The 90-day trial period has been part of the New Zealand employment law landscape since 2009, but employers and employees are still coming to terms with how it operates. In 2019 it was modified yet again to only apply to small to medium-sized employers (i.e. those with less than 20 staff).

When it was introduced, the Government hoped that the law would reduce the number of personal grievances for unjustified dismissal, while also encouraging employers to give more employees a chance to be tried for work.

However, there are loopholes in the law that still catch employers out. This post is about what those loopholes are, and what employers can do to avoid them.

WHAT THE 90-DAY TRIAL PERIOD LAW SAYS

The law was introduced as an amendment to the Employment Relations Act 2000. Sections 67A and 67B of the Act allow an employer to dismiss an employee if:

• the employee has not been employed by that employer before;
• the employer had less than 20 employees at the start of the day the employment agreement was entered into;
• there is a clause in a written employment agreement with the new employee specifying certain details of how the 90-day trial period will operate; and
• the employer gives notice to dismiss the employee within the trial period.

If an employee is correctly dismissed during a valid trial period, they cannot bring a grievance or other legal proceedings in respect of their dismissal.

Because this curtails an employee’s rights to otherwise bring claims against their employer, the Employment Court has indicated that the law will be read in the least expansive way possible and employers will be required to strictly comply with its terms if they are to receive its benefits.

There are a number of ways for an employer to come unstuck, both in terms of the implementation of the clause and when ending the employee’s employment.

TRIAL PERIODS ARE ONLY FOR NEW EMPLOYEES

As already mentioned, a trial period clause cannot be applied to a person who has previously worked for you.

This can be easily overlooked where:

• the person was employed a long time ago; or
• the person was employed in a relatively minor position, eg. as a casual employee or in an entirely different position; or
• the employer has changed its trading name or company name, so that the employee’s CV makes it appear that they were employed by a wholly different entity.

Those issues may be addressed by ensuring the company keeps good records of its staff over time and ensures that it consults those records as part of its hiring processes.

But even with such processes in place, an employer may still end up unwittingly attempting to foist a 90-day trial period on someone who is already their employee if they fail to get an employment agreement signed up before the employee starts work.

It remains common for employers not to distribute, let alone sign, employment agreements until the employee is several days into their work. However, an employee is employed as soon as they lift a finger in their new role, even though they may not have a written employment agreement. At that point it is too late to include a 90-day trial period clause in the agreement, because by then they have already become someone who has previously worked for the employer – even if they have only been at work for half a day.

Takeaway: Employers must ensure that, as part of their hiring process, they check the employee has not worked for them before, and that new employees sign up to employment agreements containing 90-day trial period clauses before they start work.

AGREEMENTS MUST INCLUDE A 90-DAY TRIAL PERIOD CLAUSE

Inclusion of the correct form of a 90-day trial period clause in the employment agreement is another prerequisite for dismissing an employee under this law.

Logically then, an employer cannot dismiss an employee under a 90-day trial period if:

• there is no written employment agreement;
• there is a written employment agreement, but it does not contain a 90-day trial period clause; or
• there is a 90-day trial period clause in a written agreement, but the clause does not include the information required by the Act.

You need to be careful not to enter into an agreement with the person in some other way (e.g. verbally) before this agreement is signed. If you do, the person already be your new employee by the time they sign the employment agreement, and the initial agreement you reached with them won’t have included the trial period clause in the correct form. The 90-day trial period clause cannot be introduced later once the individual is already your employee.

There are several ways someone can become your employee apart from by signing an agreement. One example is where offer and acceptance of employment occurred by email and where trial period was mentioned but not included in its proper form. By the time the employee signed the written employment agreement containing the full clause it will have been too late, and there will not be a valid trial period for you to rely on if you wish to dismiss that employee.

Takeaway: Your offer of employment must include the written trial period clause. Don’t make an ‘informal’ offer to your potential employee before giving them an employment agreement, and make sure the agreement you offer them has a trial period clause in the correct form.

How to write a 90-day trial period clause

So how do you ensure you create an agreement that meets the statutory test for a valid trial period clause? There is no prescribed form for the 90-day trial period clause, but it must at least state the following three things:

• the date the trial period is to commence;
• that for the first 90 days of employment the employee will serve a trial period (it is possible to state a shorter period, but it cannot be any longer than 90 days);
• 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 legal proceedings in respect of the dismissal.

Because there is no prescribed form, there has been at least one case where a clause that referred to three months (though actually representing a 91 day period) was held to be essentially equivalent to a reference to the 90-day period. However, that approach introduces unnecessary risk and it is best practice to refer to an express period of 90 days or less, rather than to months or weeks.

Here is a suggested wording for the 90-day trial period clause that can be included in an employment agreement for new employees:

For the first 90 days of employment, the Employee will serve a trial period in accordance with sections 67A and 67B of the Employment Relations Act 2000. During the trial period, the Employer may terminate the Employee’s employment by giving one week’s notice (whether or not that notice period concludes during or after the trial period), in which event the Employee will not be entitled to bring a personal grievance or other legal proceedings in respect of that termination.

