New Zealand

THE EXTENSION OF TRIAL PERIODS TO ALL EMPLOYERS IN NEW ZEALAND

By Jennifer Mills and Anne Shirley, Minter Ellison Rudd Watts, New Zealand

Since March 2009, the law in New Zealand has allowed employers with 19 or fewer employees to employ new employees on a trial period of up to 90 days. The trial period must be in writing in the employee’s employment agreement. In contrast with the position where there is no trial period, or after one has ended, an employee who is dismissed during a trial period is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

Trial periods are intended to give employers confidence to take on new staff (especially people who might otherwise struggle to get work) without fear of facing a personal grievance should the employment relationship need to be terminated within the first 90 days. A recent survey by New Zealand’s Department of Labour indicates that the introduction of trial periods has worked well for small businesses. Many of them have taken up the option of trial periods and forty percent of those surveyed said they were unlikely to have hired the new employee without the trial period.

The government has introduced a number of proposed changes to employment law, including the extension of trial periods to make them available to all employers. At the time of writing, the Employment Relations Amendment Bill (No 2) 2010 was expected to come into force in April 2011. Assuming that the Bill is passed without significant change, the recent case of Smith v Stokes Valley Pharmacy (2009) Ltd [2010] NZEmpC 111, will become relevant to a far greater range of employers. The case clarifies when a trial period will be enforceable. It involved an employee whose employment was terminated, without notice, 70 days into a 90 day trial period.

Ms Smith had been employed by the previous owners of Stokes Valley Pharmacy from March 2007. When the business was sold, she became employed by the new owners (from 31 September 2009). The new owners had provided Ms Smith with an employment agreement on 29 September, and that agreement included a 90 day trial period. Ms Smith then attended work as usual on 1 October, and it was not until 2 October (the second day of employment with the new owners) that she signed the agreement.

Ms Smith’s employment was subsequently terminated during the trial period, when the new owners became dissatisfied with her performance. The Employment Court held that the trial period in this case did not comply. This meant that Ms Smith was able to pursue her personal grievance, and her dismissal was held to be unjustified.

One reason that the trial period in this case did not comply with the legislation was that a trial period must commence at the beginning of employment. Because Ms Smith did not sign the agreement until the day after her employment started, this requirement was not met. Secondly, Ms Smith was not given the notice of termination required under her employment agreement.

The case makes it clear that employers can only include trial periods for truly “new” employees, not existing or previous employees. It also highlights the importance of ensuring employees sign their employment agreements before they commence employment. In addition, employers must take care to give proper notice of termination. A failure to meet any of these requirements will result in the trial period being unenforceable.

Despite the restrictions that apply, trial periods do provide employers with more flexibility to try out employees and “insurance” against making the wrong recruitment decisions. As such, trial periods are likely to be widely adopted by employers when they become available.