Both are useful for employers
Many New Zealand business owners know they can offer a trial period (usually 90 days) when hiring a new employee. A trial period is designed to ensure a new employee is a good fit for their employer.
An alternative to a trial period is a probation period. This is designed to set expectations clearly between you and your employee including the terms of the hire and when a final decision about the suitability of their employment is decided.
We explain the differences between trial and probation periods to enable you to better understand your options.
A trial period, if successfully included in an employment agreement, will allow you to terminate the agreement in the first 90 days of employment without your employee being able to raise a personal grievance for the dismissal. Trial periods can, however, only be used in limited circumstances.
Until 23 December last year, using a trial period was only available to employers who had fewer than 19 staff. Now, under the new coalition government, this limitation was removed and trial periods can be used by all employers, regardless of size, for new employees.
Key requirements of a valid trial period are:
- Only for new employees, not current or prior employees
- 90 days maximum length
- Must be documented in the written employment agreement, signed before your employee starts work and must contain a valid notice period, and
- Must only be included in the agreement and exercised in good faith.
When exercising a right to terminate under a 90-day trial clause, you are not obliged to provide any reasons for the termination. It is important to note that your employee can still raise a personal grievance against the business if there are other causes for grievance during their employment, such as (but not limited to) discrimination or bullying.
Unlike a trial period, probation periods have a much wider application in employment law. Probation periods are an ideal way for employers and employees to ‘try out’ a new or expanded role while setting clear expectations that this may only be a temporary employment change, and what to expect if it does not work out.
Some of the common reasons you may want to use a probation period include making sure a staff member is appropriately skilled for their role, or to allow an existing employee to accept a promotion or lateral move in the business and to show they can do the job.
Key characteristics of a valid probation period are:
- Can be used for existing OR new employees
- The probationary period can be for any length of time, as long as it is clearly defined in writing, is reasonable considering the role’s complexity, and has an appropriate agreed notice period
- The written agreement includes what may occur at the end of the probation period (termination, reversion to their former role and responsibilities, etc), and
- That you as the employer must provide adequate support and training.
Throughout the probationary period you must be able to show that you have taken reasonable steps to support your employee in achieving success in their role. This includes frequent performance-based conversations, providing adequate training and support on new skills and tasks, discussing any areas for improvement and setting clear expectations of what ‘success’ looks like for their role.
Unlike a trial period, if you decide at the conclusion of the period to terminate the employment agreement, you must explain how you have fairly assessed your employee’s performance, why their performance was not sufficient for the role and your intention to end the employment relationship.
Your employee must then have sufficient time to respond. Any response must be considered before making a final decision to terminate the employment agreement. Unlike a trial period, your employee can still bring a claim for unjust dismissal if they feel you have not followed due procedure and come to a fair conclusion.
It is also critical to note that probation periods cannot follow after a trial period for the same or very similar role. If your employee moves multiple times within your business, on each subsequent role change you may be able to apply a new probation period.
Regardless of whether you are considering a trial period or probation period, it is important you talk with us before incorporating it into your employment agreements. To be effective and defensible against a personal grievance, both trial periods and probation periods must be documented correctly throughout the period’s lifecycle, from the employment agreement pre-commencement all the way through to the end of the period. Please don’t hesitate to contact us if you are considering a trial or probation period for any of your employees.
DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650