Does size matter: 90 days for all, or just for the small?

Union protests at the National Party Conference at the weekend against the proposed changes to employment law. Photo / Dean Purcell

When the 90 day probationary period Bill was introduced, many people got hot under the collar. There were those that were thrilled.

They were predominantly employers who favoured the proposal on the basis that it would give them the opportunity to hire employees, they might not otherwise hire, without fear of a personal grievance and the associated costs.

Some employees likely saw merit in it as well; on the basis that it might afford them employment opportunities they might otherwise have missed out on.

There were also many who were not in favour, fearing that it would lead to a number of employers choosing to employ employees for 89 days and then terminating their employment. Those most vocally opposed to it have been employees and unions.

The reality is that the legislation was introduced with relatively little fuss and has been in place since 1 March 2009, for the last approximately 12 months, attracting little attention. Until now.

The Government has now indicated that it is looking at changes to this area of the Employment Relations Act 2000.

Perhaps coincidentally, in the last six months we have seen a few cases starting to appear exploring what constitutes a lawful trial period under the legislation. Maybe this development in the case law has led the Government to the conclusion that changes and/or clarifications are required?

As the law currently stands, employers with less than 20 employees can hire an employee and lawfully include a trial period in the employment agreement. The agreement may specify that the first 90 days of their employment is a trial period, and that the employer can terminate the employment during that period.

The most significant aspect is that the employee has no ability to pursue a personal grievance relating to that termination.

The case law to date indicates that there is still some confusion about the difference between a trial period and a probationary period, whether you can have a trial period for less than 90 days and what happens if you express the trial period to be for three months when in fact three calendar months works out to be 91 days...

It is important to bear in mind that not all employment agreements entered into by employers with less than 20 employees will contain a trial period. The legislation refers to "an employee whose employment agreement contains a trial period..."

However, the practical reality is that if an employer wants to hire an employee and include a trial period in the employment agreement, and the employee refuses to consent to the inclusion of the trial period, the employer is unlikely proceed with the offer and instead, make an offer to another applicant who is willing to agree to a trial period.

So an applicant can specify they don't want a trial period in their employment agreement - but they may not get the role. The best thing for an employer to do is to be up front from the outset about whether the intention is to include a trial period in the employment agreement.

Another issue is when exactly a trial period commences in circumstances in which it is included in an employment agreement that is signed after employment has commenced (the legislation refers to a specified period, not exceeding 90 days) starting with the beginning of the employee's employment).

Is it from the date the employee signs the agreement or the actual first day of work?

Those are issues that are currently before the Employment Relations Authority and/or Employment Court, and have yet to be determined. So it is very much a case of 'watch this space' in terms of developments in this area of the law.

The main aspect of the latest proposal flagged by the Government is that it is extended to all employers; not just those with less than 20 employees. How significant is that? Will it really make a difference?

Anecdotally, I understand that approximately 80% of New Zealand businesses in fact have less than 20 employees and are therefore covered by the legislation now. So how significant is a proposal to extend it?

Do New Zealand's larger companies; the likes of Fonterra, Air New Zealand and The Warehouse, with their own sophisticated internal legal and HR teams, need the protections offered by this part of the legislation? Does it in fact offer protection? And if so, for who?

A 90 day trial period - is it tantamount to a right to hire and fire at will and is it therefore to the detriment of employees, or does it achieve what it set out to, and does it give employers some comfort when taking a risk on an applicant? Can you find one good reason to love or hate it - let alone 90...?

Bridget Smith