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Oral Submissions on Probationary Employment Bill

Employers and Manufacturers Association (Central) Inc

Summary of Oral Submissions on

Employment Relations (Probationary Employment) Amendment Bill

made before the Transport and Industrial Relations Committee

3 August 2006

Appearances by:

Paul Winter, Chief Executive Officer

Susan-Jane Davies, Managing Solicitor

Notes for Paul Winter

We have made a written submission on the Bill, and I want to use this time to talk further about the spirit of the Bill.

The Bill’s attempt to create a genuine probationary period has been portrayed by the CTU and others as a cynical attack on workers’ rights. But the idea behind this Bill is to create opportunities that aren’t there at present. What this Bill is trying to address is the way that existing employment protection mechanisms, which were intended to protect employees from unfair dismissal, in fact reduce employers’ willingness to make risky hires in the first place. It is ironic that potential employees who are in that “risky” category, and who therefore might be seen as being most in need of help, in practice have their employment options reduced by the very legislation that was intended to protect them.

Personal grievance cases can be lengthy and expensive. Employers’ perceptions of the process have become more negative following recent cases which have tended to focus heavily on procedural issues. The message for employers from these cases is that unless an employer is meticulous in following set procedures (and these are becoming increasingly complex and elaborate), they risk being punished financially, notwithstanding the inappropriateness of the employee’s behaviour, or their performance capability.

When the best candidate for a job vacancy is someone who is “risky”, either because they lack recent work experience, or because their experience is in a different type of work, an employer may well choose not to fill the vacancy. This is particularly so under current legislation where the consequences of making a wrong choice could include facing legal action and uncapped financial penalties. It is also especially relevant for small businesses, with their smaller resources.

We see this Bill as reducing the risk for employers in this situation, and so encouraging them to give the “risky” employee a go. We believe this would improve labour market utilisation, and would make it easier for disadvantaged groups to get a first job. Even if their employment did end after the three month probationary period, that work experience would still be better for them than no experience at all. This is why we support the Bill.

However, we have heard the concern expressed that some unscrupulous employers could exploit the Bill in a way that is not intended.

We think these concerns are overstated. Employee churn is bad business practice, and is counterproductive. It is costly to recruit and dismiss employees, and employers do not do so lightly.

We support the Business New Zealand suggestion that probationary employment guidelines be introduced here, which are similar to those already used in other jurisdictions with probationary periods. The guidelines would include such matters as the need for regular supervision and feedback during probation. In the majority of cases, we believe these guidelines, combined with education about the purpose and nature of the probationary periods, would be sufficient.

However, we suggest that as a backstop the committee could also consider establishing a mechanism whereby employers who were found to be abusing the grievance free periods would lose the right to use them.

Notes for Susan-Jane Davies

1. What is wrong with s67 ERA as it is?
- It is misleading. Many people mistakenly believe it means probationary/trial periods automatically apply to all new employment relationships. The section doesn’t say that at all. It says that it will only apply if the parties expressly agree to a probationary/trial period and write it into the employment agreement. (s67(1) ERA) So, employers (particularly smaller less well resourced ones) who mistakenly think they will have the benefit of a probationary period in which they can terminate a relationship if it doesn’t work out are especially vulnerable to tripping up.

- In fact, the Bill perpetuates this misleading situation because again, the 90 day probationary period only applies if parties expressly agree. We say this needs remedying to provide for a 90 day probationary period applying automatically, unless the parties expressly agree that it won’t.

- Section 67 is so watered down as to be toothless. The fact that it is agreed to be a trial period, and what is specified in respect of the trial (e.g. expected deliverables) is expressly stated to have no special weight. (s67(1)(b) ERA) makes it a non event given that all the statutory employment protections and judicially determined procedural fairness obligations are expressly stated to remain.

2. What should be the “default position”?
- EMAC says the default position ought to be that a probationary period automatically exists for the first 90 days, unless the parties expressly agree otherwise. That is not the case now, nor is it how the Bill is currently worded.

3. When and to whom should this 90 day exemption period apply to?
- All employees, not just the first time in work, the less than ideal employees or the minority of hard core long term unemployed or sickness beneficiaries
- All types of jobs – skilled or unskilled

4. Incompatibility – a real issue, but hard to satisfy the 4 point judge-made test
“… I remind myself of the law on incompatibility justifying dismissal, which requires the employer to show the necessary level of incompatibility existed, it was largely the employee’s fault, the facts were entirely convincing and the employer had acted in a procedurally fair manner: Reid v New Zealand Fire Service Commission.” (emphasis added)
Judge B S Travis, Hayward v Tairawhiti Polytechnic (AC43/05).

