Should we include a trial period in the employment agreement?
A trial period is a tool that can be used by employers to find out if an employee is suitable for a role. During the trial period, an employer can dismiss the employee and the employee cannot raise a personal grievance for unjustified dismissal, so long as the trial period is valid. Trial periods if used correctly, are a great tool for employers. However, trial periods are often challenged, so it is essential employers know when to use them and what is required.
Can we include a trial period in our employment agreements?
An employer can include a 90 day trial period in an employment agreement if the company has less than 20 employees. When counting the number of employees, the employer must include all casual, part-time and fixed-term employees and ensure you have less than 20 employees.
Obviously staff numbers will fluctuate. If for example, you have 18 employees when you make an offer of employment and the following week the employer takes on another six employees, the trial period will still be valid, so long as when the employer took on the new employee they only had 18 employees. If however, those six people started on the same day, the new employee cannot be on a trial period.
There are many misconceptions amongst employers in relations to trial periods. These include the idea that a trial period is an easy out for employers as they can immediately dismiss employees during the 90 day period, and that they are a viable arrangement for temporary employment. This is not the case. Trial periods cannot be longer than 90 days and, provided the trial period is valid, employers must give the requisite notice of termination within the 90 days, if they wish to end the employment in reliance on the trial period.
Key points to ensure a valid trial period
The courts interpret trial periods strictly, because of the significant imbalance of power they create, as a result, getting it wrong can be costly. We outline below key points you need to know if you are relying on a trial period clause.
• The trial period clause must comply with the requirements of Sections 67A and 67B of the Employment Relations Act 2000.
• The trial period begins when the employee commences work and can be for up to 90 days.
• The employment agreement must specify when the trial period commences and how long the trial period will be for.
• The employment agreement containing the trial period must be agreed to by both parties and signed by both parties before the new employee commences work.
• The employee must be given the opportunity to seek independent legal advice.
• The employee must be a new employee and have not worked for the employer previously.
• During the 90 day period an employer can dismiss an employee if they are not right for the role.
• The employer must give the employee the appropriate written notice within the trial period even if the dismissal date occurs outside of the trial period.
• The written notice should specify the trial period clause the employer is relying on and state if the employee is required to work their notice.
• The employer does not have to give reasons for the dismissal however if the employer is asked, they should provide reasons.
• The employee cannot bring a personal grievance for unjustified dismissal however, they can bring other proceedings in relation to the dismissal, for example discrimination or harassment.
If the above requirements are not met, the trial period will not be effective. In particular failure to get the employee to sign the employment agreement before commencing work, failure to give the appropriate notice to terminate employment or failing to give the employee notice to terminate employment correctly, will mean the trial period is invalid and the employee will likely have a valid personal grievance.
It is important to remember that during any termination process, the employer must act in good faith.
We can assist to ensure your trial period clause is fit for purpose. We also recommend that you seek legal assistance before terminating employment in reliance on the trial period provision.
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Written by Melissa Johnston and Olivia Faulds
© McVeagh Fleming 2022
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.