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Probationary periods – the new 90 day trial period?

08 November 2019

For many employers of 19 or more people the loss of the 90-day trial period has come as a real blow and they are now looking for alternatives that give them the best chance possible of ensuring new employees are the right fit for the role.

Enter the probationary period.

The Employment Relations Act 2000 provides for a period of probation after the start of employment on the basis that the arrangement must be specified in writing in the employment agreement and that dismissal in reliance on the probationary period must be justifiable.

Prior to the new restrictions on the 90-day trial provisions, a probationary period was often used if an employer wanted to assess the suitability of an existing employee for a new position within the organisation.  If the employee proved to be unsuitable for the new role, they would revert back to their original position and their employment would continue otherwise unaffected.

As 90-day trials provide more protection to employers, there was less incentive to use probationary periods for new employees.

However, in light of the recent restrictions to 90-day trials, the humble probationary period now takes on new significance as it can provide a mechanism for larger employers to assess the competence and suitability of new employees.

It is essential that employers intending to use a probationary period for this purpose appreciate the following:

  • It is not the same as a 90-day trial. Employees are not prohibited from raising a grievance for unjustified dismissal if their employment is terminated because they are unsuitable.
  • To justifiably terminate under a probationary period, the employer must act as a reasonable employer could in the circumstances. We believe that this means that employers should treat a probationary period as similar to a performance management plan which includes:
  1. Genuine monitoring and assessment of the employee’s work;
  2. Constructive feedback, training and support throughout the probationary period;
  3. Setting measurable targets and goals for the employee to reach; and
  4. Providing fair warnings to non-performing employees, and giving them a reasonable opportunity and guidance to improve during the probationary period.

If the employee’s performance is still not satisfactory, the employer will be on safer footing to dismiss them.

  • The probationary period needs to be of a reasonable duration. As a general rule-of-thumb we do not recommend more than three months.
  • If, at the end of the period, the employer is uncertain about whether to retain or dismiss the employee, by agreement the probationary period can be extended (this is technically a variation to the employment agreement). This should be for a shorter period and only for as long as is needed for the employer to come to an informed view on the employee’s suitability.  Multiple extensions are not recommended.
  • If your employment agreement does not specify a particular notice period for the probationary period, the standard termination notice period will apply.

 

Careful drafting of a probationary period term in an employment agreement is important as it can have a significant effect on what the employer can legitimately achieve and the employee’s expectations.

As a final point, it’s essential that employers remember the ever present employment law principles.  The requirements of good faith and reasonableness overlay all employment relationships and are imported into contractual terms (regardless of the particular words on the page).

Given the potential pitfalls, if you are considering using a probationary period for your next staff hire, feel free to contact us to discuss further.

 

Erin Anderson is an Associate in the Commercial Disputes & Employment Team at Norris Ward McKinnon. You can contact Erin at erin.anderson@nwm.co.nz