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Trial periods are one of the more misunderstood features of employment law in New Zealand. This is partly as a consequence of being altered over time by different governments. Trial periods in their current form are a way for small businesses (with fewer than 20 employees) to dismiss new employees without needing to follow a typical dismissal process. However, there are common misconceptions around when employers can do this.

This article sets out three mistakes to avoid with trial periods, including: 

  • the common misconception that you do not need to include trial periods in employment agreements;
  • treating employees on trial periods differently; and 
  • using trial periods when your business employs 20 people or more.

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 result in a successful personal grievance against your business. 

The trial period must be set out in the employee’s employment agreement along with the duration of the period (typically 90 days, the maximum period allowed). Note that you cannot insert this trial period into an employee’s employment agreement after they have already begun work. Or at least, if you do, you cannot rely on it to dismiss the employee. 

As a consequence of this, make sure to double-check that you have a valid trial period in your employment agreement templates if a trial period is something you want to include in your agreements. You will need to remove it once your business has 20 employees or more, as detailed later in this article.

Treating Employees on Trial Periods Differently to Other Employees

A trial period enables an employer 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 their employer 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 When You Have 20 Employees or More

Trial periods in New Zealand used to be accessible to all employees. However, the current government changed this some years ago. They made a change to employment law restricting trial periods to only being able to be used by small businesses of fewer than 20 employees. Businesses who get this wrong and continue to rely on these trials even as they have more than the maximum number of employees are breaching the law by relying on an invalid trial period. 

However, there are alternatives for your business to consider when you have 20 employees or more, namely, probationary periods. These give your business some additional flexibility for new employees, 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, such as because: 

  • your business has more than 20 employees; or
  • they were added to the employee’s employment agreement after they began work.

You also need to ensure that you are inserting the 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 New Zealand, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Can I rely on an implicit trial period to dismiss an employee if it was not in their employment agreement?

No, you cannot. In order to rely on a trial period to dismiss an employee, it must have been in their employment agreement. 

What are alternatives to trial periods for larger employers?

You can consider including a probationary period once you have 20 employees or more. Probationary periods are different from trial periods in the sense that you will still need to go through a process to dismiss an employee, but they can accelerate this process relative to not having any probationary or trial period in place. 

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