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Employment

29 Apr 2010

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90 Day Trial Periods: The Employer's Obligations

From 1 March 2009 the Employment Relations Act 2000 was amended to allow employers with fewer than 20 employees to hire a new employee for a trial period of up to 90 days. So far, the feedback from employers is that the trial period legislation has been successful. In a recent survey, 72% of small businesses said they had included a 90-day trial period in their employment agreements. The trial period legislation has improved employer confidence and facilitated employment in tough economic times. Some larger employers have advocated for the law to be extended to businesses with more than 20 staff. Minister of Labour Kate Wilkinson has said that the government has no plans at this stage to do amend the law, but is willing to consider it.

The law currently provides that if an employee is dismissed during a trial period, he/she cannot bring a personal grievance or other legal proceeding relating to that dismissal (provided the employee has agreed that his/her employment agreement will include a trial period and the employee's written employment agreement includes an appropriately drafted trial period clause).

Sound straightforward? Unfortunately the law may not be as easy to apply as it appears at first glance. In a recent decision of the Employment Relations Authority, the Authority expressed the following view:

"The 90 day trial period does not exempt an employer from the duty of providing the opportunity to be heard when dismissal is contemplated." (Schneider v BBX Distribution Pty Limited, 20 January 2010, Member Montgomery)

This comment by the Authority raises an interesting question about the process that an employer needs to follow before dismissing an employee during a trial period.

At the very least, an employer who has dismissed an employee during a trial period will need to show that they have treated the employee in accordance with its duty of good faith, which remains in effect, despite the trial period. The duty of good faith requires the parties to be active and constructive in establishing and maintaining a productive employment relationship. The employer will also need show that they have followed their own policies, to the extent that they apply to employees during a trial period.

If the employer fails to follow good faith principles before dismissing an employee during a trial period, the employee could seek a penalty against the employer for a breach of good faith of up to $10,000. The employee can also raise a personal grievance on grounds other than unjustified dismissal, such as disadvantage, discrimination or harassment.

Phillipa Muir is a partner and Natalie Finn is an associate in the employment law group at Simpson Grierson.

Published: Human Resources Magazine April/May 2010