When an employer hires a new employee, they sometimes want to assess the employee’s suitability for the job before accepting them for permanent employment. For this reason, a probationary or trial period may be stipulated by the employment agreement, with 90-days (or three months) being a common time frame.
The Employment Relations Act 2000 specifically prohibits the use of fixed-term agreements to establish an employee’s suitability for permanent employment. A probationary or trial period clause must be used instead. If a compliant clause is not included in the employment agreement, then the employer will not be able to rely on a probationary or trial period to terminate the employee’s employment.
Trial or probationary: What’s the difference?
Before 2009, the words “trial” and “probationary” were both used to mean a period of employment during which a new employee’s suitability was assessed. Section 67 of the Employment Relations Act 2000 (covering “probationary arrangements”) referred to both probationary and trial periods alike. This section states that the law relating to unjustifiable dismissal applies where an employee is dismissed in reliance on a probationary period. The word “trial” was removed from section 67 in 2009 when two new sections were inserted.
In 2009, two new sections (67A and 67B) were added to the Act. These sections introduced the concept of a trial period of up to 90 days, during which an employee could not raise an unjustified dismissal grievance if their employment was terminated. The aim was to make hiring new employees less of a risk, especially for small employers (the trial period provisions applied only to small employers initially).
There followed a degree of confusion about the terms “trial” and “probationary” due to the interchangeable use of the two terms historically. Even the Employment Relations Authority considering the terms "trial period" and "probationary period" to be synonymous in one of its determination in early 2010.
However, in mid-2010, the Employment Court attempted to clear up the confusion (in New Zealand Meat Workers & Related Trades Union Inc v AFFCO New Zealand Ltd EC Wellington [2010] NZEMP 62). The Court indicated that a “trial period” was as defined by section 67A of the Act (see Trial periods under sections 67A and 67B below), while "there is no legislative definition of a probationary arrangement in employment".
The Court therefore defined a probationary period as "a period that enables the employer to assess an employee's competence and suitability for a position at a time when such an assessment is able to be made and after an appropriate period for training, guidance and, if necessary, modification or improvement by the employee. It takes account of the reality that in some situations a new employee's ability to perform a job and general suitability in that employment cannot be assessed sufficiently before its commencement.
"The existence of an agreed probationary arrangement also acknowledges on the part of both parties that employment may be terminated at the end of the probationary period if, assessed fairly and reasonably by the employer, the employee is incapable of performing the work or is otherwise unsuited to the employment."
Trial periods under sections 67A and 67B
Section 67A of the Act says a “trial provision” is a written provision in an employment agreement that states:
- For a specified period (not exceeding 90 days), starting at the beginning of the employee's employment, the employee is to serve a trial period; and
- During that period the employer may dismiss the employee; and
- If the employer does so, the employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.
These less stringent provisions for dismissal during a trial period applied only to small employers (who employed less than 20 people) from 1 March 2009 until 31 March 2011. However, they were extended to all employers on 1 April 2011.
If the employee is dismissed during the trial period, the employee will not be able to raise a personal grievance for unjustified dismissal. Parties are still able to access mediation services, but the employee cannot take the matter further to the Employment Relations Authority or the Employment Court. The employee may raise other types of personal grievance (other than unjustified dismissal), such for discrimination, sexual or racial harassment, or unjustified disadvantage.
If the employer dismisses the employee in accordance with the provision, they do not have to provide the employee with a statement of dismissal on request, as is normally required under section 120 of the Employment Relations Act 2000.
The employer also does not have to comply with the part of the duty of good faith that requires employers who are proposing to make a decision that will adversely affect an employee to provide the employee with relevant information about the decision and an opportunity to comment before the decision is made.
However, the employer does have to comply with the part of the duty of good faith that requires them to be responsive and communicative in the employment relationship, according to the Employment Court in Smith v Stokes Valley Pharmacy (2009) Ltd EC Wellington [2010] NZEMP 111. In this case, the Court considered whether or not an employer who dismisses an employee during their trial period has to give the dismissed employee an explanation. The Court held that refusal to give to an employee any explanation about why they are being dismissed would be inconsistent with the duty of good faith under section 4 of the Employment Relations Act 2000, in particular the statutory obligation to be “responsive and communicative”.
Probationary periods under section 67
Under section 67 of the Act, if the employer and employee agree to a probationary period at the beginning of employment, it must be stated in the written employment agreement. If the employee is dismissed during the period, they can raise a personal grievance for unjustified dismissal. Accordingly, an employer should not summarily dismiss an employee purely because the probationary period has ended, but should follow the usual procedure for termination of employment.
Employers are under an implied duty to monitor the performance of a new employee during a probationary period and, where necessary, to train the employee to the required standards. Where the employee fails to meet these standards, or breaches any work rules, the company’s warning procedure should be followed.During such a trial period there is an obligation to supervise, check, and, where necessary, train a new employee, particularly one with no recent or relevant experience.
As with any other dismissal, the employer must observe the principles of procedural fairness. A worker should have some warning that their performance during the period is not proceeding well. There should be notice, warning, and an opportunity to discuss and explain any alleged deficiency.
Extending trial and probationary periods
Assuming that the probationary period has been realistically established and properly and fairly administered, it is not likely that extension of a probationary or trial period would be justified in many cases.
Having said that, there may be a genuine and justifiable reason for extending the period. For example, where the requirements of the job have been changed to better suit the employee’s abilities or where the employee is still undergoing training to bring them up to speed with their job performance.
Where the probationary period is extended, the employer should state the reasons for, and the duration of, that extension. Other than for an unrelated incident, justification for dismissal during or on the conclusion of this extension would be limited to the reason given for the extension.
Where a 90-day trial period provided under section 67A of the Employment Relations Act 2000 has expired and the employee is to be employed under an extended trial period, the normal rules of performance management and justification for dismissal would now apply. In effect, the trial period would become a probationary period and the employee may raise a personal grievance for unjustified dismissal if they are dismissed during the extended period.
