Employers need to know if their new employee is the right fit for the business. Once the new employee starts working, an employer can gauge their skills and capabilities and to know if they are a good match for the role. From 23 December 2023, all New Zealand businesses became eligible to use a 90-day trial period provided they meet all other requirements. Before this, the 90-day trial period was only available to small business owners employing 19 employees or fewer.
In this guide, we discuss the 90-day trial period, its impact on your business, benefits, and other key factors for employers to remember.
90-day trial period
As the name suggests, the 90-day trial period for new hires is a defined period during which a new employee demonstrates if they are suitable for a new job. Valid trial periods that comply with the Employment Relations Act 2000, enables the company to dismiss the employee up to 90 days into the employment relationship and prohibits the employee from then raising a personal grievance for unjustified dismissal.
Trial periods can only apply to new employees.
However, there is one exception. Employees on an Accredited Employer Work Visa may not be placed on a 90-day trial period.
Why do you need a trial period?
A trial period can be useful for both employers and employees in ensuring that the role and the company is appropriate for both parties. Despite their advantages, there are some important conditions and rights which employers need to comply with.
Importantly, an employee can be placed on an employment agreement for the first 90 calendar days of their employment. This must be outlined in the employment agreement before the employee starts work and certain criteria are met.
Valid trial periods in New Zealand
Section 67A and 67B of the Employment Relations Act 2000 set out the legal requirements for 90-day trial periods.
The factors required for a valid and legal trial period:
- It is written in the employment agreement by way of a 90-day trial period clause
- The 90-day trial clause needs to stipulate when the 90-day trial commences
- It must be entered into willingly and in good faith. i.e. an employee cannot be forced into a trial period
- It removes the ability for an employee to bring a personal grievance for unjustified dismissal provided the employer has provided the correct amount of notice
- The employment agreement needs to be signed before commencing employment
- The employee must have not worked for the employer previously
- The employee must have a reasonable amount of time to seek advice and review the agreement prior to signing and starting employment.
For those employees covered by a collective agreement the trial period must be in line with what is outlined in the agreement. For example, if the collective agreement states that they cannot be employed on a trial period, then the individually negotiated additional terms of the employee’s contract cannot contain a trial period provision.
Employee rights and responsibilities
Employees on trial periods are entitled to all of the minimum entitlements of employment such as minimum wage, annual holidays, public holidays, sick leave, and health and safety conditions. Employees on a trial period cannot be subject to unlawful discrimination.
A personal grievance can still be brought by an employee on a trial period on any other matter except their dismissal. For example, allegations of sexual harassment, pressure regarding union membership, or discrimination are some valid reasons for an employee to raise a personal grievance. An employee can also raise a claim relating to breach of statutory entitlements such as the minimum wage or those entitlements contained in the Holidays Act.
Common reasons for invalid trial periods
There are some cases heard by the Employment Relations Authority, where employers were unable to rely on a 90-day trial period as a defence to an unjustified dismissal because the trial period was deemed invalid.
Some cases were deemed invalid due to:
- The employee having worked for the employer previously
- The employee was informed about the 90-day trial period after they accepted an offer of employment.
- The employee was not given a written employment agreement
- The wording of an employment agreement does not comply with section 67A of the Employment Relations Act
- The employee was not advised they were entitled to seek independent advice about the agreement and given a reasonable opportunity to do so for that to happen (in breach of the s63A of the Employment Relations Act)
- The employee did not sign the employment agreement, or did not sign the employment agreement until after starting work
- The employer gave notice after 90 days from the commencement of employment
- The employment agreement referred to a trial period in 3 months, not a specific number of days. Notice of dismissal was given at 3 months, which was converted to 91 days and therefore fell outside the 90-day statutory timeframe
- The employment agreement referred to a probationary period and not a trial period (they are not the same)
Trial periods vs probationary periods
Employers can use a trial or probationary period to assess that an employee can do a job. However, there are differences between a trial and a probationary period:
- Length of time: A trial period cannot last longer than 90 days. Probationary periods do not have a fixed time limit so can be used for a longer assessment period if the employee and employer agree.
- Reason for dismissal: If an employee has been on a trial period, their employer does not have to give a reason before dismissing them. If an emplpyee has been on a probationary period, their employer must give them a good reason for dismissal and a fair opportunity to resolve any problems first.
- Previous employment: An employee can only be on a trial period if it's their first time working for that employer. An employee can be on a probationary period if they are new to the organisation, or if they already work there and are trying out a new role.
Notice of termination
The notice required for terminating an employee during a trial period must be specified in the employment agreement. However, the Employer may specify a shorter notice period during the trial period.
Failing to give appropriate notice to an employee will mean the trial period is invalid. The notice for termination must also be given during the trial period. For example, if the notice period is one week and the trial period is six weeks the employer must give notice prior to the end of the sixth week.
While notice must be given within the 90-day trial period, the employee’s last day of employment may be outside the trial. For example, a 90-day trial is in place, and the employee is given notice of termination on the 88th day, with one week of notice (as provided for in the employment agreement), which takes the end of employment beyond 90-days.
In terminating an employee on a trial period, the employer does not need to give reasons for their termination.
Build fair workplaces with Peninsula
Creating fair and safe workplaces is important and having established policies ensures that your employees feel protected and secured. We understand that small businesses do not have the resources and support to handle all things employment relations and workplace health and safety. That’s why we offer personalised support, resources, and advice for small and medium sized businesses based on their needs and industry. Our team members work with you to create a plan and policy that works for your industry and niche. Our advice line is available for business owners and employers. Talk to our team today.