A Political Football: 90 day Trial periods

Since the introduction of 90 day trial periods by the National government in 2011, the policy has become what many describe as a political football. After the recent 2023 election, many media articles have talked about the “return of 90 day trial periods”  implying they are currently not part of employment law. However, this is not correct as 90 day trial periods have remained an option for employers with 19 or fewer employees.

The incoming Prime Minister, Christopher Luxon, has stated that the National led government will  revert back to traditional law in which all employers can utilise trial periods.

This article discusses the requirements of 90-day trial periods.

Why a trial period?

90-day Trial Periods were developed to assist employers to:

• assess an employee’s ability to perform their role;
• terminate the relationship if necessary without the need for a lengthy process; and
• avoid the costs associated with legal proceedings in the instance the employee tried to challenge the dismissal.

Finding the right people for roles can sometimes be difficult, and early on it can become clear that an employee might not be the right person for the job. Employers will usually use the first few months to assess a new employees capability to perform the role they have been appointed to (ordinarily through a probationary period).

However, if it does become obvious during this period that the employee is not suitable/capable of the role they have been employed to do, employers then have to go through a lengthy, and sometimes costly performance management process to dismiss the employee.

What are they and what are they not?

90-day trial periods are a specific clause included in an employment agreement which:

1. state that the employment relationship is subject to a 90 day trial period to assess the employee’s ability to perform their role;
2. confirm that the employer can terminate the employee’s employment within the first 90 days of employment in reliance on the trial period; and
3. if the trial period is valid the employee will be prevented from raising a successful claim of unjustified dismissal.

However, trial periods are not a free pass to dismiss an employee and over time the Employment Relations Authority and Employment Court have added in significant requirements to limit the power of 90 day trial periods.

Additionally, irrespective of the validity of the 90 day trial period, employees can still raise legal claims for wage related matters, discrimination and harassment.

Who can use a trial period?

Currently, Employers with less than 20 employees (19 employees or less) can include a 90-day trial period in a new employee’s individual employment agreement. Employers with 20 or more employees cannot include a trial period but may rather use a probationary period.  As noted, this will likely change with the new Government.

What are the benefits and negatives of including a trial period?

Benefits

If an employee is employed under a valid trial period the employer can terminate the employment relationship on notice, within the trial period, and the employee will be prevented from establishing a personal grievance for the dismissal.

The use of a valid trial period can:

• save time and money for business owners;
• protect employers’ long term financial interests by having the right employees in their roles; and
• help small businesses to avoid defending the dismissal through litigation.

Often trial periods include a shorter period of notice if either party is ending the employment relationship during the trial period. This means that employers and employees who identify that the employment relationship is not right can end the employment by providing shorter periods of notice.

Negatives 

For Employers:

The regulations surrounding trial periods are strict and difficult to get right without sound specialist legal advice. Even if an employer believes they are terminating the employee’s employment using a trial period, there may be a slight issue with the trial period, or the wording used when they do dismiss the employee.

Employees may also still try to raise a claim for unjustified dismissal even if they are under a valid trial period. This means that the Employer may have to incur costs in establishing whether or not the trial period is valid.

If you are looking at including a trial period in an employment agreement or relying on one in an existing employment agreement, be sure to seek legal advice:

• to ensure the clause is valid; and
• to terminate the employment if you need to do so.

For Employees:

Having a trial period in your employment agreement can mean that your employment is less stable. If the trial period is valid then your employment could be ended at any time during the first 90 days. You would also be prevented from bringing a personal grievance for unjustified dismissal. If you are offered an employment agreement containing a trial period be sure to seek legal advice as to its effect before signing.

Trial Period Checklist:

If you are wanting to use a trial period for your employees, or you want to check if your own trial period is valid we recommend obtaining legal advice.  However, some key questions to ask yourself are:

• Does the employer have less than 20 employees? (19 or less)?
• Is this the first time the employee has worked for the employer?
• Does the trial period start on the first day of employment?
• Will the trial period last for 90 days or less?
• Is the trial period written in the employment agreement?
• Does it state that the employee can be dismissed within the trial period?
• Does it state that the employee will not have a legal right to bring a personal grievance on the grounds of unjustified dismissal?
• Does the employment agreement contain a notice period for termination of employment?
• Did the employer give the employee time to seek advice about the agreement before signing the agreement?
• Has the employment agreement been signed by both the employee and employer before the employee begins work?

If you have answered YES to all of the above, then the trial period will likely be valid.

What could we expect soon?

In late August this year, this issue was once again in the limelight as a 90-day trial periods Members Bill from the Act party was drawn.

If this Bill or a Government Bill is passed, 90 day trial periods will no longer be limited to businesses with 19 or less employees.

Luxon hopes that the change will see more employees in the workforce as employers feel they can take on more risk. 2016 research commissioned by Treasury, found “no evidence that the ability to use trial periods significantly increases firms’ overall hiring”.  We consider this is likely due to the significant requirements placed on employers seeking to utilise the clauses and simply changing the size of business that can utilise the 90 day trial period provision will not impact hiring.  There would need to be further legislative change regarding validity of clauses for there to be any significant change relating to 90 day trial periods.

Get in touch with the team at Black Door Law for tailored advice navigating the employment law around trial periods.

Disclaimer:  This information is intended as general legal information and does not constitute legal advice. If you have a specific issue and wish to discuss it get in contact with the Black Door Law team