When implemented and carried out lawfully, probationary periods and 90-day trials are useful tools for employers. However, employers must ensure they understand their obligations to their employees to avoid issues arising in the employment relationship.
Employers often want flexibility to assess whether an employee is going to be able to have the skills to fulfil the role. There are two available mechanisms under the Employment Relations Act 2000 (Act) enabling them to do so – probationary periods or 90-day trials. While they have a similar purpose, employers have different obligations under each, and they do apply differently.
90-day trials
90-day trial periods are governed by section 67A and 67B of the Act and allow an employer to dismiss the employee within those 90 days. Previously, only employers of a certain size were able to utilise a 90-day trial. However, in December 2023 the law changed to give all employers, regardless of size, the option of using them.
Some important aspects of 90-day trials are:
- They allow an employer to dismiss a new employee in the first 90 days of their employment.
- The employee must be given reasonable opportunity to get independent advice on the trial clause.
- The trial period clause must be contained within the employment agreement.
- The trial cannot be longer than 90 days, although it may be shorter.
It is worth noting that while the employer’s only obligation in dismissing the employee is to provide reasonable notice, good faith obligations will still apply. It might therefore be good practice for employers to consider providing some reasoning for dismissal and inviting the employee to a meeting (with a representative and/or support person) to discuss.
Probationary periods
Probationary periods can be used at the beginning of the employment relationship or when an employee starts in a new role, even if the new role is for the same employer. Under section 67 of the Act, it must be specified in the employment agreement that the employee is subject to a probationary period. However, the simple presence of a probationary period in the employment agreement does not prevent an employee from bringing a claim of unjustified dismissal if their employment is terminated pursuant to that probationary period.
The Court of Appeal set out some principles in relation to how a probationary period must be applied in Nelson Air Ltd v New Zealand Airline Pilots Association:
- The employee should usually be allowed to work out the full probationary period.
- The employee should receive proper training.
- The employee should be made aware of any shortcomings or other problems during the probationary period.
Employers must make sure to inform employees if their work during the probationary period is not up to standard, and allow them time and resources to improve.
What is the difference between a 90-day trial and a probationary period?
There are some key differences between the two, and knowing these can assist employers in determining which is better to utilise in the circumstances.
Firstly, what are the employer’s obligations in dismissing the employee? If an employee is on a 90-day trial, the employer does not have to provide them with a reason for dismissal, and the employee cannot bring a personal grievance for unjustified dismissal. When dismissing an employee on probation, the employer must have provided sufficient warning, reasonable opportunity to improve, and a justified reason. If they have not done so, the employee will have grounds to bring a claim for unjustified dismissal.
Secondly, unlike a 90-day trial, a probationary period is not subject to a fixed time limit and can be in place for longer if the employer and employee agree.
Finally, for a 90-day trial to be valid, the employee must be new to the employer and cannot have worked for them previously. For a probationary period, the employee may be new or may have worked there previously in a different role.
Can an employee be subject to both a 90-day trial and a probationary period?
The short answer here is no. However, this question has not been answered in full.
It is certain that an employer cannot apply a 90-day trial and probationary period simultaneously, due to the differences outlined above. In Lewis v Immigration Guru Limited, Mr Lewis’ employment was subject to both a 90-day trial and a probationary period. It was held the employer could not terminate the employee’s employment pursuant to the 90-day trial period, as they had not met their obligations of fair warning and procedural steps under the probationary period.
