National and ACT have both made clear their intention to extend trial periods to all employers and the expectation is that they will move quickly on this. Currently only employers with fewer than 20 employees can use trial periods and the data collected by MBIE suggests that most actually do not.
There are a number of reasons for this. The cost of recruitment for small businesses, including the time and expense in having to train new employees, means that they are more likely to persevere. Further, the relationship between employer and employees is more personal and direct in smaller businesses, again creating a reluctance to dismiss.
But perhaps the most significant reason is that small employers are likely to have been put off, or at least made very cautious by the various decisions of the Employment Relations Authority and Employment Court which have found dismissals based on trial periods to be unjustified.
In these cases, the authority and court have taken a strict approach to interpreting the trial period requirements in the Employment Relations Act, to the point that employers may find it daunting and confusing. A number of “rules” have been established in this context which employers must comply with in order to justify a termination on this basis.
First, the trial period clause must be in writing and the employment agreement needs to be signed before the employee starts work - not on their first day of employment and not even during a pre-employment assessment period. In this regard, trial periods can only be applied to genuinely “new” employees.
Second, the employment agreement must clearly state the duration of the trial period – in one case the term “up to 90 days” was found to be insufficiently precise.
Third, the clause needs to expressly state that the employee may not raise a personal grievance or otherwise challenge the dismissal where it is based on a trial period.
Fourth, employees must be expressly advised of their right to seek independent advice in relation to the terms of the employment agreement prior to entering into it.
Fifth, and this is where it becomes complicated – the employer must give the notice required by the employment agreement before the end of the trial period. In earlier authority cases it was found that paying an employee in lieu of notice was not compliant, and that actual notice was required to be given. However, this was subsequently overturned by the Court of Appeal which found that where the clause provides for payment in lieu of notice, this will meet the requirements of the section.
Finally, the court has held that an employer must still comply with their overriding obligations of good faith, including any training and development obligations that they have committed to in an employment agreement. Employers are also required to provide an explanation for any decision to dismiss where one is sought, despite the fact that the Act specifically says that they are not required to give reasons for the dismissal. Again, on its face, this appears confusing.
This adds up to quite a list of things that employers must get right if they are to justify dismissal on this basis.
The authority and court have been unapologetic that they will take a strict approach to ensuring compliance with the legislation, given that the use of trial periods deny employees fundamental protections against dismissal. In consequence, and no doubt this is intended by the authority and court, there have been far fewer dismissals in reliance on trial periods than may have been expected when the legislation was first introduced. At that time concerns were expressed that there would be waves of people dismissed on their 89th day of employment as employers churned through employees to find the right fit.
It remains to be seen whether extending the right to use trial periods to large employers will actually make much difference. What is clear is that the authority and court will hold larger well resourced employers to even higher standards of compliance than in the case of small employers.
It would therefore be unwise for large employers to believe that this will be a licence to simply dismiss at will during the first 90 days of employment - they will need to get the process right or they will be held to account.
This article was originally published in The Post