New bill allows employers with more than 20 employees to implement 90-day trials
On 21 December 2023, the Employment Relations (Trial Periods) Amendment Bill (the Bill) was passed by the Coalition Government under urgency. The amendments to the Employment Relations Act 2000 (the Act) ushered in by the Bill will take effect as law on the date the Bill receives Royal Assent.
The primary change the Bill introduces is extending the ability for all employers to include a 90-day trial period in employment agreements with new employees. Currently, 90-day trial periods are only available for employers with 20 or fewer employees.
It is essential that the validity requirement, namely that the employee is not an existing employee, is complied with by employers.
To ensure an employee is not an existing employee, the employment agreement containing the 90-day trial period clause must be presented to the employee and signed by them prior to starting their first shift. If they sign the agreement part-way through a shift, they will likely be found to be an existing employee: see Smith v. Stokes Valley Pharmacy (2009) ltd NZEmPC 111.
Strict approach to employer compliance
The Ministry of Business Innovation and Employment’s Regulatory Impact Statement (RIS) (released earlier this month) on the proposal to extend the availability of 90-day trial periods emphasized the strict approach taken by the Employment Relations Authority and the Employment Court in determining whether employers have complied with the Act.
The Authority and Court have justified the strict approach to compliance on the basis that trial periods remove longstanding employee protections, access to dispute resolution, and access to justice.
The RIS highlighted that in the Authority between 2015 and 2023, 133 out of 178 90-day trial provisions (75 per cent) were found to be invalid. Common reasons for finding of invalidity included:
- A general contractual failure.
- The person with a trial provision in their employment agreement was not considered to be an employee who had not previously been employed by their employer. This can include a person who has worked only for a few days before signing their employment agreement.
- The trial provision itself was incorrectly stated.
- Notice of dismissal was not properly given.
- A miscellaneous procedural error.
Given the Court and Authority’s strict approach to trial periods, it is essential that all employers seeking to include 90-day trial periods in their employment agreements in the New Year obtain advice as to their proper use.
Gwen Drewitt is a Special Counsel on the employment team at Lane Neave in Christchurch. Tamsin Woolf is a Senior Solicitor on the employment law team at Lane Neave in Wellington.
