90-day Trial Periods

The Government has recently announced its intention to remove the ability for larger businesses (with 20 or more employees) to use trial periods with their employees, as part of its planned revamp of the employment law regime. The Employment Relations Act 2000 currently allows employers to 'trial' new employees for up to 90 days, as long as this is agreed in the written employment agreement before the employee starts work. If an employee is dismissed during a valid trial period, that employee cannot bring a personal grievance for unjustified dismissal or other legal proceedings about their dismissal (as long as the employer has given the right amount of notice to the employee).

The Government has however indicated that trial periods will still be able to be used by smaller businesses – i.e. businesses with fewer than 20 employees - which cover a majority of NZ employers.

Nevertheless, dismissing an employee under a trial period is not always a straightforward affair, and there can be hefty consequences (financial or otherwise) for employers that terminate their employee’s employment in reliance on unenforceable trial period contracts.

There are several key requirements for valid trial periods, including:

  • The employee must agree in writing to a trial period (usually in their employment agreement) before the employee commences work with the employer.
  • The commencement date of the trial period must be stated in the employment agreement.
  • The exact timeframe during which the employee will be on trial must also be stated in the employment agreement e.g. it could be 30 days, or 90 days, or another stated time period. (NB: “3 months” is not the same as “90 days”).
  • If an employee is a union member employed on a collective employment agreement, they can’t have a trial period (in their individual employment agreement) that is inconsistent with the collective employment agreement.
  • If the employee has been previously employed by the company / business, or if the employee starts work before signing the employment agreement containing the trial period clause, the trial period will be ineffective.
  • An employer is not obliged to provide a reason for dismissing an employee during his/her trial period. However, if the employee asks for a reason for the dismissal, the employer is obliged to provide a reason.

The list above is by no means exhaustive. Employment law is full of fishhooks, and there are several factors that may invalidate a trial period.  We recommend that employers always obtain legal advice when preparing employment agreements and before seeking to terminate an employee’s contract (whether during a trial period or otherwise) to avoid the risk of breaching employment laws and due process.

For more information on matters covered in this article, please contact James Carnie, Partner.

Disclaimer: This article by its nature cannot be comprehensive and cannot be relied on by any client as advice. This article is provided to assist clients in identifying legal issues on which they should seek legal advice. Please consult the professional staff of Clendons for advice specific to your situation.