A recent Authority determination in the case Hutchinson v Canon New Zealand Ltd [2014] has put the spotlight not only on the application of the 90-day grievance-free trial period, but on the actual wording in the clause itself.
Canon appeared to have done everything correctly, ensuring that there was a valid Trial Period clause in the agreement, that the employee was brand new and had signed the agreement prior to starting work and that notice of termination was clearly stated within the Trial Period clause. Furthermore Canon terminated Mr Hutchinson’s employment before the expiry of the 90th day.
However, ERA member Michele Ryan examined the wording in the clause which stated:
[Canon] may terminate your employment at any time during the trial period by giving you one week’s written notice or payment instead of notice.
Whilst it is common to use such wording as “payment in lieu of notice” in employment agreements, thereby allowing employers to pay out the notice and let the employee leave straight away, Ms Ryan determined:
“….that payment instead of notice cannot be objectively construed as notice as described by the Court in Smith* when the words agreed specifically identify payment as an alternative to notice. I am further persuaded by the observation made by the Court in that case that ‘The statute does not provide an alternative in the form of payment of money instead of notice’…”
In her determination, Ms Ryan reiterated the need to strictly apply the letter of the law as set out in sections 67A and 67B “where removal of a right of access to justice is involved”.
We urge employers to revisit their current employment agreements and check on the precise wording in the Trial Period clause. The wording may be altered by invoking the Variation clause in the agreement, provided both parties agree in writing to the change. But, if that’s not possible, or if there is any doubt, rather insist that the employee works out the notice.
For new agreements, our suggestion for wording regarding termination and notice is:
During the trial period either party may terminate the employment relationship by giving the other party not less than five days’ notice of termination. The employer reserves the right to pay out the notice instead of the employee having to work it out.
Alternatively, it could be worded like this:
The employee will be required to work out the notice, unless the employer and employee agree that the employee is paid out the notice instead of having to work it out.
That way, you are not offering to pay out instead of notice; rather you are offering to pay out instead of making the employee work out the notice – a subtle but distinct difference.
We repeat though – if in any doubt, make the employee work out the notice. We understand that Canon will appeal this decision – we await the outcome with interest.
*Smith v Stokes Valley Pharmacy (2009) Ltd [2010] NZEmpC 111
