Monday, August 30th, 2010

More on the 90 day trial period

Outline –

The predicament of Heather Smith, and particularly the circumstances surrounding her dismissal by Stokes Valley Pharmacy (2009) Limited has become somewhat of a cause celebre for the opponents of the 90 day trial provisions of the Employment Relations Act.

Heather Smith claimed that her employer, Stokes Valley Pharmacy (2009) Limited  dismissed her unjustifiably. Her employer maintained that she was properly dismissed and was not obliged to give any reason because the employment agreement contained a 90 day trial period.

The Employment Court was asked for rulings on various aspects of the Trial Period provisions of the Employment Relations Act


Ms Smith started working for Stokes Valley Pharmacy in March 2007. In August 2009 the business changed hands. Ms Smith had to reapply for her position.

She was interviewed by the new owners, and on 14 September she was told that she had “got the job” and that a contract would be sent in the mail.

A draft Agreement was handed to her on 29 September.  The Agreement contained a “90 day trial or probationary” period.  The Agreement also said that there would be targets and regular appraisal meetings so that Ms Smith knew where she stood.

Ms Smith started working for the new employer on the 1st October.  The Employment Agreement was signed on the 2nd October.  Some changes were made to the agreement that day before it was signed.

The employer was not wholly satisfied with her performance and on 8 December 2009, she was informed that she no longer had a job.  She asked what she had done wrong.  She was told that “she was not what they were looking for and that she was inexperienced”.

The employers, who were somewhat inexperienced and dependent on legal advice, had been given a script by their lawyers and slavishly stuck to it.  They were advised and believed that they were not required to provide any explanation or justification for the dismissal.

Did the trial period provision apply?

The Employment Court had a number of issues to resolve.  The first one was whether the employer was entitled to rely on the Trial Period provisions of the employment agreement.  If the employer was not entitled to rely on those provisions, it was accepted that Ms Smith was dismissed unjustifiably.

The Court firstly considered the rationale for the statutory provisions.  It noted that the purpose was to allow employers some room in engaging and dismissing new employees where there may be doubt as to their suitability for the position.

The Court then noted that as the sections removed employee protection provisions (access to dispute resolution and to justice), they should be strictly interpreted.

The Court decided that the trial period provision in the Agreement was not available to the employer.  The trial period is only available to employees new to a particular employer.

The Court found that at the time of signing the Agreement, the employee had already been offered and had accepted the job and had worked for one full day.  Applying the strict interpretation of the definition of “employee” in the Act the Court concluded that on the 2nd October 2009, Ms Smith was an existing employee.


The Court then considered whether Ms Smith was properly dismissed. Even if the Trial Period provisions had applied , Ms Smith could still have brought a personal grievance claim unless it could be shown that she was lawfully dismissed.

The Section requires the employer to give notice of termination within the 90 day period. The relevant Agreement required that 4 weeks notice must be given.  Here,  no written notice had been given.  The employee was orally advised of her immediate dismissal.

The Court concluded that the dismissal was unlawful because written notice was required by the Agreement and had not been given.

As an employee is only barred from bringing a claim if the employment is terminated in accordance with the Act, in this case where was no bar to the employee bringing a personal grievance claim.

Reasons for Dismissal

Next the Court considered whether the employer was obliged to inform the employee of the employer’s reasons for dismissal.

If an employer proposes to make a decision that will or is likely to have an adverse affect on the continuation of employment, the employer must give the employee access to relevant information and an opportunity to comment on that information.

Under Section 120 of the Act, a dismissed employee can request the employer to provide a statement in writing of the reasons for the dismissal.  This must be provided within 14 days of the request.

Neither of these two provisions apply where there is a lawful dismissal during a trial period. (Note – even though the Court had decided that the trial period provisions did not apply, it still considered this aspect).

Section 4 of the Employment Relations Act requires parties to deal with each other in good faith. This Section deals with a number of aspects of good faith and how it is demonstrated.

For the purposes of this exercise, the 2 relevant components of the obligation to act in good faith are

  1. Parties to an employment relationship must be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative and
  2. If an employer proposes to make a decision that will or is likely to have an adverse affect on the continuation of employment, the employer must give the employee access to relevant information and an opportunity to comment on that information.

Where a trial period applies, an employer is not required to provide the information nor is the employer obliged to give the employee the opportunity to comment. The question before the court was whether the obligation to be responsive and communicative did require some explanation

The Court noted that it is important for employees to know why they have failed a trial period even though they have limited ability to challenge it.  They should not be deprived of the ability to learn from an unsuccessful trial.  Basically, the Court held that there are good employment relations and human personality reasons for giving explanations for the failure of a trial period and concluded that there was an obligation to give an explanation for the dismissal .

So, although an employer does not have to notify the employee of a proposal to terminate employment nor is the employer obliged to give the employee opportunity to comment, the employee can still seek and is entitled to receive an explanation for the dismissal when notice is given.

Effect of the appraisal regime

The final issue was whether he employer’s failure to comply with the appraisal regime contemplated by the Agreement unjustifiably disadvantaged the employee.

The Agreement clearly contemplated that the employer would train her in the first instance and then assist her maintain the level of competency achieved during the training period with regular and formal assistance from the employer.

In this case there were never any formal meetings designed to address problem areas nor were there any specified competency targets. Some issues were dealt with on an ad hoc basis, but there was no formal procedures implemented.

The employer maintained that because this was a relatively small business and the owners were working pharmacists as well as managers and owners, there was no real opportunity to conduct performance assessment in a formal manner unless it was done outside work hours.

The Court wasn’t convinced by this argument.  The clause was included by the employer.  The employer was expected to comply with it.  Because of the failure to establish performance targets, Ms Smith was deprived of the opportunity to perform to an acceptable standard.

The Court noted that the agreement confused trial and probationary periods. They are treated differently by the Act.

A probationary period is one where the employee is under close and critical assessment. Permanent employment will be assured only if the employer’s standards are met.

The employer must play an active role in the probationary period, pointing out short comings, and  advising about any necessary improvement. The employer must warn of the likely consequences if its expectations are not met.

The objective is always that the trial will be a success, not a failure. Both parties must contribute to its attainment.  If it becomes apparent to the employer, judging fairly and reasonably, that the trial is not a success, the employee is entitled to fair warning before the end of the probationary period that the employment will then be coming to an end.

Lessons to be Learned

  1. Unless the Employment Court decision is overturned, any Employment Agreement signed after a new employee has commenced work may not have a trial period provision
  2. If employment is to be terminated during the trial period, appropriate notice must be given.  If the Employment Agreement says that 4 weeks notice must be given for termination then 4 weeks notice must be give for termination of the trial period.
  3.  The good faith obligation to communicate probably requires the employer to explain to the employee exactly why the employee is being dismissed.  The good faith obligation to be responsive definitely requires an employer to give a truthful explanation.
  4. Trial periods and probationary periods are not necessarily the same.  An employee has greater security during a probationary period than a trial period.  It is best not to wrap features of both in the same clause of the Employment Agreement.
  5. Employment Agreements should be living documents.  They should reflect what actually happens in the work place.  Any employment agreement should be studied carefully by an employer in order to ensure that the employer can and intends to comply.  A custom made Employment Agreement should not be plucked off the shelf unless it is appropriate in any individual case.


It may seem that the interpretation of “new employee” is plunging the depths of pedantry given that the employee was given a copy of the employment agreement before she started and it was signed on the second day.  It will certainly create some practical difficulties for employers.  They will have to be particularly careful to ensure that any initial offer of employment is conditional upon the execution of an Employment Agreement and that work will not start until the Terms of Agreement are signed.  This particular point may well be appealed.

Sunday, July 11th, 2010

Warning, warning, warning

The cases discussed in this article show firstly that an inappropriate warning may give rise to a claim for unjustified disadvantage and secondly that warnings must not be used simply as a pretext for a planned dismissal.

An employer should have a fully worded warning procedure in the employment agreement or in the staff manual.  The procedure should recognize that the primary objective is to lift the performance of the employee in order to meet the standards reasonably prescribed by the employer.

In each of the two cases, warnings were given without any consultation with the employee and without the employee having the opportunity to comment.  The employers had predetermined the facts.

Rangiwananga v Cado Holdings Ltd CA 37/10

Ms Rangiwananga was employed by Cado Holdings Ltd and claimed that she was unjustifiably dismissed following an argument with her employer.  She also claimed that she was unjustifiably disadvantaged when she received a warning concerning her performance.

She received the warning without any prior discussion or opportunity to discuss or comment on the reasons for the warning.  The warning letter referred to customer and staff complaints and alleged that Ms Rangiwananga was rude, disrespectful and belligerent.

Ms Rangiwananga was required to attend a meeting on the 4  September to talk about the issues arising out of the warning letter.  The warning letter had been delivered the previous day .

Ms Rangiwananga asked for the meeting to be postponed so that she could get advice but her employer refused this.  The meeting proceeded and the employer reiterated the allegations.

The Employment Relations Authority was critical of the employer.  Specifically:

  1.  The employer had saved everything up rather than raise issues of concern with Ms Rangiwananga when and as they arose.
  2.  Ms Rangiwananga should have been given the opportunity to get advice or representation.
  3.  Ms Rangiwananga should have been given the opportunity to comment on the individual matters of concern and her responses taken into account.  Instead, the employer had already determined culpability.

Ms Rangiwananga was unjustifiably disadvantaged because security of her employment had been undermined and her work environment was less satisfactory as a result.

About a month later, the employer raised another complaint.  The manner in which the employer dealt with this left Ms Rangiwananga visibly upset and she left home for the day.

Her employer was abusive and told her that by leaving she was abandoning her employment.

Her doctor certified her to be unfit for work.  The medical certificate was faxed through to the employer.  Despite the medical certificate, the employer delivered a notice of termination recording that Ms Rangiwananga had abandoned her employment and was instantly dismissed.

The Employment Relations Authority had little difficulty finding that the employer had no justification for the dismissal and was fully aware of the reasons for Ms Rangiwananga’s absence.

The employer was ordered to pay:

1                         $3000 for the manner in which the initial warning letter was dealt with;

2                         $12,500 as compensation for the manner in which she was dismissed and

3                         loss of earnings of $7,020.

Shan Mohammed Ali v AAA Parts & Auto Services Ltd AA 103/07

In the second case, Shan Mohammed Ali took action against his employer, AAA Parts & Auto Services Ltd following his dismissal for poor performance.  The employer maintained that he had properly delivered three warnings for poor performance — alleging poor quality of work, time wasting and unsatisfactory dealings with customers.

The first warning was verbal and was given in April 2006.  Written warnings were given in July and October 2006.

The employer said that during the April discussion, he talked about a lot of general issues with the Ali.  He said that he complained about “too much mucking around” and that he told the employee “to behave himself and work properly”.

The second letter was delivered three months later and complained about the time it took for the employee to get things done.  The letter said that the employee had one last chance after which he would be dismissed.  There was no meeting between the time of the verbal warning and the delivery of the first letter.

A final letter was delivered in October.  It recorded that the applicant’s performance and attitude had not changed.

Although it seems there may have been grounds for concern about the employee’s performance, the  Employment Relations Authority found that the employer went about it the wrong way. The Authority firstly considered the proper way for dealing with poor performance issues.  The long-standing approach is as follows:

  1.  A fair and reasonable employer will put the perceived performance problems directly to the employee;
  2. The parties are to discuss the problems and with any assistance needed by the employee in order to achieve targets or outcomes.
  3.  The employee must be given an opportunity to improve.  Progress is to be reviewed.  The employee should be given an opportunity to explain why the particular outcomes are not achieved.  Only if there is inadequate explanation, may the employee be dismissed.
  4. The employer must give specific information about the shortcomings and achievable targets to overcome them .
  5. During discussions, the employee must have the opportunity to be accompanied by a support person or representative.

The authority also explained the law on warnings.

  1.  A warning must give the employee an opportunity to improve.
  2.  A warning cannot be used to create a pretext for dismissal.
  3.  The purpose of the warning is to avoid a dismissal if possible by describing the shortcomings, give a clear information on what improvement is necessary and how improvement is to be measured.

AAA Parts & Auto Services Ltd made no effort to discuss shortcomings nor did it make any effort to bring about improvement.  The warnings were simply dressings down.

Compensation of $4000 was awarded for the distress.  Compensation of $14,731.20 was awarded for loss of income.