5. The new justification test a high hurdle
- As a result of the recent Employment Court decision in Air NZ v Hudson (AC 30/06), it appears an employer must now follow a laboured at technical process in which each aspect of its procedure and decision making is subjected to a rigorous spotlight examination.

6. Statutory rights which should not be suspended in the first 90 days:
- Anti-discrimination protections – sex, race, disability, orientation,
- Health and safety claims
- Anti- discrimination protection for lawful union related activities
- Wages protection claims

The Bill needs minor repairs to ensure that all these protections are restored and protected.

The suggestion that the Human Rights Commission processes provide an insufficient remedy and therefore mainstream anti-discrimination protections should be brought within the ERA is a separate and valid issue in itself. But the main ones, sex and race discrimination protection already exists in the ERA.

7. Good Faith
- The right to bring breach of good faith claims arising during the 90 days exemption period need to be suspended too. Otherwise, breach of good faith claims will quickly take the place of a personal grievance and will drive a coach and horses through the intent and operation of the Bill
- Thought needs to be given to how the Bill can be modified to prevent this major flaw without undermining confidence in parties’ adherence to good faith principles.

Common Myths about the Bill

Myth 1 : The Bill is redundant because probationary periods are already provided for under the ERA.

Reality : Section 67 of the Employment Relations Act 2000 provides for probationary or trial periods but only by express written agreement. There is no statutory significance which attaches to a so-called trial period. It is not currently possible to contract out of the statutory employment protections during the trial period. So, the so-called trial period is meaningless. The real and practical effect of s67 is negligible, since all the acts or omissions of an employer during the agreed probationary period remain subject to challenge. All the statutory employment provisions, particularly the ability to pursue personal grievances via external dispute resolution, still apply.

Myth 2 : The Bill is redundant because there is no evidence that the existing probationary periods are used.

Reality : Probationary periods are used typically to provide for shorter contractual notice periods during the early stages of an employment relationship and to provide for any special protocols to be observed in relation to supervision and monitoring of performance.

However, the main reason they are not used widely in New Zealand is for the very reason the Bill has been introduced – s67 ERA affords the employer no special comfort or protections from costly legal challenges so does not amount to anything much of a trial period in practice.

Myth 3: The Bill is not needed because hardly any personal grievance cases are taken in the first few months of employment.

Reality: It is true they are rare, but they do happen. This low empirical evidence is not however a true litmus test for whether or not we need this Bill.

There are two likely reasons for the low incidence of PGs in the first months of employment. One reason may well be that, with full employment rights from day one, employers are currently discouraged from making risky hire decisions in the first place. Also, while an unsatisfactory “fit” may be apparent early on in the relationship, as the law stands it may take months to work through the increasingly laboured processes required to terminate the employment relationship. So, PGs which may have arisen from problems apparent early on in the employment relationship only surface months later.

Myth 4 : Employees could be dismissed for taking part in union related activities.

Reality: This is clearly outside the spirit of the Bill and is a simple drafting matter to correct.

Myth 5: Employees could be dismissed for raising legitimate health and safety issues.

Reality: This is clearly outside the spirit of the Bill and is a simple drafting matter to correct.

Myth 6: The Bill would reduce flexibility in the labour market by discouraging employees from changing jobs.

Reality: It is true that risk averse employees may be discouraged. But that happens anyway. However, the “push – pull” motivations for changing jobs will typically outweigh concern about the temporary risk to job security arising from a 90 day suspension of the right to bring a PG.

Myth 7: The Bill would create a new class of “disposable worker”.

Reality: NZ law already permits a number of different types of legitimate short term and casual working relationships, both inside the ERA and outside it, for example independent contractors, temporary staff, fixed term employees and casuals. The Bill is aimed at creating long term employment opportunities for risky or marginal hire situations, not short term labour supply solutions which can and are met by other means.

Myth 8: The Bill would make it more difficult for rural areas to attract teachers, doctors etc.

Reality: Recruitment difficulties in rural areas is a problem that is well established. The proposed 90 day period is unlikely to materially exacerbate an already difficult problem. EMAC says the Bill should be modified to allow for employers and employees to contract out of the 90 day statutory probationary period. We would expect that this contracting out would be common in difficult recruitment situations where demand exceed supply.


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