Australia: Trial Periods: Pitfalls to Avoid

NZ Employment Update
Last Updated: 29 July 2011
Article by John Hannan and Laura Simpson

All employers can now take advantage of the 90-day trial period law. When the 90-day period is correctly used, an employer may dismiss an employee within or at the end of that period without fear of an unjustified dismissal claim. However, there are some pitfalls to be aware of if you wish to successfully use this tool.

An effective trial period means an employer can terminate the employee on notice within or at the end of the trial period and the dismissal cannot be challenged in the Employment Relations Authority) or the Employment Court. A "trial period employee" may still:

  • request mediation; and
  • raise a personal grievance on the grounds of disadvantage, discrimination or sexual or racial harassment (in accordance with the relevant provisions of the Employment Relations Act 2000 (Act).

Trial period clauses must meet strict requirements under the Act. Cases so far show significant potential pitfalls.

THE IMPORTANCE OF GETTING IT RIGHT

It is imperative that an employment agreement containing a trial period clause is signed prior to the employee starting any work.

Timing is everything

  • In Smith v Stokes Valley Pharmacy (2009) Limited the agreement was signed one day after the employee commenced work. This was fatal to the employer's ability to rely on the trial period as protection.
  • The business Mrs. Smith was employed by was sold and she successfully interviewed with the new owners. Mrs. Smith received an agreement with a 90-day trial period provision. She started work for the new owners and signed the agreement the day after. Mrs. Smith was later dismissed under the trial period clause.
  • The Act says that trial period provisions must be agreed upon before employment starts, must be in writing and may only be used for employees not previously employed by the employer. The Employment Court stated that a trial period provision needs to be signed by both parties at the commencement of the employment relationship and not retrospectively.
  • At the time of signing Mrs. Smith was an existing (not a new) employee. So the trial period was of no effect and the employer should have followed a proper performance management procedure in light of the concerns it had.

Sure, but can I do it after my lunch break?

  • The strict approach taken by the Employment Court in Stokes Valley Pharmacy was followed by the Employment Relations Authority in February this year in Parkes v Squires Manufacturing Ltd.
  • The facts are similar to Stokes Valley Pharmacy, and the Authority took an arguably even stricter approach. Sylvia Parkes had not previously been employed by Squires. She did not sign her employment agreement until after lunch on her first day of employment. This short period of work was found to be sufficient to make her an existing employee.
  • The Authority emphasised the necessity of signing the agreement 'at the commencement of the employment relationship'. As Ms. Parkes was an 'existing employee' the trial period clause could not be relied on.

A need to clear the air?

In Kingi v New Zealand Heat Pump Cleaning Limited, Mr. Kingi was employed by Healthy Homes Ventilation Company Limited from 21 October 2009 to 30 January 2010. In late January 2010 he was offered employment by a new entity, New Zealand Heat Pump Cleaning Limited. Each company's governing director was Mr Wyatt.

Heat Pump Cleaning Ltd and Mr. Kingi entered into a written employment agreement containing a trial period clause signed by Mr.Wyatt on behalf of the employer. Mr. Kingi was subsequently dismissed in reliance on the trial period provision.

Mr. Kingi argued that the trial period was unenforceable because the employer, as evidenced by Mr Wyatt being the governing director for both entities, was the same.

The Authority held that the test was whether two different legal entities employed Mr. Kingi at different times. It held that a common director between two legal entities was commonplace in business affairs. As the strict requirements of the trial period legislation had been complied with, Mr. Kingi's trial period was deemed to be valid.

Use the right words, and co unt carefully

Miscounting the 90 days and trying to give notice of dismissal on day 91 or 92 will be fatal. In Wilson v Promotional Systems Ltd the employer tried to dismiss Ms Wilson on day 91; the Authority held that the termination clearly occurred outside the trial period.

The employment agreement also failed to state that if the employer dismissed her during the trial period the employee could not bring a grievance. This was also a fatal flaw because the Act requires a trial period clause to state this.

Watch out for offers and acceptances before the written employment agreement is prepared

The Authority has sent a case to the Employment Court to have an important question of law determined about whether a trial period in a written employment agreement is effective when the employer has earlier offered employment and the employee has accepted.

In Blackmore v Howick Properties Limited the employer offered the job in October, with a start date in November. The "employee" accepted the offer. After this offer and acceptance but before the start date the employer gave the employee a written employment agreement containing a trial period clause - the employee signed.

The question is now whether the employee was "employed" before the written employment agreement was signed. The Act defines "employee" as including a person intending to be employed, unless the context requires otherwise.

Watch this space for the answer.

Discrimination

An employee dismissed under a trial period clause may still bring a personal grievance on the ground that they were discriminated against during employment.

An example of this would be when an employer employs an employee under an employment agreement containing a 90 day trial period provision. The employment agreement is executed correctly and the employee begins work.

Before the end of the 90 day trial period the employer finds out that the employee is pregnant and dismisses her, purportedly based on the trial period clause. The employee could argue discrimination despite this, and the employer would be liable for discriminatory conduct if the reason for the dismissal was the pregnancy.

What needs to be done?

A trial period can be incorporated into any new employee's employment agreement. For an employee to be 'new' they must not have been previously employed by the employer.

What must be included in a trial period clause?

The trial period must state the following:

  • that the employee is employed for an initial period of up to maximum of ninety days under a trial period. The duration of the trial period must be stated.
  • during that period the employee may be dismissed; and
  • if the employee is dismissed under the clause, the employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

What else should be included?

The trial period should specify a shorter notice period than is usual (one week is sufficient). If no notice period is provided, the employer must give the notice period specified in the employment agreement or, if there is none specified, a "reasonable" period of notice.

It is worthwhile to include wording in the trial period clause which enables payment in lieu of notice to be made to allow for the immediate removal of the person from the workplace if necessary.

Dismissal under a trial period clause

  • The correct length and form (verbal or written) of notice must be given.
  • When deciding whether to dismiss under a trial period, the employer is not required to provide the employee with access to information relevant to the decision or an opportunity to comment on the information prior to a decision to dismiss being made.
  • The employer is not required to provide written reasons for the dismissal (as is required for other dismissals) if requested by the employee. Nevertheless, the employer must still deal with the employee in good faith and so is not exempt from being obliged to provide an explanation for the dismissal if asked by the employee when notice is given. Good faith requires parties to an employment relationship to be "responsive and communicative" and refusing to give an explanation for dismissal would be inconsistent with that statutory obligation.

Take home points

  • Overall, the obligations on an employer in dismissing an employee under a 90 day trial period are strict.
  • Ensure that an employee is truly "new".
  • Don't offer employment before you provide a written employment agreement containing a properly drafted trial period clause.
  • Consider using a shorter notice period in the 90-day trial period clause. Consider including the option of making a payment in lieu of notice.
  • While you are not required to provide written reasons as to why dismissal has occurred, you must be responsive and communicative if asked. A flat out refusal to explain will be inconsistent with your statutory obligations of good faith.
  • A correctly executed trial period bars an employee from bringing a personal grievance or other legal proceedings in respect of the dismissal.
  • The employee can still bring a personal grievance for unjustified disadvantage, or a claim of harassment or discrimination.
  • The employment agreement must be signed before the employee starts work by both the employee and employer. Get the employment agreement signed, sealed and delivered prior to the new employee starting any duties, or better, before they set foot on your premises!

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions