Trial periods (90 days or less) can be useful tools for employers to assess whether an employee can meet employment expectations and is the right fit. As of 6 May 2019, they are permissible only for employers who employ fewer than 20 employees.

The current law is set out in ss 67A and 67B of the Employment Relations Act 2000. Briefly, if a qualifying employer terminates an employment agreement containing a trial provision by giving notice to the employee before the end of the trial period, the employee may not bring a personal grievance or legal proceedings in respect of the dismissal. It has been uncertain, however, whether the requirement for notice meant that an employer had to allow the employee to work out the notice period or could make a payment in lieu.

The Court of Appeal in Ioan v Scott Technology NZ Limited¹ considered this issue.

Mr Ioan was employed as an engineer by Scott Technology (Scott). His employment agreement contained a valid 90 day trial provision. In addition, it contained a general notice clause providing for termination of employment by either party on four weeks’ notice. The notice clause also said that the employer could elect to not require the employee to work out the notice period, in which case the notice period would be paid by the employer.

Scott wrote to Mr Ioan during the trial period and stated his employment ended effective immediately. It referred to the four-week notice of termination clause and explained it had decided that Mr Ioan would be paid in lieu of working out his notice so that his last day of work was that day. Mr Ioan accepted this and did not ask to be able to work out his notice.

Mr Ioan argued in the Authority, the Employment Court and the Court of Appeal, that Scott had not given notice as required by s 67B(1) of the Act because it did not notify him of a date in the future when his employment would end. He said that he had been summarily dismissed and therefore had a personal grievance for unjustified dismissal.

The Court of Appeal in its decision 27 August 2019 dismissed this argument (which had also failed in the Authority and the Court). It found that where notice of termination of employment is given within a valid trial period, and the employer pays the employee in lieu of notice (where provided for in the employment agreement), this is valid notice for the purpose of s 67B(1). It followed that Scott had given notice that complied with the Act and Mr Ioan was precluded from pursuing his personal grievance.

There is still time for Mr Ioan to apply for leave to appeal to the Supreme Court. Absent leave and a successful appeal (both of which seem unlikely) this case provides useful clarification of notice requirements for trial provisions.

If you would like to know more about this decision or need assistance with an employment dispute, please contact Rachel Scott or Melissa Castelino.

  1. [2019] NZCA 386