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Employment: Trial vs. probationary periods - what is the difference?

By Gibson Sheat

Employment: Trial vs. probationary periods - what is the difference?

Trial and probationary periods look very similar and are used for similar reasons but they are fundamentally different. 

Probationary periods

Section 67 of the Employment Relations Act 2000 (“the Act”) provides that a probationary period must be specified in writing in the employment agreement and that the application of the law of unjustified dismissal applies in the situation where an employee is dismissed under the probationary period. In other words, the effect of a probationary period clause is limited and an employee under probation generally has the same legal rights and protections as a permanent employee.

The probationary clause does, however, provide employers with some degree of flexibility when hiring a new employee and can also be useful to assess someone’s performance, for example, if you would like to offer an existing employee a new role but you are not sure whether they have the skills to succeed in that role.

The employer is obligated to put an employee on notice if, for example, they have concerns about their performance. The employee should be given the opportunity to respond and to improve their performance over a period of time. The employer is further obligated to supervise and review the performance of the employee accordingly. The employer also needs to follow a fair process and act in good faith before making a decision to dismiss an employee under a probationary period. Probationary periods do not prevent an employee from raising a personal grievance for unjustified dismissal, which is one of the key differences compared to a trial period clause.

There’s no maximum length for probation periods. This will depend on what is reasonable in your particular situation. A probationary period can be extended (by agreement).
 

Trial periods

Section 67(A) of the Act provides that an employment agreement containing a trial period may be entered into by a small-to-medium sized employer, with a person who has not previously been employed by the employer. A small-to-medium-sized employer is defined as an employer that employs fewer than 20 employees.

A trial period clause needs to be agreed on before the employee starts work, be in writing in the employment agreement, and can only be used for new employees. It is further important to note that trial periods can only be used for up to 90 days, and if there is a collective agreement that covers the work to be done by the employee, that the collective agreement would prevail. Trial periods can’t be extended beyond 90 days.

A probationary period could also be added to a trial period so that when the trial period has expired there will be a further probationary period. But it would have to be fair and reasonable to do so.

A trial period clause effect is far greater and places restrictions on the employee’s rights. This clause, if applied correctly can prevent an employee from bringing a personal grievance for unjustified dismissal at the end of a trial period. Notice of termination under a trial period must also be in accordance with the terms of the employment agreement.

If the above requirements are not met, the trial period will not be effective, meaning the dismissed employee will have grounds for a valid personal grievance.

If this article has raised questions for you, reach out for a chat to Mike Gould at mike.gould@gibsonsheat.com or 04 916 6302.

Disclaimer: The information contained here is of a general nature and should be used as a guide only. Any reference to law is to New Zealand law and legislation. We recommend before acting on it, you consult your accountant or tax adviser