Trial Period Update
Acts / 21 March 2019
Case law on trial periods continues to evolve. In light of a recent Employment Court judgment, we have (again!) updated this article, which was previously issued in our InTouch newsletter.
Trial periods are currently available to all employers for new employees for the first 90 days of employment and are a helpful tool because they allow employers to dismiss without recourse to a personal grievance claim for unjustified dismissal. However, from 6 May 2019 they won’t be available for employers with more than 19 employees, following changes to the Employment Relations Act 2000 (Act) as discussed here
The Employment Court’s recent decision in Roach v Nazareth Care Charitable Trust Board  NZEmpC 123, serves as a reminder that correct notice must be provided in accordance with the employee’s employment agreement, where dismissing in reliance on a trial period provision. In that case, it was held that the employee did not receive his contractual notice when dismissed in reliance on the trial period,
There are a number of requirements that must be met in order for the trial period to be safely relied upon to dismiss, and the Courts strictly interpret these requirements because they limit employee rights.
- The employment agreement must include a trial period provision which states:
- That the employer may dismiss the employee in the first 90 days of employment; and
- In that case, there is no entitlement to bring a personal grievance for unjustified dismissal.
- The date on which the trial period starts (usually the same as date as the date on which employment commences).
- We recommend that a trial period clause also provides for a shorter notice period, and for the employee to be required to take garden leave during the notice period .
- Despite earlier decisions to the contrary we now have an Employment Court decision which indicates that payment in lieu of notice is also be an acceptable means of terminating the employment relationship as long as:
- it is contemplated in the employment agreement;
- the employer sets out that notice is given in accordance with the employment agreement; and
- the employer uses clear and unambiguous language, explaining how and when employment is to be terminated, when notice is given.
- The employee must be a new employee, and must not have done any work for this employer in the past. A person that starts work, even just for five minutes, will not be considered a new employee. Make sure you double check this – it is especially relevant where you are purchasing a business with existing employees when timeframes are often tight and getting employees to sign new agreements is a low priority.
- A trial period clause must be:
- Included in the employee’s written employment agreement; and
- Signed by the employee prior to their first day of work (even an hour after starting has been held to be too late!).
- Employees must be told of the trial period when an offer, even a verbal offer, is made. It is also a good idea to include a sentence in your offer of employment letter that states that the agreement includes a trial period. When offering an employment agreement, you must also inform the employee that they have the right to seek independent legal advice and give them an opportunity to seek such advice prior to signing the agreement.
In light of another Employment Court decision, Lewis v Immigration Guru, we recommend that employers should be extra careful to avoid ambiguity where using both a trial and probationary period in an employment agreement.
In that case, the employer had both a probationary period and trial period clause in the employment agreement, which were to operate for the same timeframe. The probationary period clause required the employer to support the employee and address performance issues as and when they arose. The Court held that the employer was bound by those obligations and couldn’t elect to instead rely on the trial period clause to dismiss.
Probationary periods may become popular again given trial periods will only be available to employers with less than 19 employees after 6 May 2019. However, they don’t provide any of the dismissal protection for employers that trial periods do, as during a probationary period employers are still required to meet all obligations to act fairly and reasonably in taking disciplinary action, including by following fair process. For more information disciplinary process tips, see our article.
Dismissing during a trial period
If you are concerned about an employee’s performance or conduct, and their employment is subject to a trial period, we recommend that you first check that you have adhered to the above requirements. To terminate in reliance on a trial period, you need to prepare a letter for the employee explaining this and giving notice, before the 90 day timeframe has expired. You should give this letter to them at a meeting where you explain the decision.
Although you don’t have to give a reason for dismissing unless you are asked, it is good to be able to point to something if you are. This is because you are still required to be proactive in your communication with the employee, including telling the employee why you are dismissing them if they ask, even if those reasons wouldn’t usually be a justifiable reason for dismissing them without the trial period.
Remember, all other employment obligations apply during the trial period and an employee is not prevented from bringing any other kind of claim, for example, regarding discrimination.
If in doubt, call us for help – the trial period provides a great opportunity for flexibility, but only where used in strict compliance with the legal requirements.
Disclaimer: We remind you that while this article provides commentary on employment law topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek guidance from your employment lawyer for any questions specific to your workplace.