3 Mistakes to Avoid With Trial Periods in Your NZ Business

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Table of Contents

• Forgetting to Include Trial Periods in Your Employment Agreements
• Treating Employees on Trial Periods Differently to Other Employees
• Using Trial Periods 
• Key Takeaways

Trial periods are one of the more misunderstood features of employment law in New Zealand. This is partly a consequence of them being altered over time by different governments. Trial periods, in their current form, are a way for your business to dismiss new employees without needing to follow a typical dismissal process. As an employer, it is crucial that you understand the process of using a trial period for new employees. This article highlights three key mistakes to avoid regarding trial periods so that you can effectively meet your employment obligations. 

Forgetting to Include Trial Periods in Your Employment Agreements

To rely on a trial period to dismiss an employee, you must have included the trial period in the employee’s employment agreement. Additionally, they must have:

• been aware of the trial period; and
• had a chance to get advice before signing the agreement.

It is not possible to rely on an implicit or ‘automatic’ trial period to dismiss an employee. This will likely result in your employee bringing a successful personal grievance against your business. 

The trial period must be set out in the employee’s contract along with the duration of the period. In general, the trial period is 90 days; however, you may choose to have a notice period that is shorter. You also cannot retrospectively include a trial period into an employee’s employment agreement after they have already begun work. If you do, you cannot rely on it to dismiss the employee, as the Employment Relations Authority will rule this claim as unsuccessful. 

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Treating Employees on Trial Periods Differently to Other Employees

A trial period is a way for you to dismiss an employee without recourse to typical dismissal processes like:

• poor performance; or 
• misconduct. 

An employee dismissed in this way, per a valid trial period, cannot bring a personal grievance against you for unjustified dismissal. However, aside from this, trial periods do not change anything about the relationship between your business and the employee. 

A common misconception is that while employees are ‘on trial’, they are not entitled to the same employment rights and entitlements that other employees are. This is not true. A trial period only affects how you can dismiss an employee; otherwise, you should treat employees on a trial period the same as other employees.

Note that employees on a trial period can still bring a personal grievance against your business for other issues, such as:

• discrimination; or 
• harassment. 

Using Trial Periods 

Trial periods in NZ are accessible to all employers. Previously, this was only eligible for small businesses, or businesses with 19 or fewer employees. However, you are unable to use a trial period for: 

• an existing employee; or 
• employees who have previously worked for your business.

However, if you want to see if an existing employee is suitable for a new role, you may use a probationary period. This will give your business some additional flexibility for assessing suitability, albeit not to the same degree as a trial period.

Key Takeaways

There are a range of common mistakes to avoid with trial periods in your business. These include relying on invalid trial periods, which may occur because they were: 

• added to the employee’s employment agreement after they began work; or
• used on an employee who has previously worked for the business before.

You also need to ensure that you are inserting the correct trial period clause into your employment agreements as a standard practice. This is because you cannot rely on any kind of implied or implicit trial period to dismiss an employee. Further, you should ensure that you are treating employees on a trial period in the same way as other employees as a matter of best practice. If you would like more information about trial periods in NZ or terminating employees under trial periods, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.