Trial periods are no longer available for employers with more than 19 employees

If you are an employer that relies on trial period provisions when employing new employees, you need to be aware that the law has now changed. 

If you have over 19 employees, you can no longer use the 90 day trial period and any attempt to use one will not be effective.  A new approach is needed.

What should you do?

You have two choices from now on when employing new employees:

• Use probationary period provisions (as outlined below); or
• Take on new employees without a trial period or probationary period, and take your chances.

What are Probationary Periods?

Probationary periods are not defined in the Employment Relations Act, but the courts have defined them as a period that enables the employer to assess an employee’s competence and suitability for a position at a time when such an assessment is able to be made and after an appropriate period for training, guidance and, if necessary, modification or improvement by the employee.

The existence of an agreed probationary arrangement also acknowledges on the part of both parties that employment may be terminated at the end of the probationary period if, assessed fairly and reasonably by the employer, the employee is incapable of performing the work or is otherwise unsuited to the employment.

Probationary periods were common before trial periods were introduced and became a more popular option.

While probationary periods have still been an option in recent years, employers would usually choose a trial period over a probationary period because it is possible to get caught up in an unjustified dismissal if you let someone go during a probationary period, where that is not an issue with a trial period.  

A probationary period can still be very useful, and is preferable to hiring without one

As the courts have noted, in some situations a new employee’s ability to perform a job and general suitability in that employment cannot be assessed sufficiently before its commencement.  You just need to take care when using them.

Key principles in using a probationary period

Nelson Air Ltd v New Zealand Airline Pilots Assn [1994] NZCA sets out the principles that apply when considering an unjustified dismissal during a probationary period.

• Usually, the employee should be able to work out the full probationary period.

This is not essential, but is good practice to ensure the employee has a fair opportunity to adjust to the role.

• Any issues with the employee’s performance should be brought to the employee’s attention.

If you don’t give the employee any indication that there are problems during the course of the probationary period, a legitimate expectation of continuing employment can be implied.

• You can’t simply observe the issues, and not do anything about them. You should not only point out any shortcomings, but also advise about necessary improvements and warn of the likely consequences if your expectations are not met.
• The employee is entitled to fair warning before the end of the probationary period that his or her employment will be terminated.

It is clear law that before an employer can terminate an employee under a probationary period, sufficient performance assessment, training and clear communication must have been engaged in.  

These requirements shouldn’t be onerous in practice, but it is important to get them right, and to take professional advice if in any doubt.

Probationary period arrangements need to be clearly documented and understood

To assist the parties in understanding their mutual expectations and the consequences of non-performance under a probationary period, a well drafted contractual clause that reflects the key principles will be required.

The clause should also be appropriate to the particular circumstances – for example as to the length of the probationary period in the context of the matters to be confirmed. 

More importantly, managers who are tasked with monitoring new employees subject to probationary clauses will need to know and adhere to the procedural requirements involved in managing probationary periods before electing to end employment.

Is it time to update your employment agreements?

As well as the changes around trial periods and the need to introduce probationary period provisions, there have been a number of other recent employment law changes that need to be reflected in employment agreements. These include requirements for domestic violence leave, and meal and rest breaks.

In partnership with LawHawk we offer a service where we can not only review your employment agreement and ensure it matches legal requirements and market best practices, but is also automated so that you can generate your employment agreement and all your other key employment documents in only a few minutes with 100% accuracy and consistency. You can see more here. 

More general employment information

For more information on employment law and related document, please see this guide to New Zealand Employment Agreements.