Trial Periods

28 January 2019

Trial periods and the ability for employers to dismiss employees 'at will' have been discussed by politicians and the media often in recent years. Trial periods are a tool that allows employees to demonstrate their skills and employers to assess the suitability of the employee for the role. Trial periods allow for dismissal without justification. However, the law is strict as to when they will be valid, and will be even more so once the Employment Relations Amendment Act 2018 comes into force on 6 May 2019.

Unpaid work trial

In many industries it is common for employers to invite prospective employees to undertake an unpaid work trial to assess their competency in the job. However, employers should exercise caution in using unpaid work trials as they run the risk of unknowingly creating an employment relationship and owing the worker the full rights of a permanent employee.

In the case of Salad Bowl Ltd v Howe-Thornley a woman was offered a work trial of about three hours at a salad shop. At the end of the trial she was allowed to make herself a free salad. The employer later sent a text message to the woman to advise her she did not get the job. The Employment Court found that the nature of the "trial" created an employment relationship. The Court concluded that the woman was not a volunteer under the Employment Relations Act as she expected to be rewarded monetarily and she received a reward for the work in the form of the salad. In addition, the work directly contributed to the employer's commercial enterprise as she worked like any other employee for the three hours.

Accordingly, the Court found that the woman had been offered fixed-term work as an employee (even if it was only for a short time while her suitability was evaluated). There was an employment relationship until the employee was "dismissed" by the text message informing her she did not have a job. The legal requirements for a fixed-term were not fulfilled and the woman was an employee of indefinite duration. The Court held that the employee was unjustifiably dismissed.

The existence of an employment relationship always depends on the specific facts. However, the Salad Bowl decision shows that when employers wish to have an unpaid work trial, they must be clear that it is an unpaid volunteer position. Employers should avoid gaining economic benefit from the work done during the trial and the period should be limited to assessing competency, rather than having work done for free. The employer should also be careful not to give the worker any reward, as that may commence an employment relationship.

It is much safer for employers not to use an unpaid trial, but to employ the worker and provide them with an employment agreement containing a trial period. While they will have to pay at least minimum wage for the hours worked, the employer can lawfully dismiss the employee without any reason.

Paid trial periods

Including a trial period in an employment agreement does not guarantee that it will be legally valid. The Employment Relations Act dictates that a trial period must be in the employment agreement in writing, it must be for a specified period not exceeding 90 days, and it can only apply to new employees, meaning someone who has not been previously employed by the employer.

In addition, the Employment Court in Blackmore v Honick Properties Ltd held that the trial period must be agreed to before actual work commences and the prospective employee must be given a reasonable opportunity to seek advice about the terms of employment, including the trial period provision.

If these conditions are all satisfied, then the trial period will be valid and the employer can terminate the employee during the trial period. The employee cannot bring a personal grievance for unjustified dismissal.

However, the when changes to the Employment Relations Act come into force in May 2019, only employers with fewer than 20 employees will be able to use trial periods.

Paid trial following an unpaid trial

Problems are likely to arise when an employee does an unpaid work trial and then the employer tries to include a 90 day trial period in the subsequent employment agreement. In the recent Employment Relations Authority case, Freeborn v Sfizio Limited, a woman undertook two unpaid work trials and was then offered a role with a 90-day trial period in the employment agreement. The employer sought to dismiss her under the trial period one month later.

The Authority determined that the employee was not a volunteer during the unpaid work trial. The employee had performed duties similar to those of an employee and reasonably expected to be paid as she was asked to fill in a time sheet. Accordingly, the employer could not include a trial period in her employment agreement as she had already been "employed" by the employer, invalidating the trial period provision.

Given the strict nature of the law concerning trial periods, paid or unpaid, employers should exercise caution in using a trial period. From May, fewer employers will actually be able to use trial periods and even greater care will need to be taken when looking to dismiss an employee.