Balancing risk in employment

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Probationary periods and unjustified dismissals - a view by Business NZ Chief Executive Phil O'Reilly

Balancing risk in employment

Phil O’Reilly

Two cases from the Employment Court and Employment Relations Authority have been hot issues in the media over the last fortnight. They have highlighted real problems with dismissal law in New Zealand.

The plasterer who scrawled obscenities on the window of the house he was working on and the airline employee who assaulted a co-worker – both were fired, then subsequently awarded thousands of dollars in compensation for hurt and humiliation.

In each case the sacking was warranted. But in each case the employer had to pay out because they did not go through all the right procedural steps for dismissals as required by the Employment Relations Act.

This raises the question – is the Act too complicated to follow?

Employers - especially small employers - say it is.

They say the Act is very heavy on procedures that must be followed, and if any step is missed out, it’s the employer, not the miscreant employee, who must pay up.

The scale of the problem was indicated with last week’s EMA report that showed a 28% rise in grievances over the last year with awards for hurt and humiliation averaging around $5,000.

The EMA report said the reasons for the increase were twofold – the complexity of the Act, and “increasing numbers of employees trying their luck to see if their employer can be tripped up.”

It’s impossible to prove whether more employees are ‘trying their luck’ in this way.

But employers certainly fear that this is the case, and that’s a problem.

It’s a problem because it can make employers wary about hiring, especially hiring someone without a strong employment record.

That fear can make it hard for young people or others at the margins of the labour market to get a chance of a job.

It’s a great pity - those who are most in need of a job may miss out because of the unintended consequences of poorly written employment law.

It seems that change is needed. The Employment Relations Act should be simplified and clarified, and some sort of probation period for new employees is needed.

A Bill currently before select committee would amend the Act to allow for a 90-day probation period, during which grievance claims would not apply.

This proposed law would work in the same way as it does in the UK, US, Australia and many European countries - giving the untried worker the chance to prove they can do the job, while preventing the employer’s trust from being abused.

Probation periods have been part of the employment landscape in those countries for years. They are unremarkable and accepted because they are a sensible way of protecting the rights of both employer and employee.

Union claims to the contrary need to be addressed.

The claim has been made that probation periods would allow employers to hire then fire a series of workers. This is unrealistic, since the cost of recruiting and training new workers would make such an action prohibitive. More importantly, that is not how employers think - an employer makes a hiring decision in the hope and expectation that an employee will be successful, not with failure in mind.

It has also been claimed that such legislation would bog down the labour market with people not changing jobs to avoid the probation period. This overlooks the fact that it would be a purely voluntary provision and in any case not really aimed at experienced workers.

If anything is bogging down the labour market, it’s the high risk associated with giving an untried worker a go.

The Probationary Periods Bill is a positive move towards reducing that risk and getting more balanced employment law.


Phil O’Reilly is Chief Executive Business NZ