Nervous About Recruitment? Are Trial or Fixed Term Agreements The Answer?

In the current economic climate, employers may be tempted to employ new starts on a probationary or limited duration basis.  The Employment Relations Authority has recently made it clear to employers that they cannot offer employment on a trial or fixed term basis to assess the suitability of the employee to the position.

Gengy's Investments Limited run a number of restaurants in the Auckland area.  They employed Mr Meredith from December 2005 until July 2006.  He initially worked as a bar attendant, then as the restaurant manager from April 2006.  He was told he would be employed on a three month trial and would be offered permanent employment if he proved he was "suitable".  Mr Meredith was dismissed at the end of the trial period.

The Authority first dealt with the fixed term nature of Mr Meredith's employment.  In order for an employer to rely on the ability to terminate an employee's employment at the expiry of their fixed term, the fixed term employment must comply with section 66 of the Employment Relations Act ("Act").

An employer and employee are able to agree that the employee's employment will end:

• at the close of a specified date or period;
• on the occurrence of a specified event; or
• at the conclusion of a specified project.

Under the Act, before an employee and employer agree to a fixed term of employment, the employer must have genuine reasons, based on reasonable grounds, for specifying that the employment is to end in that way and advise the employee of when or how their employment will end, and the reasons for this.

The Act specifically prevents employers from entering into a fixed term agreement to establish the suitability of an employee for permanent employment.  Failure to comply with the Act means that an employer cannot rely on the fixed term as a justifiable way to end the employee's employment.  As a result, Gengy's was not able to dismiss him simply because the fixed term had expired.  In addition, Gengy's could not argue that Mr Meredith was still "on trial" as section 67 of the Act provides that the law relating to unjustifiable dismissal still applies to probationary employees.

In this case, the only possible justification for a dismissal could be that Mr Meredith's performance was of such a low standard during his three month trial that his employer could dismiss him following a fair and reasonable performance management or disciplinary process.  Gengy's contended that they were justified in dismissing Mr Meredith due to poor performance, taking four sick days off over the trial period, one altercation with a staff member and an attempt to misuse the company's account for personal purposes.

Upon a review of the employer's actions, the process was flawed in many ways.  Among other things it became apparent that:

• little inquiry, if any, had been made into a number of the employer's concerns;
• some of the incidents were a one off occurrence;
• an allegation that questioned Mr Meredith's honesty was never discussed with him and he was not given an opportunity to give an explanation to such a serious allegation;
• although some of the complaints about Mr Meredith were discussed with him on an informal basis, others were not conveyed to him until after his dismissal;
• the managing director, as the decision maker, did not make sufficient inquiry into the matters himself.

The Authority found Mr Meredith had been unjustifiably dismissed and said that a reasonable employer would have:

• made its standards much clearer;
• given him reasonable deadlines to meet in showing that he could perform to the standard required; and
• objectively measured his performance against those standards. 

Given the statutory restrictions placed on employers who very quickly discover that a new employee is not working out, it is critical that employers are focused and patient during recruitment.

If you have any further questions about fixed term arrangements or probationary periods, please do not hesitate to contact us.

For more information, please contact:

Erin Davies
Partner
t: +64 9 979 2177
m: +94 29 622 2300
e: Erin Davies

Last updated: 31 January 2008