Agreements / 26 September 2019
Trial periods are now limited (effective 6 May 2019) to employers with less than 20 employees, and should be removed from employment agreements for larger employers.
Requirements for a valid trial period
Case law is still developing regarding trial period requirements, strictly interpreted by the Courts given they limit minimum employee rights.
There are a number of requirements that must be met in order for the trial period to be safely relied upon to dismiss, without the employee having recourse to a personal grievance claim for unjustified dismissal.
As at September 2019, in summary, the requirements are:
- The employment agreement must include a trial period provision which states:
- The date on which the trial period starts (usually the same as date as the date on which employment commences).
- 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 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.
- The employment agreement must be signed by the employee prior to their first day of work (even an hour after starting has been held to be too late!).
- The employee 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.
Dismissing in reliance on a trial period
As well as meeting these requirements, to safely dismiss in reliance on the trial period, the employee needs to be advised that termination is in reliance on the trial period. Correct notice of dismissal must be given, within the trial period (even if notice expires after the trial period has ended), and in accordance with the employment agreement.
We recommend that the trial period clause contain a shorter notice period, and the ability for the employer to place the employee on garden leave during the notice period and/or pay the employee in lieu of notice, to allow maximum flexibility.
Recently, the Court of Appeal in Ioan v Scott Techonology NZ Ltd confirmed that payment in lieu of notice is 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.
Although you do not have to give a reason for dismissing unless you are asked, it is good to be able to point to something if you are, to meet the duty of good faith which still applies, along with all other employer obligations, during the trial period. An employee is not prevented from bringing any other kind of employment claim, for example, regarding discrimination or breach of good faith.
If you are considering terminating an employee in reliance on a 90-day trial period, we recommend you seek specialist advice to mitigate the risk of a successful personal grievance claim.
In light of another recent Employment Court decision, Lewis v Immigration Guru, we recommend that employers should be extra careful to avoid ambiguity where using both trial and probationary periods 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 are more popular now given the limitation on using trial periods but do not provide any protection for employers in respect of personal grievance claims. Given this, the usual fair process and substantive justification requirements apply. For more information disciplinary process tips, see our article.
Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.