Probationary periods

Employers will appreciate that there are risks when hiring new employees. Whilst background checks and interview processes have their place, an employer does not really know the suitability of an employee until they commence employment. This is where trial periods and probationary periods have their place.

Now all employers can use trial periods, it is possible the popularity and use of probationary periods may reduce. However, they still have their place and can be a good alternative to a trial period provision.

It is important for employers to be aware of the legal nature and obligations of trial periods and probationary periods to avoid any potential personal grievance claims and so employers can assess what may suit their business best.

We recently covered trial periods in detail in a newsletter (which you can read here).

This article will focus on probationary periods, which can be used as an alternative to a trial period.

What is a Probationary Period?

A probationary period is a provision in an employment agreement that is typically for three months, and provides an opportunity for employers to assess an employee’s suitability for employment.

Under a probationary period, the employee’s performance will be monitored, and if there are any performance issues, the employer can (in most cases) progress straight to a final written warning, without providing a first written warning first. However, good employment processes must still be followed (including consulting with the employee before making a decision).

What requirements and obligations should employers be aware of regarding probationary periods?

1. the probationary period must be in writing in the employment agreement.

2. probationary periods should only be used for new employees (not for employees moving to a new role within the company who have already commenced employment with the employer). This is because section 67 of the Employment Relations Act 2000 explicitly states the probationary period starts “after the commencement of the employment” and not during employment. Further, case law refers to a probationary period taking account of the reality that in some situations a “new employee’s ability to perform a job and general suitability in that employment cannot be assessed sufficiently before its commencement” .

3. the duration of the probationary period must be clearly set out in the employee’s employment agreement. Technically, probationary periods may be used for any length of time. However, the duration should be reasonable with respect to the specific role and skills required. Further, a probationary period can be extended if necessary.

4. the probationary period must be indicated to potential employees before they enter into the employment agreement containing the probationary period provision. The best way to do this is to attach the proposed employment agreement, including the probationary period, to the offer of employment, highlighting the probationary period.

5. a probationary period does not give an employer unfettered discretion to dismiss an employee. An employer must act fairly, reasonably and in good faith in doing so. Unlike trial periods, a dismissal under a probationary period provision may still be challenged by an employee by way of raising a personal grievance. Therefore, in order to justify the dismissal of an employee pursuant to a probationary period, employers should follow the following general steps:

  • first, assess the employee’s performance in the role. In doing so, an employer should point out any shortcomings, provide reasonable support, training, and direction, and an opportunity for the employee to improve. 
  • if, following a fair assessment of an employee during the probationary period, an employer is not satisfied with the employee’s performance or conduct, an employer may commence a formal process with the employee. This includes raising concerns with the employee in writing (including specific details of the concerns and evidence of the same), advising them of the potential outcome if the concerns are proven, advise the employee of their right to seek advice and/or support, and providing an opportunity for the employee to respond (either in writing or at a meeting). The employee will also be entitled to bring a support person or representative to any meeting.  After considering the employee’s responses, if the concerns are proven, the employer may rely on the probationary period to start with a final written warning as the outcome.  The employer could also extend the probationary period.  The final written warning should state that if the expectations are not met, the potential outcome could be termination on notice.
  • if after issuing a final written warning, the employee’s performance does not improve, the employer can repeat the above process and terminate the employee’s employment on notice. However, we strongly recommend employer’s seeking advice on their process before dismissing an employee.

Next Steps

We have a best practice probationary period provision that can be included in your employment agreements.  We can also provide robust advice if you are seeking to discipline or dismiss an employee under a probationary period provision or defending a personal grievance claim in relation to a probationary period.

Edwards Law has employment lawyers New Zealand wide with offices in Auckland, Hamilton, Tauranga and the Hawkes Bay. For specialist employment advice, or to urgently speak to an employment lawyer directly, call 0800 339 002.

[1] New Zealand Meat Workers & Related Trade Union Inc v AFFCO New Zealand Limited [2010] NZEMPC 62 at [12].

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