Trial periods can provide employers with an opportunity to assess whether a new employee is suitable for a role. However, strict statutory requirements apply, and failure to comply can expose an employer to significant risk.

A valid 90-day trial period allows an employer to dismiss an employee within the trial period without the employee being able to bring a personal grievance for unjustified dismissal. One key requirement is that the employee must not have been previously employed by the employer.

The question of what constitutes “previously employed” was explored in King v Off the Wall Construction Ltd where the Employment Court determined that “what is being referred to by an employee having been “previously employed” is where there has already been an opportunity to assess the employee’s suitability for the work”.

Background

Mr King applied for a role with Off the Wall Construction Ltd (OTW) and was interviewed on 16 August 2023. The following day, he was sent a draft employment agreement which included a 90-day trial period clause.

Before signing the agreement, Mr King was asked whether he would be willing to complete a day’s work for cash on 18 August 2023. He agreed and was paid $350 in cash for that day’s work. Mr King later signed the employment agreement and commenced ongoing work on 22 August 2023.

On 15 November 2023, Mr King met with his employer and was advised that his employment was terminated in accordance with the 90-day trial period.

Mr King raised a personal grievance for unjustified dismissal. OTW maintained that the dismissal was lawful as it occurred within a valid trial period.

The Authority’s decision

Section 67A of the Employment Relations Act 2000 permits an employment agreement to contain a trial period of up to 90 days, provided it starts at the beginning of employment and is entered into by an employee who has not previously been employed by that employer.

The Authority found that:

• Mr King’s employment commenced on 18 August 2023. On that day, he agreed to perform work for OTW, did so under the direction and control of the employer, and was paid wages for the work performed. The Authority rejected the argument that Mr King was acting as an independent contractor, noting that the work was performed at a time and place specified by the employer and not on Mr King’s own account.
• Payment in cash was not determinative of contractor status.
• The Authority also noted that Mr King had applied for an employed role, had been sent a draft employment agreement only one day earlier, and had not been advised that the work on 18 August was intended to preserve OTW’s ability to rely on a trial period.
• By allowing Mr King to perform paid work on 18 August, OTW had an opportunity to assess his suitability for the role. As a result, Mr King was considered to have been previously employed for the purposes of section 67A, and the trial period was invalid.
• Because the trial period was invalid, the dismissal had to be assessed under the general justification test in section 103A. The Authority found that OTW had failed to fairly investigate or raise concerns with Mr King, and had not provided him with a reasonable opportunity to respond before dismissal. The dismissal was therefore unjustified.

OTW was ordered to pay Mr King:

• $13,650 gross for lost remuneration; and
• $15,000 as compensation for hurt and humiliation (reduced for contributory conduct).

Key takeaways for employers

Trial periods only apply to genuinely new employees
As this case demonstrates, employers need to consider what constitutes previous employment. A paid day of work before signing an employment agreement can be sufficient to trigger employment and invalidate a 90-day trial clause.

Do not allow work to start before the agreement is signed
The Employment Relations Act 2000 requires a written employment agreement to be provided and signed before work begins. Allowing an employee to start work before this occurs creates significant legal risk and will invalidate any trial period.

Check the validity of a trial period before relying on it
A trial period must be agreed to in writing and must apply from the very start of employment. If a trial period is invalid, an employer must still meet the full justification and procedural fairness requirements when dismissing an employee.

Need advice?

If you would like advice on employment agreements or trial periods, or want to be confident that a trial period is valid before relying on it, the team at Copeland McAllister is here to help. Phone 03 211 0153.

Disclaimer: This update provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.