The 2020 General Election and employment law: What’s the deal with 90-day trial periods?

Although the General Election has been pushed back to October 17 2020, election date is now is fast approaching.  Do you know who you’re going to vote for?

At Bell and Co, we don’t have a preference when it comes to the politics behind employment law. Our job is to work with the law, regardless of the politics behind it.

Please note that, while we discuss policies and politics in this blog, our intention is not to tell you who to vote for; we aim to flesh out exactly what these policies mean.

Trial periods

90-day trial periods have become a political hot potato in the news and on social media since the National Party announced its small business policy on 27 August 2020.

There seem to be two positions on trial periods: you either love them or hate them.

The Greens are opposed to them. Labour reduced their scope of application. National wants them available to be used by all businesses. Act wants them reinstated for all businesses for 90 days but be available for up to 12 months.

So, what is the deal with 90-day trial periods?

The current law

Currently, only small businesses with fewer than 20 employees can make use of 90-day trial periods.

For an employer to legitimately use a trial period, the employee must first agree to it – for instance, by clearly including the trial period as a term of employment within the employment agreement, which the employee then signs. The term should clearly state how long the trial period is for and that, during the trial, the employer can dismiss the employee and the employee is not entitled to bring a personal grievance about their dismissal.

It’s important to note that if an employer decides to dismiss an employee on a 90-day trial period, they must give the amount of notice specified in the employment agreement. If they fail to do so, the employee will be able to raise a personal grievance for unjustified dismissal.

The political discussion so far

Some of the reporting on National’s policy announcement has been misleading, suggesting that National was reinstating 90-day trial periods – this is incorrect as 90-day trial periods were never entirely abolished. Rather, in 2018, Labour reduced the application of trial periods to make them only applicable to businesses with fewer than 20 staff.

As we have already discussed, the ambit of Labour’s changes to the 90-day trial period was actually quite small as 97% of businesses in New Zealand have fewer than 20 staff and are still able to use 90-day trial periods.

The 3% of businesses caught by the amendment are not able to use 90-day trial periods, but they still can use probationary periods. A probationary period enables an employer to assess the employee’s skills when an employee has started a new job, even when that is in the same firm. An employer can only use a probationary period if:

• it is detailed clearly as a clause in the employee’s employment agreement – the clause should clearly state how long the probationary period will last for, which must be a reasonable length of time.
• the employee is paid for the length of the probationary period.
• the probationary period doesn’t limit the rights or obligations of the employee or employer.

If an employee isn’t supported throughout the probationary period or if the employer didn’t have good reason to dismiss the employee, the employee can raise a personal grievance on the grounds of unjustified dismissal.

Support for 90-day trial periods

As mentioned above, both the National Party and Act support 90-day trial periods.

Part of the reason behind their support is the belief that having 90-day trial periods encourages businesses, in particular, small businesses, to create new jobs where they would not otherwise do so.

In addition, the concept of limited government and a hands-off approach to regulation is core to National and Act’s political philosophy.

In its small business policy, National described its approach this way:

“Small businesses need to be trusted to do the right things by their staff without overly burdensome employment law and red tape holding them back … National supports an approach where employees and employers are trusted to work employment matters out themselves in good faith.”

There is conflicting evidence as to whether 90-day trial periods are successful in creating jobs and reducing unemployment. Regardless, a decision to extend the availability of 90-day trial periods to businesses with more than 20 staff would not make a difference to the vast majority of businesses, which are already able to utilise 90-day trial periods legally.

Opposition to 90-day trial periods

Usually, those who oppose 90-day trial periods focus on the vulnerable position in which a 90-day trial period places employees.

As already mentioned, a 90-day trial period must be agreed to by both the employee and employer prior to the employee starting work with the business. An employee cannot be forced into a 90-day trial period.

Despite this, we recognise that there is an obvious power imbalance in bargaining over employment agreements, particularly in a job market like the one we find ourselves in now. Employees may be less likely to resist a 90-day trial period if it means that they are employed, even with reduced rights initially.

The concern about the misuse of 90-day trial periods is valid and does occur in some cases. However, in our experience, the vast majority of employers use 90-day trial periods appropriately.

The question for you to weigh up is whether the risk of misuse outweighs the potential (but not easily quantified) benefit of having 90-day trial periods.

For personalised employment advice, including on 90-day trial periods, contact Bell and Co on (04) 499 4014.