Trials and tribulations of trial periods – what an employer needs to know

T he Employment Relations (Trial Periods) Amendment Act 2023 (Act) came into effect at the tail end of last year.

The Act enables all businesses, irrespective of their size, to include a 90-day trial period in a new employee’s employment agreement. This marks a shift away from the former position, where only small-to-medium sized businesses with less than 20 employees were able to include this provision.

If your business is planning to use trial periods, it is important to get it right. That is because all other conditions necessary for the validity of 90-day trial period clauses remain, and the Employment Relations Authority and Employment Court take a strict approach in this space. In fact, approximately 75% of trial provision dismissals considered by the Authority between 2015 and 2023 were held to be invalid.

As dismissals on reliance of a trial period are often without any employment process, an invalid trial period means that employees will have a strong unjustified dismissal claim. 

Trial vs. Probationary Period – what’s the difference?

Where a trial period provision is drafted correctly, and therefore valid, it allows an employer to terminate an employee’s employment (by giving the correct notice) at any time from the beginning of employment to the end of the trial period. When terminating during a trial period, an employer does not need to follow the usual process or procedure and does not need to give a specific reason for termination. Significantly, an employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal. However, the employee can still raise other grievances or legal proceedings on grounds such as a breach of good faith, disadvantage or discrimination.

A trial period is not the same as a probationary period, the latter of which is covered by separate provisions in the Employment Relations Act 2000. Key differences include that probationary periods are not limited to a maximum of 90 days from the commencement of employment, nor do they provide statutory protection for employers against personal grievances. This means that, unlike trial period dismissals, employees can raise a personal grievance where they have been dismissed on reliance on a probationary period.

Employing someone under a trial period

An employer must ensure that the employee has not performed any work or duties for them prior to signing the employment agreement. That is because a trial period is invalid if the employee has previously been employed by the employer. Again, this is construed strictly. For example, the Authority has determined a trial period is invalid where the employee worked a trial shift or similarly completed a mere couple of hours of work on their first day, prior to signing.

The trial period provision contained in the employment agreement must include the specific drafting requirements:

• a specified period that does not exceed 90 days (although it can be less), starting at the beginning of the employee’s employment;
  
  
• that during that 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.

In order to meet an employer’s good faith duty, an employer must ensure that before the employee commences employment and / or starts work, the employee:

• receives a copy of the employment agreement containing the written trial period provision;
  
  
• is made aware of the trial period provision contained in the employment agreement;
  
  
• has a reasonable opportunity to take advice on the employment agreement and has been advised to do so; and
  
  
• signs the employment agreement.

As above, a trial period must specify a period and that period cannot be greater than 90 days (although it can be less). A common mistake employers make is to equate the maximum of 90 days to three months and draft three months into the provision. This means that specifying three months or any period over the prescribed 90 days invalidates the trial period.

Dismissing an employee in reliance on a trial period 

If the requirements are met, an employer can provide notice of termination within the trial period timeframe without the usual procedural requirements. This means employers are not required to give an employee access to information relevant to the discontinuation of their employment, or the opportunity to comment on the information before a decision to dismiss is made, or meet any of the justification requirements.

The case law surrounding the employer’s obligations to provide notice when dismissing in reliance on a trial period is complicated. The safest course of action for an employer is to have the employee work out their notice period. Employers must ensure that the correct notice is given. The applicable notice period is that contained in the trial period provision in the employee’s employment agreement, and if there is no specified trial period notice period then the usual notice period applies.

Where an employee requests a reason for their dismissal during their trial period, an employer must provide it. The reason given must not be misleading or deceptive but can be given verbally.

As explained above, the validity of a trial period is all or nothing, so seeking specific legal advice is highly recommended.

Authors: Matthew Morrissey and Jim Roberts

Jim Roberts	Matthew Morrissey
Partner in the Employment Law Team, Hesketh Henry	Solicitor in the Employment Law Team, Hesketh Henry
Jim is a highly skilled and experienced advocate who has a wealth of speciality experience, having been practising employment law for more than 30 years. He helps his clients develop their employment strategies around common employment processes, assists with compliance work to minimise his clients’ exposure to risk, and represents his clients in mediation, the Authority and courts. He enjoys getting to know his clients’ businesses and understanding the people behind the issues.	Matthew graduated with a Bachelor of Laws from the University of Canterbury in 2020. He was admitted as a Barrister and Solicitor of the High Court in 2021. He joined Hesketh Henry in 2022, having previously worked at a leading New Zealand boutique employment law firm.  Matthew provides advice to employer, employee and union clients in all aspects of employment law, particularly around personal grievances, employment processes and collective bargaining. He is especially interested in employment investigations, managing restructuring processes, and matters relating to health and safety at work.