Welcome to our summary of a rather unique aspect of New Zealand's employment environment - the 90-day trial period.
The 'try before you buy' system for employers! If things don't quite work out, an employer can part ways with a new employee within 90 days. The employee, in turn, can't claim for unjustified dismissal.
Trial periods have had a variety of tweaks over the years since they were introduced: First introduced in 2009 for small employers and later expanded to all employers in 2011, before then being reduced back to small employers only again and most recently as of 23rd December 2023 are now available again to employers of all sizes. We know that trial periods have some tricky bits and potential traps for employers, so let’s have a look at the purpose of the trial period, pros and cons, and using the trial periods correctly.
The 90-day trial period was primarily introduced to give employers a bit of courage to hire candidates. It is fairly well known that hiring can be a bit of a gamble - you might do all the right things with your recruitment process, including robust fair assessments, reference checking, practical work testing - but you may still end up with an employee that isn’t a good fit for your business. It is also relatively well known that ending someone’s employment correctly and fairly without giving rise to any potential for claims against you can be a difficult, complicated and time consuming process. A process that smaller employers often do not have the time, resources or capability to manage correctly!
The intent is to give employers the confidence to make a hire, knowing that if things don’t work out, they’ll be able to end the employment relatively painlessly within that 90 day period. It hopefully meant that employers would be more likely to hire someone who they may not otherwise - people who may otherwise struggle to find employment (limited experience, gaps or changes in career history, etc). A bit of a safety net for employers, if you will. Depending on your source, however, the evidence is very limited on actual increases in hiring and advantages to job seekers.
Pros & cons
Like anything else, the 90-day trial period has its ups and downs. From the employer's point of view, it lessens the risk linked to hiring and offers flexibility. For potential employees, it could provide opportunities that might have otherwise remained closed. But it's not all sunshine and rainbows - trial periods have potential for misuse and abuse, and inevitably, this has occurred. Employers using the trial period to end employment for illegitimate reasons. Employers who use it as a bit of a revolving door, ending employment quickly and unfairly while bringing in new workers only to do the same again. Furthermore, there’s the employees who lack job security, and are perhaps unwilling to leave one job for another if they face the potential of losing their new job within 90 days.
The potential implications of the 90-day trial period reach far and wide. On the employment front, there’s the argument it could potentially boost employment levels, especially for those finding it tough to secure work. But there are also social implications - job instability and insecurity, which in turn, could have effects on housing stability, mental health, etc.
The trial period gives a significant advantage to the employer, so it makes sense that there are strict rules that need to be followed to make sure they are valid and enforceable.
Using trial periods
Here’s the key points you should be aware of when using trial periods to ensure they are valid and enforceable.
- They can only be used for employees who have never worked for you before. If someone has worked for you previously, including casually, temporarily or a long time ago, you cannot use a trial period.
- The trial period must be in the employment agreement and agreed to before the employee starts work. The employment agreement must be signed a fair and reasonable amount of time before the employee starts work for you, and you must give them a fair amount of time to read and understand the agreement - including the ability to seek advice if they need to. This has been tested in court and it has been found on several occasions that employees who were presented with their employment agreements to sign on or after their first day of work were in fact considered to be ‘existing employees’ when they signed, as they had already started work. The trial periods were found to be invalid in these cases. Your takeaway here is to make sure the employee receives the terms and conditions of employment (including the trial period provisions) well ahead of time, and tell your candidate to seek advice if they wish to. Give them ample time to sign the agreement and ensure you have received it back, signed, in advance of their start date. Personally, I have delayed start dates in the past to ensure that the employment agreement signing period was sufficient before the employee commenced work - better to be on the safe side!
- They can be for an amount of days you specify not exceeding 90 days. So, you could state that your trial period is for 60 days. The days are calendar days, not working days. Mark your calendar carefully! If you know that you are going to end the employee’s employment, don’t wait until day 90 and say adieu. You must still give notice of termination of employment prior to the end of the trial period.
