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Nuns hit hard by court in trial period dismissal twist

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Ninety-day trial periods for new employees were introduced for employers with less than 20 employees in 2009, were extended to cover employers with any number of employees in 2011 and are likely to revert to employers with less than 20 employees in early 2019. 

Section 67B of the Employment Relations Act 2000 prohibits an employee dismissed under a trial period from raising a personal grievance for unjustified dismissal. Simple enough? Apparently not, given the large number of cases before the Employment Relations Authority and Employment Court, which go in favour of employees dismissed under trial periods. The two main reasons for this is either the trial period was invalid from the outset, or the employer has failed to follow the requirements in the trial period clause when dismissing.

Just when we thought there were no novel trial period problems left to ponder, an October 2018 Employment Court decision, Roach v Nazareth Care Charitable Trust Board, had an interesting twist. Nazareth is owned and run by the Sisters of Nazareth, with the retirement facility in Christchurch being one of 43 retirement complexes in eight countries.

In August 2016, Stephen Roach was offered the position of business manager at Nazareth, which following negotiations, saw him sign an employment agreement, containing a trial period, with his employment set to commence on October 10, 2016. Before he started employment, however, Roach was offered an alternative, more senior position, as general manager at Nazareth. This resulted in him signing a second employment agreement, also containing a trial period and with the same start date of October 10, 2016.

In late November 2016, Roach was given ten minutes’ notice that he must attend a meeting with the Melbourne-based regional project manager who had come to review the facility. During the very brief meeting, Roach was informed that he was being dismissed pursuant to the trial period, was handed a pre-prepared letter recording this, along with his agreement to be paid in lieu of working his one-week notice period and was then given ten minutes to collect his personal property, before being escorted off the premises. 

Roach had no idea why his employment was being terminated, given there had been no negative feedback in relation to his work, and his request for a reason was refused.

Section 67A of the Act expressly states that a trial period can only apply to someone who has not been “previously employed” by the employer. The problem is, s6 of the Act sets out the definition of employee, and includes in the definition “a person intending to work”. When the legislation was drafted, the mischief this clause was intended to address was where an employee has accepted employment with a new employer, has given notice of resignation to their current employer and then had the offer withdrawn by the new employer before they start work.

Roach’s lawyers argued a two-pronged challenge to the validity of the trial period. Their first argument was that when Roach signed the first employment agreement for the business manager position, he was a new employee so the trial period in the first agreement was valid. However, by the time he was offered the general manager position and signed the second employment agreement, he was no longer a new employee as, although he had not yet started the first position offered, he had been a person intending to work. They argued that when he signed the second agreement, he had been previously employed by Nazareth and the trial period in the second employment agreement was therefore invalid.

Judge Smith held that although a person intending to work was defined as an employee, they are an employee for “limited purposes” only, and that the purpose of a trial period is to assess an employee’s suitability for the role. His Honour held that while Mr Roach could have challenged his dismissal if the offer had been withdrawn before starting employment, technically a dismissal, once he had commenced employment, the trial period was in force, valid and prevented him from pursuing a grievance for unjustified dismissal.

The second prong of their argument, however, was successful. While the termination clause in the employment agreement allowed the employer to exercise their discretion to pay the employee in lieu of working out their notice period, the termination clause in the trial period clause was worded differently, stating that “the employer might decide to pay the employee not to work”. This is colloquially referred to as “garden leave”.

By paying Roach in lieu of notice, instead of allowing him to work out his notice or go on garden leave, the employer had incorrectly terminated Mr Roach in accordance with the employment agreement, and the trial period was therefore invalid. If the trial period clause had allowed for the employer to pay the employee in lieu of notice, then the dismissal could not have been challenged.

If a trial period is invalidated for any reason, the Court must then look at the reasons for the dismissal and the process employed. There appeared to be no valid reasons for Roach’s dismissal, and the process that must be employed when dismissing, pursuant to s 103A of the Act, was entirely absent. The dismissal was therefore unjustified.

The impact of the dismissal was significant, not least given Roach could not inform prospective employers why he had been dismissed from Nazareth, as he never knew. By June 2017, Roach had unsuccessfully applied for 97 jobs, and had only managed to obtain limited part-time work. Nazareth was ordered to pay $115,000 in lost remuneration, $25,000 in hurt and humiliation compensation, and costs.

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About Author

Erin Burke

Employment Lawyer and Director at Practica Legal Email: erin@practicalegal.co.nz phone: 027 459 3375