The Employer’s Guide - How to use a 90-day trial period legally

Following legislation change in December 2023, New Zealand employment law now allows all employers to use a trial period, no matter what the size of the organisation. Trial periods (if introduced legally) enable an employer to dismiss an employee up to 90 days into the employment relationship and prohibit the employee from then raising a personal grievance for unjustified dismissal. This article summarises key issues for an employer to get trial periods right. This is critical as case law makes clear that trial periods will be strictly interpreted, and many employers are still being held liable for unjustified dismissal claims through the invalid use of a trial period.

What are the requirements for a legally valid trial period?

Section 67A and 67B of the Employment Relations Act 2000 set out the legal requirements for 90-day trial periods.

Trial periods can only apply to new employees:

• The employee must not have worked for an employer previously. This includes past casual, part time or fixed-term work for the employer. 
• Employers can come unstuck where an individual was employed a long time ago by the same entity, or, the employer has changed its company name so that the employee’s CV may present a different employer entity. 
• Tips for employers: Recruitment processes should check there is no pre-existing employment relationships. Business purchasers need to do due diligence to consider the nature of the purchase and whether an existing employment relationship arises.

What is required in the written employment agreement?

• A trial period must be agreed in writing between the parties before the employee commences work. If the employment agreement contemplates signatures by the parties, the agreement must be signed. If signatures are not possible, the employer could request that the employee email explicitly stating that they agree to the terms.
• The employment agreement must include a valid notice period. Provided it is clear, notice of termination under the trial period may be different to the general termination provision in the employment agreement.
• The trial period must be in the agreement and state (1) that the employer may dismiss the employee in the first 90 days of employment, in which case there is no entitlement to bring a personal grievance for unjustified dismissal; and (2) the date on which the trial period starts. The parties may agree to a period of less than 90 days, provided this is clearly set out in the written terms.
• Employees should be given written notice of their right to seek advice on the terms of employment and a reasonable opportunity to review the terms and seek this advice. 
• Tips for employers: Check the drafting of trial periods in employment agreements to ensure the clause is valid, and ensure the agreement is signed before the day an employee is due to commence work. Check if an employee is a union member employed on a collective agreement, in which case there cannot be a trial period introduced inconsistent with the collective employment agreement. 

When should the employment agreement be provided?

• If an employee is offered and has accepted a job without mention of a trial period, the employee may be deemed to be an employee and any later provision of a written employment agreement including a trial period may be invalid. It does not matter if the offer was verbal or in writing.
• The employment agreement should be given to the employee days in advance of the commencement of work, noting the inclusion of a trial period, and the right to seek independent advice on the terms.
• Tips for employers:   Don’t make informal offers of work to potential employees before providing an employment agreement. Ensure that the offer of employment is in writing, with attention drawn to the valid trial period in the agreement. The employee should be told of the right to seek independent advice on the terms and provided a reasonable opportunity to get the advice.

When does the 90-day trial period start?

• The employment agreement must specify when the trial period starts. For example, this can be from the date the agreement is signed, or, from the date work starts. 

What about good faith?

• Parties to the employment relationship must act in good faith. Employees on a valid trial period must be treated the same as employees who aren’t. 

Common reasons why 90-day trial periods have been held to be invalid

With employers still being found liable for trying to dismiss under invalid trial periods, it is helpful for employers to understand common pitfalls. This is just a snapshot of the cases heard by the Employment Relations Authority and Employment Court, where employers were unable to rely on a 90-day trial period to prohibit a dismissal, because the trial period clause was deemed invalid.

• An employee has worked for the employer previously. 
• The employee was informed about the 90-day trial period after they accepted a verbal or written 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 for that to happen (in breach of s63A of the Employment Relations Act). 
• The employee did not sign the employment agreement, or, did not sign the agreement until after starting work.
• The employer gave notice after 90 days.
• The employment agreement referred to a trial period of 3 months, not 90 days and notice of dismissal was given at 3 months, which was 91 days and therefore fell outside the 90 day statutory timeframe.
• The employment agreement referred to a probationary period not trial period. (Language matters, these are not the same).

How to give notice to end employment subject to a 90-day trial period

If notice is not given by the end of the 90-day trial period, the employee is no longer on a trial and their employment will continue. 

If an employer gives notice of the end of employment and the trial period is found to be invalid, the employee may raise a personal grievance for unjustified dismissal. Employers are required to:

• Give notice in accordance with the employment agreement, including the correct amount of notice and following any other requirements in the written agreement.
• Tell the employee clearly and unambiguously how and when employment will end.
• If an employment agreement allows for payment in lieu of notice, this does not override the obligation to give the employee notice of the end of their employment under the 90-day trial.  

Tips for employers: Employers are wise to schedule reviews of the trial period so that timeframes are not missed. The employer is then in a position to consider how the employment relationship is progressing, any matters that should be raised in good faith with the employee, and/or whether notice of dismissal under the 90-day trial period is to be issued. If giving notice, ensure that it is consistent with the requirements of the trial period.

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.

While section 67B(5) of the Employment Relations Act expressly excludes the requirement to give a written statement of the reasons for dismissal under a trial period, an employer is still required to act in good faith during the employment relationship, including during the notice period. This includes not being misleading, together with being responsive and communicative, therefore if an employee requests why they are given notice, the employer should advise their reasons.

90-day trial periods are not a protection against all employee claims

While trial periods prevent a personal grievance or other legal proceedings about a dismissal, they do not protect an employer against all claims. An employee may still raise a claim relating to breach of statutory entitlements such as minimum wage or the Holidays Act, or relating to breach of the employment agreement.

Employees may also raise a personal grievance claim for unjustified disadvantage, breach of health and safety obligations, or breaches of good faith.

Summary advice

When used correctly, a 90-day trial period is a useful tool. However, given the frequency with which trial periods are still being incorrectly drafted, implemented, and then invalid notice given, employers are wise to seek advice when contemplating negotiating a trial period, or dismissal under a 90-day trial. Trial periods have been strictly interpreted upon challenge, and many employers are still being found liable by the Employment Relations Authority and Employment Court of having made errors in how they have implemented a trial period, resulting in costly awards against them.

If you need advice or assistance, the specialist DTI Lawyers employment law team can be contacted by phone on 07 282 0174 or email [email protected]