Before the introduction of statutory trial periods in New Zealand in 2009, the terms "trial period" and "probationary period" were commonly used interchangeably to describe a test run period of employment. In fact, the Employment Relations Act (ERA) itself refers to a "trial" in section 67 describing probationary arrangements. However, with the advent of the statutory "trial period" as specifically defined, these terms take on different significance, and have different requirements and consequences.

Employers will want to take care to ensure that where a trial period or probationary period applies, the correct intended term is expressed in the individual's employment agreement and referred to in any exchanges concerning the employment. Employers wishing to engage new employees on a trial period should ensure that any probationary period provision contained in standard employment agreement templates is deleted. Further, an employment agreement containing a trial period provision should be signed and returned by the employee before they start working.

Effect of trial or probationary period on termination

An employee who is given notice of termination during a valid trial period cannot bring any legal proceedings (including a personal grievance) in respect of the dismissal. Further, the employer is not required to provide written reasons for dismissal on request, or information relevant to its decision and an opportunity to comment.

On the other hand, where a probationary period applies, there is no equivalent insulation from dismissal-related claims. An employee who is terminated during a probationary period can challenge the dismissal for being procedurally unfair and/or substantively unjustified. The statutory rights to written reasons for dismissal and consultation also apply.

This conceptual difference was highlighted last month by the Employment Relations Authority in finding that a deficient trial period provision amounted to a probationary period arrangement, and consequently the employee's dismissal was unjustified (Mitchell v Calla Bridal Limited).

Requirements for a valid trial period

Importantly, for a trial period to be effective, the parties must agree to a trial provision in the employment agreement before the employment commences. Trial periods are only available in respect of new employees. This means that a trial period will not be effective in respect of an existing employee who is promoted internally, or where a former employee returns to the workplace after a period of employment elsewhere.

A trial period provision must specify: the length of the trial period (up to 90 days - not three months); that during the trial period the employee may be dismissed; and that if dismissal occurs, the employee will not be entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

Therefore, it is critical for employers to ensure that systems are in place to check that employment documentation for new employees is signed and returned before day one of employment.

Further, it would be prudent to review relevant policies that could be affected. Examples include disciplinary, misconduct and poor performance policies. For new employees whose work falls within the coverage clause of a collective agreement (whether or not they are union members), a trial period will not be effective if it is inconsistent with an applicable collective agreement term.

What is a probationary period?

Typically, a probationary period refers to a preliminary period of employment during which the employer will assess the employee's suitability for the role in question. Commonly, such a provision allows for a truncated notice period in the event of termination on expiry of the probationary period. It may also express the minimal procedural steps that the employer will follow before terminating, including discussing any concerns about performance or conduct, allowing the employee a chance to respond, and providing reasonable time and support to meet the company's expectations.

The ERA requires only that the fact of the probationary period must be specified in writing in the employment agreement. There are no other statutory prescriptions as to the content of a probationary period provision.

Requirements for termination

Trial period

Care should be taken to comply with any contractual obligations, such as training and/or performance appraisals, before giving notice of termination.

An employee who is subject to a trial period is still entitled to their contractual notice period (or, if none, reasonable notice) in the event of termination. In other words, notice must be more than simple advice of dismissal. The actual date of termination need not fall within the trial period, provided that notice of termination is given during that time.

In addition, the statutory duty of good faith applies during trial periods, requiring an employer to be responsive and communicative. This includes in relation to any shortcomings an employee displays. Further, in a dismissal situation, if the employee asks for an explanation, the employer should provide reasons for dismissal.

Probationary period

In the recent Mitchell case, the Authority found that a trial period provision was defective because it failed to state the prescribed information required by statute (see above). The Authority went on to find that the provision should be classified as a probationary arrangement.

However, unlike a trial period, a probationary period does not affect the law relating to unjustified dismissal.

Where a probationary period applies, the standard of procedural fairness and reasonableness requirements may be less rigorous than otherwise, but an employer must still meet certain minimal obligations before terminating. These include:

  • Point out the employee's shortcomings;
  • Advise about any necessary improvements; and
  • Warn of the likely consequences (i.e. dismissal) if communicated expectations are not met.  

If the employee nevertheless fails to improve, they should be given fair warning before the end of the probationary period that the employment will be coming to an end.

Ms Mitchell was not aware that her job was at risk before she was dismissed. There had been a couple of informal discussions in which the company pointed out the shortcomings in Ms Mitchell's work, but she had not been told that a failure to meet the company's expectations would place her employment in jeopardy. Further, no notice of termination was given even though Ms Mitchell's contract provided for two weeks' notice. Consequently, the Authority held that her dismissal was unjustified.