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Employers beware - Incoming legislation removing Trial Periods

06 May 2019

The loss of Trial Periods

The Labour led government have introduced stronger employee rights under the new Employment Relations Amendment Act 2018, coming into force in early 2019.

One of the most debated aspects of the Bill is the restriction of 90-day trial periods to small-to-medium sized employers. From 6 May 2019, only employers with less than 20 employees may utilise 90-day trial periods in their employment agreements. This means that only approximately 30% of all employers in New Zealand will be able to utilise these going forward.

It is important that employers are aware of this change, as from 6 May 2019 if an employer with 20 employees or more hires a new employee under an employment agreement which includes a 90-day trial provision, that provision will be invalid. Employers who try to dismiss someone under the 90-day trial provision, are at risk of a claim for unjustified dismissal, which could mean significant financial consequences.

In determining whether or not an employer is small-to-medium sized, the number of employees will be calculated as those employed on the day on which the employment agreement is entered into. For businesses who are close to the threshold of fewer than 20 employees, this will require careful consideration, especially if they are wanting to utilise a trial period.

Trial periods have been attractive for both businesses and job seekers since their introduction, in that they incentivise employers to take chances on prospective employees without being put off by the difficulty of ending employment if the new employee is not suitable. Restriction of the availability of trial periods may deter some employers from taking chances on new employees.

Probationary Periods – Another option?

For those employers who from 6 May will no longer be able to utilise 90-day trial periods, implementing a probationary period is another option to “take a chance” when hiring new employees without being familiar with their individual skills or being able to assess their suitability for the role.

Probationary periods allow employers to determine whether the employee is the right fit for the role. However, unlike trial periods, probationary periods allow employees to raise unjustified dismissal claims and require employers to give reasons for termination. Effectively, the same rules apply as terminating under normal circumstances.

However, probationary periods can be helpful as they put the employee on notice that their performance and behaviour is being monitored. The employee can be dismissed under a probationary period, but only once an employer has assisted the employee to improve their performance and have been unsuccessful. This is similar to a fast-tracked performance improvement plan. To be clear, simply claiming that an employee is “not the right fit” would likely be insufficient to justify terminating their employment under a probationary period. An employer would need to show how they had identified shortcomings and given the employee a fair opportunity to improve before ending their employment. The employee will be regarded as a permanent employee from the end of the period, unless they are notified otherwise.

If you are a small or large business owner and are wanting to know more about these upcoming changes, feel free to contact our Employment Team with your queries.

 

Emma Thomson is a Solicitor in the Commercial Disputes & Employment Team at Norris Ward McKinnon. You can contact Emma Thomson at emma.thomson@nwm.co.nz