Thursday, February 10, 2011

New Zealand: Amendment Allows For Trial Periods For Any 'New' Employee

By Michael Quigg and Tim Sissons
Quigg Partners

On 1 April 2011, amendments to New Zealand’s Employment Relations Act 2000 will come into force allowing all New Zealand employers to include ‘trial periods’ in the employment agreements of new employees. While the change has been welcomed by businesses, recent case law suggests that employers need to approach the provisions with care if they want to be protected from unfair dismissal claims.

What is a trial period?

A trial period is a period of up to 90 days at the beginning of an employee’s employment. If properly provided for in an employment agreement, it means that if an employee is given notice of dismissal during that period, they will be unable to bring a personal grievance or other legal proceedings in respect of the dismissal.

Although similarly named, trial periods and probationary periods are not the same. While the Employment Relations Act provides for both, it only offers a statutory bar against personal grievances and other proceedings in respect of trial periods. Probationary periods are therefore of much less utility for employers.

Who can use trial periods?

Trial periods have been available since 2008 to those who employ 19 or fewer people. From 1 April 2011, all employers will be permitted to introduce them. However, trial periods can only be used for new employees.

How do they work in practice?

Although apparently broad in the freedom they give employers, trial periods in fact need to be treated with some care. A number of potential pitfalls were illustrated in a recent decision of New Zealand’s Employment Court.

Smith v Stokes Valley Pharmacy (2009) Limited [2010] NZEmpC 111 involved an attempt by a small employer to rely on a trial period as a bar to a personal grievance claim raised by one of its employees (Ms Smith). The Court signalled its approach to the legislative provisions covering trial periods by noting the need to interpret them “strictly and not liberally”.

The Court found that because Ms Smith had already worked one day by the time she handed her employer the signed agreement which provided for the trial period, she was not “an employee who has not been previously employed by the employer” as required by the Employment Relations Act for a trial period to be permissible. Accordingly, the Court held that the trial period was not in compliance with the law, and therefore the benefits of it were not available to the employer.

The Court also found that trial periods require an employer to give an employee notice of termination, rather than terminating summarily. In Ms Smith’s case, she was given less notice than her employment agreement provided for. On the basis that “termination of employment on short notice is, unless accepted, ineffective notice”, the Court held that even if the trial period provisions had been valid, Ms Smith was not dismissed on notice as required by the law. Accordingly, for this reason also, her employer could not rely on the trial period in defending Ms Smith’s personal grievance claim.


Although trial periods were seen by some as a truly ‘grievance free’ period, the Courts are likely to take a strict approach to employers’ compliance with the legislative requirements. Even apparently insignificant departures from those requirements (such as an employee working one day before handing her employer a signed agreement) may render a trial period ineffective. Employers would therefore be well advised to seek assistance when introducing trial periods, or when considering relying on them, so as to ensure that they receive the protection that trial periods can offer.