Understanding Trial Periods in New Zealand Employment Law

Employment Law, Government, General / 22 December 2023
Understanding Trial Periods in New Zealand Employment Law

Legislation regarding trial periods is consistently updating, and we have updated this article to better understand employer and employee obligations under the 90-day trial provision.

Current Eligibility for Trial Periods

Trial periods are now available to all employers from 22 December 2023 with the Employment Relations (Trial Periods) Amendment Bill achieving Royal Assent on 21 December 2023.

Any employer may employ a new employee on a trial period for up to the first 90 calendar days of their employment. This is only applicable to employees who have not worked for that employer before and is valid in any industry and for any job.

Trial periods are a useful tool allowing employers to dismiss without recourse to a personal grievance claim for unjustified dismissal. If an employer decides to dismiss the employee, they must give notice to the employee and can do so without stating a reason for the dismissal.

Requirements for a Valid Trial Period

There are several requirements that must be met for the trial period to be safely relied upon to dismiss, and the Courts strictly interpret these requirements because they limit employee rights.

For a trial period to be valid:

  • The parties must agree to the trial period prior to the employee commencing work;
  • The employment agreement must include a valid notice period;
  • The trial period must be agreed upon by both parties in good faith;
  • The trial period must be in the employment agreement and must state:
    • That the employer may dismiss the employee in the first 90 days of employment. 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 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.

Legal Cases

Tepania v Haven Falls Funeral Home Limited [2023] NZERA 587 serves as a reminder that trial periods are to be agreed upon and evidenced in writing and signed by both parties prior to the commencement of employment. Roach v Nazareth Care Charitable Trust Board [2018] NZEmpC 123 also reminds us that correct notice must be provided in accordance with the employee’s employment agreement when dismissing in reliance on a trial period provision.

Despite earlier decisions to the contrary, an Employment Court decision indicates that payment in lieu of notice is also an acceptable means of terminating the employment relationship under certain conditions.

Employee Status and Considerations

Before sure to consider when seeking to rely on or use a trial period provision that:

  • It is contemplated in the employment agreement;
  • The employer sets out that notice is given in accordance with the employment agreement;
  • The employer uses clear and unambiguous language, explaining how and when employment is to be terminated, when notice is given;
  • The employee is a new employee and has not 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.

Probationary Periods

Considering another Employment Court decision (Lewis v Immigration Guru), we recommend that employers should be extra careful to avoid ambiguity when using both a trial and probationary period in an employment agreement.

AEWV Visa Holders and Trial Periods

Accredited employers are not able to use 90-day trial periods in employment agreements when hiring an employee on an Accredited Employer Work Visa (AEWV).

Probationary provisions are still allowed under the current policy setting.

The government may make changes to this policy in the future and bring it in line with the current settings under the Employment Relations Act 2000.

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.

The employer does not have to give a reason for dismissal under the 90-day trial period provision, nor does an employer have to give an employee the chance to comment before the dismissal. However, we consider it good practice to consider telling the employee why they are being dismissed if asked. 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.

Message to Employers

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, unjustifiable disadvantage, discrimination or sexual harassment. Contact a member of our team if you would like assistance in this area.

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.

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