Pharmacy case goes against employer despite supposed protection of 90-day probation rule

THE DOMINION POST - MONDAY, 30 AUGUST 2010

Last year the Government introduced the 90-day trial period. It is a law that many may have thought allowed employers to dismiss new employees without risk of a personal grievance. Wellington woman Heather Smith has driven a hole through that theory in a case recently decided by the Employment Court.

It appears the flagship 90-day legislation has struck an iceberg and taken on considerable water. This is despite publicity surrounding the law and the significance attributed to it by the Government.

Heather Smith worked for a Stokes Valley pharmacy as a retail pharmacy assistant. After two and a half years of her employment, the owners of the pharmacy sold the business to Karen King and Paul Kearns. The pharmacy was now to carry the flag of an industry body known as Pharmacy Brands.

Before the changeover, Ms Smith was interviewed by the new owners, who told her that they would take over the business from October 1, 2009. Following that, she was telephoned by one of the new owners who said that she had succeeded in her application for the job and her contract would be sent out in the mail. She received the contract on September 29, just before the changeover. She started work with the new owners on October 1. The court held that she was on her old terms and conditions of employment on her first day with the new owners. She did not sign her new employment agreement until October 2, just one day after she had began work.

In December 2009, Ms Smith was told by the employer that she was to be dismissed summarily. The employer claimed it was entitled to do this because the dismissal came within the 90-day trial period. The 90-day trial periods under the current legislation were thought to allow employers of under 20 employees to dismiss an employee within the first 90 days of their employment without risk of an unjustified dismissal claim.

The chief judge of the Employment Court heard the case. The court considered a number of aspects of the employer's behaviour and found for Ms Smith. Remedies were left for another day.

The first determinative issue was that Ms Smith had begun work for the new employer on October 1, 2009, but did not sign her written agreement until October 2. This meant she was not a "new" employee at the point of signing the agreement, a requirement under the act. In addition to this technical problem, the judge decided that Ms Smith could hardly be described as a new employee because she had been working for the business for several years.

A second significant issue was that the current 90-day legislation provides that employers must give workers notice of termination before the end of the trial period, whether the actual termination takes effect before, at, or after the end of the period. Here the employer failed to give Ms Smith any notice at all and effectively summarily dismissed her.

Thirdly, the court pointed out that the 90-day trial period legislation doesn't specifically provide for a sum of money to be paid in lieu of notice. It was not necessary to specifically decide whether or not the legislation must so provide.

That is because Ms Smith's employment agreement provided for a four-week-notice period but did not provide for payment in lieu of notice.

The notice provided for in the contract was not given and two weeks' wages were paid instead. A further two weeks' wages were paid many months later. The lesson is that when drafting an agreement that includes a 90-day trial period, a discrete period of notice needs to be included for termination within 90 days. Employers may also wish to allow for payment in lieu of notice despite some uncertainty about whether the act specifically allows this. Otherwise employers will be tripped up like the Stokes Valley pharmacy owners were.

In addition to all of this, included in the employment agreement was an obligation to provide assessment and improvement for Ms Smith in relation to the 90-day trial period, by conducting regular meetings for that purpose.

No such meetings occurred. The employer breached the provisions of its own contract. Whilst there is nothing wrong with including provisions such as these, such provisions place obligations on the employer that must then be met.

Because of the first two problems, the employer had no protection under the 90-day legislation and Ms Smith's dismissal was unjustified. The employer followed a faulty process and did not provide sufficient reason to justify the dismissal. The employer thought it were protected by the 90-day rule and simply had to say "au revoir".

The chief judge was clearly very concerned about the effect of all of this on Ms Smith, who had a good record of employment over the years and a good reference from the previous owners of the pharmacy. The judge observed that what happened to Ms Smith was not an uncommon employment situation. He said she was an established and experienced retail assistant on a relatively low hourly rate of pay. She was very dependent on her job and earnings for her economic survival and that of her family.

The court observed that Ms Smith's situation highlights the imbalance in employment relationships that can sometimes occur. Ms Smith was on her own in the sense that she did not have advice from a union, an expert, or friends or family. She accepted at face value what she had been told by her employer and was loath to challenge or otherwise rock the boat because of her vulnerable economic circumstance.

While she raised queries about aspects of her terms and conditions and obtained assurances, she was not about to jeopardise the security of her own employment by resisting such clauses as the trial provision. Conversely, the employer relied heavily on legal advice which it followed as well as it was able.

The judge finally observed that in that sense, the case was in some ways a test, not of the employer's employment abilities, but rather of its legal advice.

The case was decided on the current legislation which applies to small and medium businesses only. The Government's proposal to amend the law to extend it to all employers will carry with it the same problems identified in the chief judge's decision, as it seeks simply to extend the application of the trial periods.

The law as it stands now should be read very carefully by employers and their legal advisers. The technicalities should be complied with.

I suspect the Government will amend the law to simplify it and to ensure that its intentions are actually carried through into the legislation.

Peter Cullen is a partner at Cullen-The Employment Law Firm, and can be contacted at peter@cullenlaw.co.nz.