No signature, no written agreement

Some employers may be caught out if they provide a written agreement to prospective employees but fail to get the agreement signed before the employee starts work.

In some cases, the Employment Court and the Employment Relations Authority have indicated that until the agreement is signed, there is no written agreement in place and no acceptance of any 90-day trial period clause that it contains.

Takeaway: Ensure you have received the signed agreement containing a 90-day trial period clause from the intended employee at least a full day prior to the first day of work.

No fair bargaining, no enforceable agreement

Another area of risk for employers is where they provide a written agreement containing a 90-day trial period, but do not give the employee a fair opportunity to consider and seek advice on it, before accepting its terms.

The law says employees must not be pressured into accepting employment under a 90-day trial period or any other onerous terms of employment. An unscrupulous employer might shove an employment agreement under a prospective employee’s nose and demand they sign it there and then; otherwise the whole offer of employment will be taken away. But that would not be a fair bargain.

The minimum elements of fair bargaining for an individual employment agreement are set out in section 63A of the Act and require that the employer:

• give the employee a copy of the intended employment agreement;
• advise the employee of their right to seek independent advice about the intended agreement;
• give the employee a reasonable opportunity to seek that advice; and
• consider any issues that the employee raises and respond to them.

Where the employment agreement has not been fairly bargained for, the Authority or the Court has the power to order that the unfair provisions of the agreement, which can include the 90-day trial period clause, will be taken away. (Though before doing so, they must give the parties the opportunity to meet and bargain again to resolve the dispute.)

Takeaway: New employees should be given an employment agreement containing a compliant 90-day trial period clause well before they are due to start work, say at least a week. That will mean that the employees have the opportunity to consider the agreement and get advice on its terms, and cannot allege that the agreement was bargained for unfairly.

Don’t confuse trial periods with probationary periods

Before 90-day trial periods were introduced, employees were often required to serve a probationary period. Under the Act, probationary periods are still possible today and care must be taken not to confuse the two.

Like 90 day trial periods, during a probationary period the employer will closely monitor the employee’s performance and will seek to dismiss them if they did not meet the employer’s expectations.

So what is the difference?

Probationary periods are fundamentally different from 90-day trial periods in that they:

• are not limited to periods of 90 days. They can be for any period that the parties agree on; and
• do not protect the employer from the employee bringing a personal grievance for their dismissal. The dismissal must still be justified as fair and reasonable by the employer, though that test may be a little easier to meet if the employee is aware their performance is being monitored.

In some cases an employer may prefer to enter into a probationary period rather than a 90-day trial period – perhaps if they consider the 90-day trial period does not easily gel with the culture of the workplace.

It is possible to have both types of periods, in which case the probationary period could extend for a period longer than the 90-day trial. Nevertheless, in most cases employers will prefer to simply have the protection of the 90-day trial period.

Because they can coexist, however, there is ample room for confusing the two, as the words “trial” and “probationary” are often used interchangeably. For employers whose historic standard employment agreements contained probationary period clauses, there is a risk in thinking that such clauses are equivalent to a 90-day trial period.

Takeaway: If you have a probationary period clause in your template employment agreements, consider whether it is necessary to make use of that going forward if you also make use of 90-day trial periods. Before dismissing someone under an historic agreement that you think is a 90-day trial period, check that it is not in fact a probationary period.

YOU MUST HAVE LESS THAN 20 EMPLOYEES

To enter into a 90-day trial period an employer must be a ‘small to medium sized business’. This means the employer must have less than 20 employees at the start of the day the employment agreement is entered into.

There are three key components to this:  

1. Which day was the employment agreement entered into?
2. Who is the employer that was party to that agreement?
3. Did that employer have less than 20 employees at the start of that day?

When was the agreement entered into?

Entering into the employment agreement effectively means the parties signing the written employment agreement containing the trial period. This is where all of the factors we have discussed above come into play. In other words, the employment agreement needs to:

• include a trial period clause in the correct form;
• have been bargained for fairly; and
• have been signed by both parties.

The day that all of those factors (correctly) came together is the day the employment agreement was entered into.

Who is the employer and how many employees do they have?

 You need to be careful to identify who the employer actually is. For example, a trial period clause won’t be of any use if you have two shops with 15 employees, owned by the same company. In that case the employer (the company) had 30 employees at the start of the day in question. Once you know who the employer is, you can count how many employees it had at the start of that day.

You can probably see a lot of different scenarios where all of this might get confusing. We have explained things in more detail in another post, and you should always seek advice if you aren’t sure.

Takeaway: Be clear about who the employer is, the day the person entered into their written employment agreement with the employer, and how many people were employed by the employer at the beginning of that day.

HOW TO DISMISS AN EMPLOYEE DURING A 90-DAY TRIAL PERIOD

To dismiss, notice of termination of employment must be given within the 90-day period and in accordance with the terms of the employment agreement at hand. Pitfalls can occur where the 90 days are incorrectly calculated, or where the employer does not give notice in the right way.

