Trial periods and how to get them right

The future for trial periods is uncertain.  As drafted, the Employment Relations Amendment Bill 2018 will mean only employers with “fewer than 20 employees at the beginning of the day on which the employment agreement is entered into” being able to include a trial period in their employment agreements.  Employers whose employee numbers fluctuate around 20, or may sit under this limit for part of the year and over in seasonal periods of work, will find they will need to be vigilant around this issue.   Here is a recap on the essential elements of trial periods.

Trial periods are a useful tool for employers to ensure that an employee is the right fit for the company and, equally, the company is the right fit for the employee.

They allow an employer to place an employee on a trial, for a maximum of 90 days, and if the employer finds the employee isn’t up to standard in that time, the employer can dismiss the employee, by giving the requisite notice within the 90 days. As long as the employee is given the correct notice within the trial period, they cannot bring a personal grievance for unjustified dismissal, or other legal proceedings about their dismissal.

Importantly, dismissal during a trial period does not remove all risk of a claim. Even if an employee is dismissed during their trial period, they can still bring a personal grievance on grounds other than for dismissal, such as for discrimination, sexual or racial harassment, pressure about Union membership, continuity of employment under Part 6A of the Employment Relations Act 2000, or if the employer does something to unjustifiably disadvantage them.

However, there are specific requirements for trial period clauses that the employer needs to get right. To not do so can expose employers to significant liability if an employee decides to pursue a personal grievance against the employer for dismissal under a trial period.

Below are a few key points to keep in mind if your company is using a trial provision:

  • The clause in the employment agreement needs to be drafted correctly to meet the specific requirements under section 67A of the Employment Relations Act 2000. If the clause is not drafted correctly, you risk it being unenforceable. Specifically, we recommend that the clause expressly states:
    • The employee is to serve a trial period;
    • The trial is for a 90 days;
    • The trial period starts at the beginning of the employee’s employment and specify that date, (it helps to also specify the date that the trial period ends, but if you do then make sure this is the correct date!);
    • Any notice period that applies during the trial period;
    • That during the trial period the employer may dismiss the employee; and
    • If the employer does so, the employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal (this clause is particularly important as if the employer decides to dismiss the employee within the period and the agreement does not state this, the employee can bring a personal grievance for the dismissal (Wilson v Promotional Systems Ltd)).
  • For the clause to be enforceable, the employee must sign the agreement before starting their first day of work or their first shift with the employer. Otherwise, the employee will be considered an “existing employee” and the trial period will be void. This rule is applied very strictly, for example in Blackmore v Honick Properties Ltd the employee had only been working for one hour when he signed the agreement, yet still the trial period was null and void.
  • If an employer mistakenly dismisses an employee outside of their 90 day trial period, thinking they are doing so under the trial period provision, the employee can raise a personal grievance for unjustified dismissal.
  • Although an employer does not have to give a written reason for why the employee was dismissed under the trial provision, an employer still has a duty of good faith towards the employee during their employment. This means that the employer must continue to be responsive, communicative and honest throughout the employment relationship and must therefore give the employee a reason for the dismissal if requested(Smith v Stokes Valley Pharmacy (2009) Ltd).
  • The employer must abide by the specific notice period under the employment agreement, even if the notice period takes the employment outside of the 90 day trial period.

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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