Articles
Trial Periods
A trial period allows employers to assess whether a new employee is suitable for a role. During this time, an employer may dismiss the employee without the employee being able to raise a personal grievance for unjustified dismissal—provided the trial period is valid. When used correctly, trial periods can be a valuable tool for employers, but they are often challenged. It is therefore crucial to understand when they can be used and what is required.
Key requirements
The trial period clause must meet the requirements in sections 67A and 67B of the Employment Relations Act 2000.
The trial period begins on the employee’s first day of work and may last for up to 90 days.
The employment agreement must clearly state when the trial period starts and how long it will run.
Both parties must agree to and sign the employment agreement before the employee starts work.
The employee must be given a reasonable opportunity to seek independent legal advice.
The employee must be a new hire who has not previously worked for the employer.
During the 90-day period, the employer may dismiss the employee if they are not suited to the role.
The employer must give written notice of dismissal within the trial period, even if the employment end date falls after the 90-day period.
If you have any questions, please reach out.
Upcoming Changes
In September 2024, the Government announced changes to the Employment Relations Act 2000 that will introduce a new gateway test to determine whether a worker is an employee or an independent contractor. These reforms are designed to provide greater clarity for both businesses and workers, and are expected to become law in 2026.
The gateway test will serve as the starting point for assessing employment status. If all criteria are met, the worker will be classified as a contractor. If any criteria are not met, the existing tests will continue to apply.
Under the proposed changes, a worker will be considered an independent contractor if all of the following apply:
There is a written agreement that clearly designates the worker as an independent contractor.
The business does not restrict the worker from providing services to other businesses, including competitors.
The business does not require the worker to be available at specific times or for a set number of hours, and allows subcontracting of the work.
The business does not terminate the contract if the worker declines additional tasks or engagements.
Once the gateway test is formally enacted, business owners should ensure all four criteria are satisfied when engaging someone as a contractor.
Restructures
Employers can only restructure if there is a genuine business reason—such as reducing costs, improving efficiency, or achieving a strategic objective. A restructure cannot be used to remove staff for poor performance or misconduct.
The first step is preparing a business case that explains the purpose, provides relevant information, and outlines expected outcomes. Employees must receive enough detail to give feedback, suggest alternatives, or challenge the proposal.
A fair consultation process is critical. Affected employees should be given reasonable time to review the business case, ask questions, seek advice, and provide feedback. They may have a support person or representative present.
Where an employee's role is disestablished, employers must consider redeployment and consult with the employee on any suitable vacancies.