Counting the days correctly

It may seem hard to count the days incorrectly, but it has been the source of litigation. The days are calendar days beginning on the first day of employment and expiring at midnight of the 90th day. That is the window during which notice must be given to dismiss.

A tip: If you have an iPhone, you can ask Siri, “What day is 89 days after [the first day of employment, e.g. 18 October 2020]?” Siri will tell you the last day that you can give notice.

But why risk missing the 90-day deadline? Employers often know very early on whether an employee is a good fit. The first inkling of an employer should prompt them to consider whether to issue notice to dismiss under the 90-day trial period clause. Failing that, they should diarise an 80-day review from the start of the employee’s employment, to ensure they consider whether to issue that notice.

Takeaway: Diarise an 80-day review and otherwise issue notice to dismiss if you have concerns about an employee’s suitability within the trial period.

How to give notice?

Giving notice is the only requirement for ending someone’s employment during a trial period. If you don’t give proper notice the trial period doesn’t apply, and your employee will be free to raise a personal grievance for unjustifiable dismissal.

An employer must give the employee notice of termination within the 90-day trial period.  This applies even if the notice period will continue past the 90 days, so that the last day of the employee’s employment ends up being outside the trial period.

Failing to give proper notice can be a tough blow if an employer didn’t follow the usual dismissal process because they thought they were protected by a trial period. You might have followed all of the other steps perfectly, but if you don’t give proper notice your employee’s dismissal cannot be justifiable unless you had followed the usual dismissal process. Most employers don’t follow that process if they think they’re dismissing someone under a valid trial period (although it may be good practice to follow a process even if you do have a valid trial period, to ensure you are not dismissing an employee for the wrong reasons).

What, then, must you do to ensure you give proper notice?

Notice (and payment of notice) was an area of contention from the time 90-day trial periods were first introduced. Thankfully, the position has since been clarified by the Employment Court and confirmed by the Court of Appeal. In short:

• You must give the employee notice;
• Notice must be in accordance with the employee’s employment agreement (e.g. use the correct notice period and follow the other requirements);
• Notice must be clear and unambiguous, and explain how and when employment is to be terminated; and
• Giving notice and payment of notice are two separate things. In other words, making a payment in lieu of notice (if the employment agreement allows for it) does not override the need to give the employee notice in the first place.

If the employment agreement does not specify a special period of notice to dismiss within the 90-day trial period, then the standard period of notice for termination under the agreement will apply. Employers may like to have a shorter notice period for dismissal during the trial period than otherwise.

Takeaway: Give your employee proper notice if you are going to end their employment under the trial period. And include a shorter notice period in your employment agreement for termination during the 90-day trial period than for other grounds of termination.

Do you need to give reasons for the dismissal?

Even though the 90-day trial period law does not specify any process that must be followed to dismiss, other than giving notice during the trial, the Employment Court has found significant aspects of the duty of good faith must continue to be observed during the notice period.

That duty requires employers and employees to be responsive and communicative and means that if the employee wants to know why they were terminated at the time they are given notice of their dismissal, the employer must give their reasons.

The employer does not have to give written reasons (because the requirement to give a written statement of the reasons for dismissal is expressly excluded under section 67B(5)), but they must give the employee a sense of why the employment has not worked out if the employee so requests.

Understandably, employers are reticent to be too honest when it comes to giving reasons, and are often unsure what they can or cannot say. But they should feel free to be honest, knowing that they cannot be sued for the reasons they had for dismissal (provided an effective 90-day trial period is in place). In fact, the obligation to act in good faith means you must not mislead the employee about why they have been dismissed. So honesty is the only option.

Takeaway: If the employee asks why they have been dismissed, give them your honest reasons.

EMPLOYEES MAY BRING OTHER CLAIMS

Even though employees who are dismissed during a trial period cannot bring claims in respect of their dismissal, they can bring any other claim that an employee might otherwise raise.

For example, an employee might claim:

• they have been disadvantaged by the employer failing to pay them wages prior to their dismissal taking effect;
• the employer discriminated against them, sexually harassed them or treated the employee adversely because they were affected by family violence;
• the employer breached their obligation to act in good faith by not giving reasons for the dismissal when asked to do so by the employee; and
• the employer breached the employment agreement in some other way.

The important thing to remember is that employees under trial periods must still be treated just like any other employee should be, in good faith and reasonably. An employer may still be subject to claims from trial period employees if they fail to act in that way.

CONCLUSION

The 90-day trial period law has a number of fish-hooks that continue to catch employers out. From the cases that have considered the law so far, there are several steps the employers should be careful to follow if they want to avoid a personal grievance for unjustifiable dismissal.

Before moving to dismiss someone under a trial period, an employer should ensure that ensure it had less than 20 employees at the start of the day the agreement with the employee was entered into, and the employee:

• has not been employed by that employer before;
• was provided with a written employment agreement containing a 90-day trial period that meets the statutory requirements more than a few days before they started work;
• signed the employment agreement before they started work; and
• the 90 day period from the beginning of their employment has not yet expired.

On giving notice to dismiss, the employer must:

• give proper notice to the employee; and
• give honest reasons for the dismissal if the employee asks.