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If, like us, you were doing last minute Christmas shopping, you might have missed that the Employment Relations (Trial Periods) Amendment Act 2023 (Act) received Royal Assent and came into effect shortly after on 23 December 2023.
The Act enables all businesses to include a 90-day trial period in a new employee’s employment agreement. Previously only small-to-medium sized businesses that employed less than 20 employees were able to include this provision. However, the Act does not impact any other conditions necessary for a 90-day trial period clause to be valid.
Those conditions are important. The Employment Relations Authority and Employment Court take a very strict approach when determining whether employers have complied with the legal requirements for trial periods. 133 out of 178 trial provision dismissals (approximately 75 percent) considered by the Authority between 2015 and 2023 failed to be upheld.
Trial periods have a lot of trip hazards. If your business is planning to use trial periods, it is important to get it right. Get it right and it is a free pass – get it wrong and you have gifted an employee an unjustified dismissal grievance. Legal advice before using trial periods and before dismissing in reliance on a trial period is a must. We set out some of the common issues for employers below.
First, what exactly is a trial period?
A trial period is not a probationary period. Probationary periods are covered by separate provisions in the Employment Relations Act 2000. Probationary periods are not limited to a maximum of 90 days from the commencement of employment and do not provide statutory protection for employers against personal grievances.
A trial period must specify a period and that period cannot be greater than 90 days (although it can be less). A common mistake is to equate the maximum of 90 days to three months and draft three months into the provision. 90 days is less than three months. This means that specifying three months or any greater period invalidates the trial period.
Assuming that a trial period is 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. If terminating under the trial period, an employer does not need to follow the usual process or procedure and does not need to have a specific reason. 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.
Employing someone under a trial period
A trial period is only valid if the employee has not previously been employed by the employer. The employer must ensure that the employee has not performed any work or duties prior to signing the employment agreement. Trial periods have been invalid where the employee had worked a trial shift or similarly had completed a couple of hours of work on their first day prior to signing.
The trial period provision contained in the employment agreement must include:
- a specified period that does not exceed 90 days, 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.
A trial period must be agreed to in good faith by both the employer and the employee. Before the employee commences employment and / or starts work, the employer must make sure that 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.
Terminating someone within a trial period
Like the 2006 Bring It On direct to DVD sequel – the validity of a trial period is All or Nothing. Therefore, seeking specific legal advice is highly recommended to ensure that the wording of the provision and the circumstances surrounding the employment are valid.
If the requirements are met, an employer can provide notice of termination within the trial period timeframe without the usual procedural requirements. An employer does not need to wait until near its expiry. Employers are not required to give an employee access to information relevant to the continuation 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.
However, 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. If there is no notice period specified in the trial period provision, then the notice contained in the termination or notice clause of the employment agreement is to be applied. It is safest for an employer to have the employee work out the employee’s notice period. There are fine distinctions in cases that are not easy to navigate about whether employees who have been let go immediately in reliance on a trial period have been given notice at all.
If the employee requests it, an employer must still give the employee a reason why they are being dismissed during their trial period. The reason given must not be misleading or deceptive. An employer is not required to provide a statement in writing of the reasons for the dismissal, i.e. the reason can be given verbally.
As explained above, often employers have found themselves in hot water after terminating an employee by relying on a trial period which subsequently turned out to be invalid. If you do want to terminate an employee’s employment in reliance on the trial period provision, we recommend that you give us a call first and we can help you with the specific situation. A quick call might make a world of difference.
If you have any questions about trial period provisions, please get in touch with our Employment Law Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
