a trial period.

It was also found that ACME had not bargained fairly with Fagotti over his employment agreement. Because he was asked to sign his employment agreement before he started work on his first day, and had not previously received a copy of it, he did not get the chance to discuss it with anyone or seek advice. This was in breach of the legal requirements.

Fagotti was awarded $8598 in lost wages and compensation.

DISMISSING an employee under a trial period will be subject to scrutiny if challenged. If there is a flaw in the process from the outset, then there is a strong chance the house of cards will collapse at the other end.

First, it is critical to ensure that recruitment occurs in perfect sequence. This includes the employee receiving their agreement, having the chance to take advice on it, and signing it before putting on their uniform on day one.

Second, trial periods are for new employees only. As the Prefab case shows, in the hospitality industry where short-duration work trials are frequently used to test-drive prospective employees, things can get messy. If a candidate does something of commercial value (even as simple a task as a barista showing off latte art skills for a paying customer) then there is a real risk that the person will be an employee in the eyes of the law from that point onwards. If an employment offer is then made subject to a trial period, the employee won't technically be new anymore and will no longer be amenable to engagement subject to a trial period.

Third, good faith still reigns - any employee performing under a trial period is entitled to a response from their employer when he or she legitimately asks about their performance.

Trial periods have become highly political - and for good reason - they remove fundamental rights from workers. The ERA and Employment Court have made it difficult for employers to rely on these types of provisions.

It now remains to be seen whether trial periods will remain part of our law after the election.

Susan Hornsby-Geluk is a partner at Dundas Street Employment Lawyers.