The Government's decision to extend the 90 day trial period for new employees to all workplaces from 1 April next year has generated strong political debate and condemnation from the union movement.

This is not unexpected. Employment law has always been a key differentiator between Labour and National. But the potential for abuse is, for a variety of quite complicated reasons, much more limited than the critics would suggest and, by international standards, New Zealand's trial clause is moderate.

  • Employees cannot claim for unfair dismissal in Australia until they have been with the employer at least 12 months (for small businesses) or six months (for larger ones); provisions which – interestingly – were put in place in 2009 by the Rudd Labour Government to soften the regime they inherited from the Howard Liberal Government.
  • In the United Kingdom, it is 12 months regardless of the size of the employer - and used to be 24 months until reduced by the Blair Labour Government in 1996.
  • In Germany workers only have dismissal protection if their employer has ten or more employees, and they have been employed for at least six months.

So how is the facility likely to be used in New Zealand? We can make some fairly reliable assumptions about this from how it has been used in small businesses (19 or fewer employees) where it has been in effect since March last year, from the legal protections which remain in place for workers, and from what we know about New Zealand workplace dynamics.

The normal laws of supply and demand would suggest that the 90 day trial period will be used more at the junior or lower end of the market than in jobs requiring skill and experience where competition for labour is more intense. New Zealand's employment landscape is often (although not always) characterised by skill shortages.

And its use will be inhibited by the strong focus in New Zealand workplace legislation (stronger than in many other comparable countries) on fair process and natural justice. An ability to fire at will without warning and without providing a justification does not sit well with this culture.

Businesses will naturally welcome the flexibility that trial periods can bring. But employers (particularly larger companies) will be aware that offering jobs subject to trial periods and relying on those periods to dismiss will impact negatively on their brand and reputation among current and potential employees. They will, therefore, want to think carefully about how they use the provision.

Relevant considerations are the need to promote good recruitment and management practices (such as giving staff feedback and training), the potential impact on staff relations and brand image, and the importance of minimising legal exposure.

Businesses also need to be aware of the limits to the legal protection that they have been given. As the Employment Court recently pointed out, the trial period is not a blunt instrument that prevents dismissed employees bringing a legal challenge. Quite the opposite.

First, the employer must have a valid trial period clause in the employment agreement. This is relatively straightforward if done right. But where it is not done right, the employee will have a very clear case of unjustified dismissal.

Second, the law deliberately gives employers several incentives to treat employees fairly.

The duty of good faith continues to apply and has been interpreted by the Employment Court to mean that, if a trial period employee asks why he or she is being dismissed, the employer must give an explanation. (The Court reached this interpretation despite the fact that the statute specifically states that the employer does not have to provide a formal written statement of reasons.)

And employees still have recourse to a range of other remedies, including "disadvantage" claims for unfair treatment. How these disadvantage claims will be applied still needs to be worked out by the courts. In theory though, they give employees a fair amount of scope to successfully challenge the circumstances around their dismissal.

For example, a dismissed trial employee could still bring and win a case by claiming he or she was not given fair warning of the employer's dissatisfaction. In nearly all cases these claims will be uneconomic because the trial provision will almost certainly stop the employee winning compensation for loss of the job. Damages will therefore normally be quite small.

Conceivably though we will see the odd test case brought by unions (and possibly by individual employees), to test the boundaries of the new provision and of the rights and responsibilities it confers on both parties to the employment relationship.

As a general rule of thumb, employers should seek to treat trial period employees in a similar manner to other employees, ensuring that treatment (including treatment leading to a dismissal) is fair, and only relying on the protection afforded by the trial period clause as a backup or a last resort.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.