Days are numbered for 90 day trial periods

The days appear to be numbered for 90 day trial periods, with the Government introducing the Employment Relations Amendment Bill 2018 (Bill) on 29 January 2018 and along with it a number of sweeping changes to employment law in New Zealand.

One of the proposed amendments is to remove the ability for businesses with 20 or more employees to use trial periods for new employees. This is not a surprising proposal, given Labour campaigned from the outset to scrap the “fire at will” 90-day trial period legislation.  Thanks to Winston Peters however, the Government will still allow the use of the trial periods for businesses with less than 20 employees.  This is welcome news to small businesses; given 97% of New Zealand’s businesses have 19 employees or less.  It is worth noting that these businesses only employ 29% of employees in New Zealand however, so the effect will still be widely felt.

With the ability to use trial periods being limited so significantly, it is likely the use of “probationary” periods will increase as an alternative, particularly for businesses with over 20 employees.

While trial periods came with a range of issues and can be difficult to enforce if not drafted correctly, they did provide a valuable opportunity for employers to assess the suitability of new employees.

Probationary periods will still allow employers and employees to determine whether the employee is the right fit for the role. However, unlike 90-day trial periods, probationary periods allow employees to raise unjustified dismissal claims and require employers to give reasons for termination of an employee’s employment. The same rules apply as terminating under normal circumstances, which arguably make probationary periods somewhat redundant.

The key differences between trial periods and probationary periods are:

Trial period Probationary period
Which businesses can use the trial and probationary periods? Businesses with less than 20 employees. All businesses.
Right to raise a personal grievance for unjustified dismissal? No. Yes.
Reasons required for dismissal? No. Yes.
Fair and proper process to be followed before dismissal? Yes. Notice must be given before the end of the trial period and concerns must be identified during the trial period. Yes.
Time limit? Yes. A maximum of 90 days from the commencement of employment. No. Must be a reasonable length of time taking into account all relevant circumstances.
Which employees? New employees who have never previously been employed by the employer. All employees including those changing roles within a company, or to put employees on notice that their performance and behavior are being monitored.
Must be recorded in writing in the employment agreement to be valid? Yes. Yes.
Employee is paid during the period? Yes. Yes.
Employer must give notice of dismissal in accordance with the employment agreement? Yes. Yes.
Employee is regarded as permanent employee following period, if not dismissed? Yes. Yes.

While probationary periods may still enable employers to assess the suitability and performance of employees, their use is certainly more restrictive than the use of 90 day trial periods. It is likely that once the ability to use trial periods is lost, many employers will act more conservatively before hiring employees, and thorough due diligence will be carried out on applicants before offering employment.

The Bill is still in its early stages, only having had its first reading on 1 February 2018 and is before the Select Committee until August 2018. Therefore, further changes to trial periods may develop before this becomes law.

Workplace Law team

If you have any queries in respect of the above, or any other Workplace Law issues, please contact a member of Lane Neave’s Workplace Law team:

Employment: Andrew Shaw, Fiona McMillan, Gwen DrewittMaria Green,  Hannah Martin, Joseph HarropHolly StruckmanAlex Beal, Giuliana Petronelli, Abby Shieh
Immigration: Mark Williams, Rachael Mason, Daniel Kruger, Nicky Robertson, Julia StrickettKen Huang, Mary Zhou, Shi Sheng Cai (Shoosh)Sarah Kirkwood, Janeske SchutteLingbo Yu
ACC: Andrew Shaw
Health and Safety: Andrew ShawFiona McMillan

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