What do the changes to trial period law mean for your business?

In January 2018, the new government announced changes to the trial period legislation introduced by National. Whilst the proposed changes are a compromise on what was originally proposed, businesses that employ more than 20 employees will need to brush up on due process if they are to avoid a personal grievance.

What is the change?

The change introduced by the Labour / NZ First government is to remove the ability of businesses who employ more than 20 employees from being able to rely on the trial period legislation. This means small businesses are not affected (depending on your definition of ‘small'). That means if you are a business whose number of employees is on the cusp and you use a trial period clause, you need to make sure you don't go over the 20 employee threshold without removing the trial period clause from the agreements of any new hires.

What happens if I don't remove the clause?

As a business with over 20 employees, nothing happens if you don't remove the clause from your agreement for any new hires, except that you won't be able to rely on the clause. But what that does mean is that you will likely have lost the opportunity to give yourself some protection by using a probationary period clause instead.

What is a probationary period?

Probationary periods predated trial periods and were the type of clause used by most businesses prior to the introduction of the trial period laws. They didn't disappear when trial periods came in, they just weren't frequently used so it's worth a reminder about what they are.

The most important point is that, unlike trial periods, probationary periods won't protect you from a personal grievance. So, what will they do? Essentially, probationary periods allow you to fast-track the warnings process. So whereas for a permanent (non-probationary) employee you will be expected to give a series of warnings prior to dismissal (serious misconduct excluded), with a probationary period you only need to give one opportunity for improvement. That opportunity to improve needs to be communicated to the employee before the probationary period expires (with the warning of dismissal if no improvement occurs) and a reasonable opportunity given for improvement to be demonstrated. Unlike trial periods, probationary periods can be extended since there is no prescribed duration provided they are reasonable. Three months used to be the norm before they fell out of fashion with the ability to extend where needs required and where the employment agreement allowed for it.

Do I need to change my employment agreement template?

The short answer is yes, if you want to use a probationary period because you need to change the wording of your clause. That's because the wording of a trial period clause is very prescriptive and you need to make it clear what type of clause you are relying upon.

When does the change happen?

At this stage we don't know what the change will take effect but it is likely to be very soon assuming safe passage through Parliament. We can expect some transitional arrangement for people hire under trial periods when the legislation takes effect. When it is passed, it may be a good time to get your employment agreements reviewed to ensure they remain compliant with the law. If you need help with that then email me: michael@approachablelawyer.com
Print this pageEmail to a friendUse this article in your newsletter/magazine