Trial Periods vs Probationary Periods - Employment Lawyer – Business Lawyer - Dukesons Business Law

January 2019

Trial Periods vs Probationary Periods - Employment Lawyer – Business Lawyer - Dukesons Business Law

This Blog isn't legal advice – if you need legal advice on any employment law issue or any other business law or commercial law issue, please contact me. I'm a business lawyer (commercial lawyer) who provides advice on a wide range of business law or commercial law issues including employment law issues.


Why the distinction matters between trial periods and probationary periods

They are different “animals”

First, a trial period as contemplated by s67A of the Employment Relations Act (ERA) is a statutory creation, with which there must be strict compliance. For example, the maximum permitted period is 90 days, the employment agreement must be worded in a specific manner, and the trial period provision must be agreed to by the employee before they commence work (which will usually mean that they must have signed the agreement before they commence work).

Probationary periods, are recognised by the ERA (s67). There are some formal requirements (relatively minor) for their inclusion in employment agreements. However, there isn’t the same degree of flexibility as when using a trial period.

I’ve seen trial periods described in employment agreements as probationary periods and one case that I recall involved an employer keen on DIY including both a trial period and a probationary period in their form of agreement. So, while a probationary period is a trial period in a sense, it’s important to understand the different nature between a s67A trial period and a probationary period.

More on this later.

Change in the Law

The second reason why the distinction is important, is that from 6th May 2019, only employers with less than 20 employees (including casuals) can rely on a s67A trial period in relation to a new employee (an employee who hasn’t worked for them before, in any capacity as an employee).

An employer will be able to utilise a probationary period (provided for in s67 of the ERA) where the employee has previously been employed by the employer or where the employer has more than 19 employees.

A probationary period could be added on to a trial period so that when the trial period has expired, there will be a further probationary period. But it would have to be fair and reasonable to do so.

Key Differences between s67A trial periods and probationary periods

The key difference between a s67A trial period and a probationary period (as noted, both are trial periods in a sense) is that when an employer can utilise a trial period, they don’t have to justify termination of employment where employment is terminated during the trial period. Section 67A of the ERA specifically says that an employee can’t bring a claim for unjustified dismissal in the circumstances. (They may have a claim/personal grievance in other respects.) On the other hand, where a probationary period is involved, the employer will be required to undertake a much more hands-on performance management process, making the employee aware of any of the shortcomings and giving them a reasonable opportunity to improve. This may require guidance and other assistance to be provided to the employee.

A s67A trial period may enable an employer to sift out employees who are incompatible, for example, due to personality issues. The incompatible employee is very difficult to deal with absent a trial period provision. The law doesn’t regard incompatibility as an issue unless the incompatibility is very, very serious. From an employer’s perspective, this can be a real issue e.g. where the employer is a small business employer with a small number of employees (especially where there is a one on one situation, with a sole employee reporting to the employer) or where team compatibility within a team (especially a small team) is crucial.

If a probationary period isn’t successful, the employer will be able to terminate the employment provided that they’ve complied with their obligations to act fairly and reasonably and in good faith (specifically, to ensure that the employee is fully informed of what is required of them and how they are progressing and that the employee is given a fair and reasonable opportunity to improve). If the employer gets it wrong and unjustifiably dismisses the employee on the basis of an alleged unsuccessful probationary period, the employee can bring a personal grievance for unjustified dismissal.

So there’s more at stake when a probationary period is involved in that there’s more room for error on the part of the employer when it comes to doing “the right thing” and correspondingly more room for an employee to raise objections to their dismissal.

It should be remembered that to a large degree, the process for dealing with performance issues during a probationary period will be much the same as when dealing with performance issues during “permanent” employment i.e. a performance management process may be required. The difference is that a probationary period will generally require a shorter time line for performance improvement.

In my view, whenever performance issues are involved, it’s best not to use warning terminology. The issue is one of performance, not misconduct. In very general terms, what’s required is a reasonable time frame and the provision of reasonable assistance to try to enable the employee to improve their performance to the required level (which must be reasonable). The employee must be advised at some point that if their performance doesn’t improve as required by the employer, they may be dismissed. (Advice or notice to this effect can be said to be a warning but there’s no need to use warning terminology where conduct isn’t blameworthy in the same sense that misconduct is blameworthy.) This will often be implied when a probationary period is involved but a key point is to ensure that at all times, the employee knows what is required of them and what may happen if they don’t succeed.

Note that s67A trial periods can’t be extended beyond 90 days. On the other hand, probationary periods can be extended (by agreement).

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