- The employment agreement must state a valid notice period that sets out the required amount of notice that the employer or employee must give to end employment in the trial period. You must adhere to this notice period during the 90 day trial period, including payment of the notice period. You can give notice within the 90 day period even if the notice period extends beyond the 90 days.
- You can’t use a trial period in someone’s individual terms that are not consistent with their collective terms if they are a union member - if this applies to you, seek additional advice to make sure you are proceeding correctly.
- If you are an accredited employer (for immigration purposes) you cannot use trial period clauses in your agreements for employees on an accredited employer work visa. Read more about this here.
If you have a valid trial period, being used correctly, you are able to dismiss an employee within the period stated. This employee will not be able to bring a personal grievance against you for their dismissal. However, that does not prevent an employee having other claims against you if there were valid claims to be had about other issues. You are protected against claims relating to the dismissal (assuming you have correctly applied all requirements for the trial period, they cannot claim unjustified dismissal). Employees may still bring claims against you for discrimination or harassment, or activity on your part that unjustifiably disadvantages them during the course of their employment.
You aren’t required to give a reason for why you are dismissing the employee, but providing your fair and reasonable reasons shows you are acting in good faith. Of course, your reasons will be fair and reasonable!
We recommend using the Employment Agreement Builder to create agreements containing trial periods, to ensure that you have the provisions correctly stated. If you have unique or complicated circumstances, we definitely recommend seeking advice specific to your situation from a lawyer. It is also important to note that if your employee is on or applying for some types of work visa, trial periods (and probationary periods, which are different) may impact this and you may need to remove or exclude them in these cases.
Trial periods and employment rights
Many of us working at PaySauce have been working in payroll since before trial periods were introduced, and over the years we’ve heard all sorts of interesting statements about employee’s rights under trial periods! We’ll recap the most important ones that everyone needs to be aware of. Employees working in trial periods are still entitled to all normal entitlements, and if you’re an employer using a trial period it is important to be aware of.
- Employees on trial periods are still paid for their work and must be paid on the usual frequency that you have agreed to in their contract.
- They are still entitled to minimum wage.
- They still accrue 8% holiday pay on their gross earnings (or accrue their annual leave entitlement).
- They are still entitled to the usual public holiday entitlements (payment for a day off, or time and a half and an alternative public holiday where relevant).
- Employees terminated during a 90 day trial period are still entitled to receive 8% of their gross earnings paid out as a termination payment.
- If they are injured and qualify for ACC cover, this still applies as normal during a trial period.
- They are still entitled to other contractual requirements you have included that aren’t specifically excluded during a trial period.
- If you have provisions to give sick, bereavement or family violence leave earlier than the legal minimum and their entitlement arises during their trial period, they are still able to use this leave (e.g. if your sick leave entitlements start from day 1 of employment).
- They are still entitled to minimum lunch/break entitlements.
- Employees during their trial period can’t be treated differently.
Basically, you should keep in mind that the trial period specifically relates to protection for the employer against cases of unjustified dismissal in the event that employment ends, but for all other intents and purposes the employee is just that - an employee.
The last word
The 90-day trial period in New Zealand is a blessing for many small-medium employers, and while it might inspire employers to take a punt on hiring when they might have not otherwise, it can also feed into job insecurity and be misused horribly - causing some individuals harm.
Employers, given this pretty big advantage, need to make sure they’re following the rules of trial periods very well to make sure the trial periods are enforceable. If not, they may still have valid claims upheld and face significant financial penalties.
If you’re an employer using trial periods, we reckon you should:
- use the Employment Agreement Builder or other trusted source of legal advice specific to your business to construct your trial period clauses - farmers, you can use the Federated Farmers Contract Builder, powered by PaySauce!
- review your trial period clauses regularly, making sure they are up to date and working for you.
- review your recruitment and onboarding processes, measuring yourself and trying to continually improve. Trial periods are the ambulance at the bottom of the cliff, but excellent recruitment and onboarding processes are the preventative medication! That said, as we noted above, you can’t get it 100% right all the time - sometimes it just doesn’t work out.
- use the trial periods as and when you need to for your business, but carry out a review after the fact to see if there was anything that you could have done differently to avoid needing to do it again.