A guide to how employers can successfully navigate a challenging area of employment law.
By Sanaria Ali – Legal / Employment Relations Advisor, Restaurant Association
This article first appeared in the April edition of Savour Magazine.
The trial period is an excellent tool for businesses to use, to take on a new employee under a trial basis and assess their suitability for the role. If it transpires within the first 90 days of their employment that the employee is unsuitable for the role, the employer can dismiss the employee without the risk of the employee raising a successful personal grievance on the grounds of unjustified dismissal. However, the employee may still raise a personal grievance on grounds unrelated to their dismissal.
Although this sounds simple, a common misconception is that an employee can be dismissed so long as there is a trial period clause in the employment agreement. While that is true, it is also true that the 90-day trial period is a commonly tested area of employment law in New Zealand given its wide use in employment agreements in conjunction with its legality criteria which some businesses struggle to meet prior to dismissing an employee.
The consequence of terminating an employee with an invalid trial period is that the employee may raise a successful personal grievance on the grounds of unjustified dismissal under the Employment Relations Act 2000. In other words, the employee could successfully contend that the termination of their employment was against the law given the illegality of the trial period clause, and that they should be entitled to either reinstatement of the role or financial compensation.
So, how can this be avoided?
This article will delve into the function and legality criteria of the trial period as well as its associated risks, restrictions and how employers can ensure safe dismissal. It will also distinguish a trial period from a probationary period,as it is an important distinction given the risks associated with getting this wrong.
The following situation is a common occurrence in the employment realm, regardless of what industry it takes place in. An employee is hired after making a great first, second or third impression but unfortunately, issues begin to arise with the employee within the first 90 days of their employment.
As a result, the employer no longer wants to continue with the employment relationship and terminates the employee under the 90-day trial period clause.
Although this sounds straightforward, there are many factors that can derail the perceived simplicity of dismissing an employee under the trial period.
The simplicity can be deceiving, in that the employee’s unsuitability for the role is not enough to safely terminate their employment. There are several other crucial factors to be considered before an employer can safely terminate an employee under the trial period clause.
It is important to remember that unsuitability is not gender, age, sexual orientation, religion, disability, or anything else that may be deemed a discriminatory basis for dismissal. Dismissing an employee based on any of these factors creates a risk of the employee raising a claim on the grounds of discrimination which may be brought before the Human Rights Commissioner, even if the trial period is valid. Unsuitability can relate to issues with the employee’s conduct, attitude, punctuality, performance, and other such qualities that hinder their ability to carry out the role to the required standard.
Pre-employment evaluation period
In some cases, an employer may need a candidate to demonstrate their skills and abilities prior to offering an employment agreement. This is common practice in the hospitality industry given the hands-on nature of some roles; this is typically done as the second stage of the interview or recruitment process. This acts as an additional layer of assurance that the candidate may, or may not, be a good fit for the role. Here, the candidate can demonstrate their practical skills for no more than one or two hours (unpaid), and this gives both parties an opportunity to see if the candidate would be a good fit in the workplace.
However, you must ensure that the candidate signs an evaluation period agreement before they come in for the evaluation and prior to commencing any type of work. Failing to have this agreement in place means that the evaluation period could be seen as prior work done by the employee, which can invalidate the trial period clause and termination may be deemed as unjustified dismissal.
We strongly advise employers to ensure that there is a written evaluation period agreement signed by both parties prior to the candidate coming in for assessment. Members can contact the Restaurant Association for advice and documentation to ensure that the evaluation period is done correctly and in a manner that doesn’t invalidate a future trial period clause.
Ticking the boxes
The validity of the trial period clause in the employment agreement is crucial as this is what prevents the employee from raising a personal grievance on the grounds of unjustified dismissal. In other words, if the trial period is valid and all its criteria are met before the employee commences employment, and they were dismissed within the designated 90-day timeframe, the employee cannot then succeed in a claim that they were unfairly dismissed.
So, what does a valid trial period entail? The following criteria must be met:
- Only businesses with 19 or fewer employees will be able to use the 90-day trial period.
- The letter of offer must clearly stipulate that the employee will be subject to a trial period in the first 90 days of their employment.
- The employment agreement must contain a trial period clause, with a provision that the trial period will be no more than 90 days.
- The employee must not have worked for the business previously. If the employee came in for an evaluation period, there must be an evaluation period agreement signed by both parties.
- The employee has had between three to five business days to review the employment agreement and seek independent legal advice on the terms of employment.
- The employee must sign the employment agreement at least one calendar day prior to commencing employment.
The above criteria must be met in their entirety prior to dismissing an employee under the trial period clause. If the employer fails to meet one of the above criteria, the employee could succeed in claiming that they were unjustifiably dismissed.
We strongly advise our members to contact us while in the process of drafting the employment agreement to ensure that any trial period clause is valid prior to issuing the employment agreement and letter of offer.
Exercising the trial period clause
Now that the legalities of the trial period have been explained, the next point of call is to discuss what happens when an employer has both an unsuitable employee and a valid trial period clause. To dismiss an employee ‘on the spot’ would not be in line with an employer’s legal obligations of good faith.
