The change establishes the option of a 90 day trial period that will only apply to new employees of employers with 20 or less employees. If an employee is dismissed within the 90 day period they will be unable to take a personal grievance against you in respect of the dismissal.

Contrary to the impression given by some media around the time the changes were passed into law, New Zealand did already recognise probationary arrangements. Section 67 of the Employment Relations Act (“the ERA”) had always provided that an employer and employee could agree to a period of probation or trial. This had to be specified in writing and it did not affect the law in relation to unjustifiable dismissal.

This means that probationary periods were (and are) allowed as long as the employer took all reasonable steps to ensure that the employee met the standards required to keep them on in the role. If the employee was falling behind the reasonable performance of their duties during the probationary period, the employer would be obligated to assist them with advice as to where the deficiencies lay, additional training to help them meet the required standard, and any other reasonable assistance.

However it was previously not permissible for an employer to dismiss an employee for reasons not related to performance (for instance if they ‘didn’t fit in’ to the particular company or team culture). Also, “jumping through the hoops” of procedural fairness made dispatching a bad probationary employee a rather trying experience.

The change affects the original probationary section of the ERA (section 67) so that it deals exclusively with “probationary periods”, and adds two new sections (67A and 67B) dealing with “trial periods”.

Employment agreements between an employer of 20 employees or less and an employee that they have not previously employed, may contain a trial period clause. It is not automatic. (The original law allowing probationary periods will continue to apply where these requirements are not met and trial periods are unavailable – i.e. for employers with more than 20 staff.) If you give your employee notice of dismissal prior to the expiry of the trial period that employee may not take legal proceedings or a personal grievance in relation to that dismissal.

Employees will still be able to claim a personal grievance in the event of:

1. Breach of contract,
2. Discrimination,
3. Sexual harassment,
4. Racial harassment,
5. Duress (in regard to union membership), or
6. Any failure by you to comply with your obligations arising where, as a result of a proposed restructuring, the employee’s work is to be performed by another person.

Employees retain the right to request mediation through the department of labour to resolve problems. While the change is not entirely clear on this point, it appears that in relation to a dismissal you may refuse to attend mediation without adverse consequences.

Although your ordinary obligations of good faith apply, you do not have to provide information about how you came to your decision to dismiss the employee, nor are you required to give them an opportunity to comment on the proposed dismissal beforehand.

In practical terms, as long as the dismissal is not for one of the prohibited grounds, you do not need to follow the ordinary procedure, or give reasons. If for instance, you felt that a particular employee who was on a trial period was disruptive to your company dynamic and you dismissed them, they would not have recourse to the Employment Relations Authority or Court. In another scenario, if the employee simply couldn’t generate enough money for your company to make their job cost efficient they could be dismissed within the 90 days, without having to go through time consuming and rather technical redundancy procedures.

We recommend a degree of restraint in the exercise of this new found freedom. Firstly, we suggest taking legal advice to confirm that the Act will actually apply in the particular circumstance. A dismissal without due process on the 91st day of employment could have serious negative consequences. Furthermore, until there have been several test cases in the Employment Relations Authority or the Court it is uncertain how these institutions will apply the law, and whether or not they will seek to reduce its effect via narrow or restrictive interpretations. As with all changes to the law, only time can tell what the precise effects are in practice, although we anticipate that the change will greatly simplify the process of removing new employees and thus reduce compliance costs for SMEs.