Engaging a new employee or promoting a performing employee can be an exciting time as it often goes hand in hand with business growth. However, it is important to make sure the employee fits well with the team and they have the necessary skills to fill the position. To do so, you may consider introducing a probation period or a trial period. This article explains what a probation period is and what a trial period is, including by highlighting their differences.

Trial Period

What Is a Trial Period?

A trial period is a period during which the employer and a new employee of the business can assess the relationship. It is also known as a section 67A trial period by reference to the Employment Relations Act 2000.

When Does It Apply?

Importantly, only businesses with fewer than 20 employees (including casuals) can include a trial period in the employment agreement.

The employment agreement must specify that:

  • a trial period applies – if the agreement does not specify this, then no trial period applies;
  • how long it applies for – a trial period can apply for up to 90 days from the commencement date; and
  • the notice period that applies if the employer chooses to dismiss the employee.

The trial period must be agreed to before the employment commences. It cannot be introduced for existing employees starting a new position with the business.

If the employee’s performance is satisfactory, the employment continues beyond the trial period without you needing to notify the employee.

What Are the Implications of Having a Trial Period?

A trial period is useful because the employer can dismiss the employee without risk of the employee bringing an unjustifiable dismissal.

Any time other than during the trial period, the employer must ensure they had a:

  • good reason to dismiss the employee; and 
  • fair process.

This puts you in a strong position to defend an unjustifiable claim should the employee bring such a claim.

For example, to afford the employee procedural fairness where the good reason for dismissal is performance issues, the employer may need to give the employee an opportunity to improve.

By contrast, during a trial period, the employee does not need to provide the employee with the reason for dismissal, although it’s best practice to do so. You also do not need to provide the employee with an opportunity to improve. They can move directly to dismissal because the employee cannot bring an unjustifiable dismissal claim.

This does not mean that you can terminate the employment for any reason.

For example, you cannot dismiss for discriminatory reasons or because the employee was a member of a union. The employee may still bring a claim where the dismissal was those reasons (or similar).

Probation Period

What Is a Probation Period?

For new employees and existing employees starting in a new role, you may wish to make their employment subject to a probation period. A probation period is a period during which both parties can assess the relationship. For the employer, it is an opportunity to review whether the employee has the right skillset. Meanwhile, the employee can demonstrate their skills and assess the suitability of the workplace.

When and Who Does It Apply To?

By contrast with trial periods, businesses of any size can introduce a probation period. It may apply to new employees as well as existing employees moving to a new role such as a more senior position. It is only applicable if the employment agreement expressly includes one and its duration is determined by the terms of the agreement.

If the probation period is successful, the employment relationship continues without either party needing to take any further action.

What Are the Implications of Having a Probation Period?

In many ways, a probation period does not change a lot with respect to the employer’s obligations and the employee’s rights. The employee still has the right to payment and to accrued holiday entitlements. Further, if the employee is not a good fit, you still need to consider any possible claims. This includes those relating to personal grievances and its obligations of good faith when terminating the employment.

The key difference is that where the employer is considering dismissal for poor performance and ensuring it is procedurally fair (by reference to unjustifiable dismissal), the employer may give the employee a shorter time period to improve.

For both trial periods and probation periods to apply, they need to be specified in the employment agreement. They cannot be added once the employee has started in the new position. So, it is important to review the agreement prior to providing it to the employee.

Key Takeaways

If specified in the employment agreement, a trial period can be a useful way of trialing a new employee to make sure they have the skills required to fill the position. If you dismiss the employee during the trial period, this reduces the risk of any claims because they are unable to bring unjustifiable dismissal claims. A probation period highlights to the employee that you are reviewing their performance as an employee. However, if the employer chooses to move to dismissal, the employee has the same rights as an employee outside the probation period including that they can still bring an unjustifiable dismissal claim. If you need assistance with your employment agreement, contact LegalVision’s New Zealand employment lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a trial period?

A trial period is a period during which the employer and a new employee of the business can assess the relationship.

What is a probation period?

A probation period is a period during which an employer can review whether the employee has the right skillset. Meanwhile, the employee can demonstrate their skills and assess the suitability of the workplace.

Where should these periods be specified?

Whether an employment arrangement includes a trial period or probation period should be included in the employment agreement. They cannot be added once the employee has started in the position.

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