Employers should still exercise their obligations of good faith despite this being limited in the context of a trial period termination. To do this, the employer should invite the employee to an informal meeting to advise the employee that they have not been successful in their role and that the employment relationship will end under the 90-day trial period. This is not a formal meeting; therefore, employers do not need to provide adequate notice of the meeting or provide opportunities for feedback from the employee before the dismissal. Additionally, employers do not need to disclose reasons for the dismissal.
Remember, the employee still has a right to work out their notice period after the dismissal has been communicated. The notice period may be shorter during a trial period, so it is important that this is checked in the employment agreement before holding the informal meeting with the employee. Please note that the notice period can only be amended if there is a mutual agreement, in writing, between the employee and employer, to effect that change.
Trial period vs probationary period
Even though trial and probation periods are ways in which an employer can assess a new employee for suitability for permanent employment, it is important to distinguish between the two, as they both come with different criteria and to mitigate the risk of a successful personal grievance claim they must be met before dismissal.
An employer with 20 or more employees can use a probation period in their assessment of a new employee, or an employee changing roles with the same employer, so long as it is mutually agreed that this will be included in the employment agreement. The probationary period can exceed 90 days if its duration is reasonable for the employee to demonstrate their ability to perform the role.
During the probation period, the employer is obligated to follow a correct procedure for dismissal when dealing with an employee whose performance is not up to the required standard. Performance-based termination under the probation period is highly scrutinised by the Employment Relations Authority; therefore, the employer must follow correct performance management procedures and demonstrate that the employee was provided with adequate training and support to improve their performance.
Dismissal under a probation period clause should be solely based on the employee’s inability to perform the role they were hired to do. Employers are encouraged to seek advice when faced with an employee who is not performing to the required standard and is not on a 90-day trial period.
Food for thought
Remember, the trial period is also the employee’s opportunity to trial the employer in their first 90 days of employment. Having said that, the employee themselves may decide that they are not a good fit for the business, or the role isn’t quite what they expected. As an employer, it is important to ensure that the employee is not resigning due to reasons that may warrant an investigation, for example, bullying from another employee, sexual harassment, potential breaches of the employer’s health and safety obligations, unjustified disadvantage and so on. A great way to ascertain reasons for resignation and to mitigate the risk of the employee raising a successful personal grievance is to ensure the employee puts their resignation in writing.
Remember that an employee has the legal right to raise a personal grievance within three months of the dismissal. Whether or not they are successful in their claim depends on the factual circumstances and how the employer dealt with the dismissal.
In summary, the key points to take away are the following:
- Termination under the trial period clause is a highly contested area of employment law in New Zealand, so it is crucial that employers seek advice on whether they have a valid trial period clause before offering employment, or whether they have a valid trial period clause prior to dismissing an employee.
- An employee’s unsuitability for the role should not be based on anything that could be deemed as discriminatory, such as race, religion, sexual orientation, age, or disability. Employers should assess suitability based on factors that require successful performance of the role including, but not limited to, conduct, punctuality, skills, attitude, customer service, and professionalism.
- An evaluation period agreement must be signed before the candidate comes in and does any type of work. The duration of the evaluation period should be reasonable for the candidate to demonstrate their skills and should not exceed two hours.
- The criteria for a valid trial period clause must be met prior to the employee commencing employment. This is crucial for employers as it mitigates the risk of an employee successfully claiming that they were unjustifiably dismissed, which can be a time-consuming and costly claim. If one of the requirements under the criteria is not met, this can invalidate the entire trial period.
- Terminating an employee can be difficult and even emotional in some cases, particularly for the employee. That is why it is important that employers exercise their good faith obligations and make the process as smooth and as comforting as possible for the employee. Having an informal sit down with the employee is a great way for employers to demonstrate that they acknowledge the sensitivity and potential difficulty of this process for the employee.
- Employers should check the duration of the notice period under the trial period clause as this may be shorter than post-trial period notice.
- The function and purpose of a probationary period are different to a trial period; any action under this clause should be taken with caution given the scrutiny it faces in the eyes of the Employment Relations Authority. The high threshold for performance-based termination means the employer needs to justify the dismissal and demonstrate that despite all efforts, the employee was unable to perform the role to the required standard.
- Employees have a legal right to raise a personal grievance under the Employment Relations Act for unjustified dismissal which can only succeed if it is proven that the trial period was invalid. That is why it is important to ensure the trial period criteria are met before the employee commences work, and that an evaluation agreement is in place before an employer invites the employee in to demonstrate their skills and abilities.
Finally, termination under a trial period clause can be complicated and extremely risky if it is not done correctly. It is always a good idea to check in with the Restaurant Association prior to commencing an evaluation period to ensure the correct documentation is in place before the candidate does any type of work. Members should also seek our advice prior to terminating an employee under the trial period clause to ensure the trial period is valid, and that the employee cannot claim to being unjustifiably dismissed.