Three-month probation a thing of the past

30 August 2011 8:26am

Many employers continue to put three-month probation clauses in new employees' contracts, despite the Fair Work Act rendering that timeframe meaningless with regard to dismissals, says employment lawyer Emma Goodwin.

She recommends instead that employers specify a six- or 12-month period, in line with the legislation.

Under the old Workplace Relations Act an employee on probation was exempt from making an unfair dismissal claim, she points out. "And because the probation period in some cases could be long - in education, for example, it might be up to three years - that obviously was something that was relied upon quite a lot by some employers."

Now that exemption doesn't exist, and an employer can only rely upon the qualifying period of exemption which is the first six or 12 months of employment, depending on the size of the employer.

Goodwin, who is a senior associate at Mallesons Stephen Jaques, told HR Daily: "I think a lot of employers, and employees as well, are a bit puzzled about what that actually means. For example you'll still see people putting a three-month probationary period in a contract of employment and my question is often, 'Is there a reason for that? Or are you just putting it in because you've always put it in?' In which case perhaps you'd be better off putting in six months to harmonise with the qualifying period, and which would make it clearer to everyone."

Employers might still want to insert an alternative timeframe into contracts if, for example, they provide access to certain employee benefits after a specific period, she says.

"And I've seen one employer have an issue where employees were unable to obtain loans and so on from banks within their probationary period. Apart from the fact that that shows the bank doesn't really understand what the probationary period is any more, in that case they were making probation three months and clarifying with the employee that that doesn't actually mean anything for the purposes of unfair dismissal."

Wage deductions clauses

The Act also introduced provisions on when deductions could be made from wages, with the result that many employers' wage deductions clauses are non-compliant, Goodwin says. "This is not so well known by a lot of people."

The legislation provides that employers can deduct amounts from wages:

in accordance with the law, for example, if child support legislation required you to do it by court order;

if an agreement permits it, or an award (although there is a qualification to this); and

with the employee's consent, provided the consent is provided in writing and he or she authorised the amount of the deduction.

Goodwin says, "That makes it a little trickier than perhaps some of the clauses people are used to using. A catch-all 'I consent to any and all deductions' clause won't get you there because it has to actually state what the amount is. It makes it much harder."

A further issue, she says, is that "if the deduction is directly or indirectly for the benefit of the employer, then it must also be 'reasonable'. And that qualifies terms in an agreement or award as well".

"A lot of people will put in their contracts a term saying, 'If you don't give sufficient notice we will deduct monies from your termination payment'," Goodwin says by way of example. "A lot of awards expressly allow you to do that, but there's always going to be room for an argument that that won't meet the requirements of the Act. If it's not authorised then the question of reasonableness crops up. It's certainly not as straightforward as it was."

Further, she adds, "There's a requirement that says that you're not allowed to require an employee to spend amounts. So, for example, you can't require them to spend money on accommodation provided by you. And if you do that and the employee ultimately challenges the fact that you've required them to spend the money, effectively the amount that they have in fact spent is considered not to be relevant, so that the employer would have to 'double pay'".

To ensure they comply, employers would most likely have to get a written authorisation for each deduction, she says. "And I think you could try and draft a clause very broadly, to the effect that you agree to consent to X, Y and Z deductions and get the employee to sign off on the amount each time, but that's still skating a bit on the edge.

"I think that's a real challenge for a lot of employers."

Severance pay

The legislation also introduced redundancy pay for every employee under the Act, raising a question for employers as to whether they should refer to it in employment contracts, in a separate policy, "or just ignore it".

If the employer's normal practice was to offer more severance pay than is provided for under the Act, "you might put it in the contract, particularly if you're wanting to reassure employees".

Alternatively, Goodwin says, "you might keep it in a policy and indicate that the redundancy will be in accordance with legislation and/or policy from time to time, which gives you a lot more flexibility".

Policies and procedures

A further area where employers need to exercise caution when drafting contracts is in the interaction with their policies and procedures, Goodwin says.

"We've had a few cases now which suggest that if you don't draft a contract carefully certain policies can be found to be terms of the contract agreement, which then gives the employee the opportunity to launch proceedings for breach of the policy as if it were a breach of the contract.

"That can come up with some fairly scary results from an employer's point of view. It's important to be quite careful - for example you might require in any contract that people comply with policies, but you will also need to make it clear that that doesn't mean they create enforceable contractual terms and benefits to the employee.

"There was a full Federal Court case where they found that that sort of drafting was sufficient, so that's obviously a useful thing to do."

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