Trial Periods - risk as to payment in lieu of notice. Employment Lawyer Auckland Dukesons Business Law

October 2017

This Blog isn't legal advice – if you need legal advice on any employment law issue, or on any other business law or commercial law issue, please contact me. I'm an employment lawyer in Auckland who provides advice on a wide range of business law or commercial law issues.

The risk: It may not be lawful to pay an employee in lieu of notice in relation to a trial period and it would be risky to rely on any provision in an employment agreement that provides for termination of a trial period by payment in lieu of notice.

Section 67B of the Employment Relations Act refers to the situation where:

employer terminates an employment agreement containing a trial provision under s67A by giving the employee notice of the termination before the end of the trial period, whether the termination takes effect before, at, or after the end of the trial period.

Where that situation applies, and the trial period provision is valid, s67B(2) provides that the employee can’t bring a personal grievance if their employment is terminated in reliance on the trial period provision.

Case law as to whether s67B(2) applies only where employment has been terminated by notice has been somewhat confused. But a recent Employment Court case, Farmer Motor Group Limited v McKenzie, adds weight to a previous Employment Court case for the view that notice is an essential requirement if an employer wants to be able to rely on s67B(2).

In the Farmer Case, the Employment Court accepted that s67B(2) requires a trial period employment to be terminated by notice. Not a lot of reasoning was devoted to that issue. The particular issue was that the employer didn’t follow the provision that was in the employment agreement, which actually provided for termination on written notice, and then provided for payment in lieu of the employee working out the notice period. The employer terminated the employment without giving written notice and then stated that payment would be made in lieu of notice.

I’ve seen employment agreements that provide for termination of trial periods by payment in lieu of notice but reliance on such a provision can only be regarded as being very risky. At present, the only safe way to terminate trial period employment is by giving notice of termination. The employment agreement can provide for the notice to be written or oral and once given, can provide for payment to be made in lieu of the employee working out part or all of the notice period.

One further warning. If an employee on a trial period is dismissed without notice for serious misconduct, they may be entitled to bring a personal grievance if the dismissal is unjustified. Section 67B(2) may not apply, because termination wouldn’t be on notice.

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