Notwithstanding some differences between the New Zealand National Party, the Act Party and New Zealand First, a policy they are all united on is reinstating the right to use a 90-day trial period to all employers. With this in mind and a member’s bill before the House,[1] legislation to this effect seems all but assured.
In conjunction with our article on the post-election status of Fair Pay Agreements, this article sets out what a 90-day trial is, their impacts and policy options already on the table.
What are 90-day trials?
Aotearoa’s general position is that if an employer wishes to fire an employee, this must be substantively justified and carried out in a procedurally fair manner.[2] There is no “firing at will”, and employees are entitled to raise a personal grievance if an employer has dismissed them in breach of the law.
This right is not absolute, however. In 2009, the National government at the time passed legislation that amended the Employment Relations Act 2000 (Act) to exclude the ability to raise a personal grievance for an unjustified dismissal if employment was terminated during an (up to) 90-day trial period. Where an employee was terminated pursuant to a trial period provision, there was no obligation to provide reasons for the dismissal. Under this change, an employer could rely on a trial period provided the trial period was sufficiently provided for in an employment agreement, was no longer than 90-days and the employer had fewer than 20 employees.
In enacting this policy, the government argued that providing a trial period would be good for the economy. Emphasizing that trial periods would be by agreement only, it was claimed this policy would encourage small to medium sized business to “give new employees a go” (with the reassurance that these employees could still be required to go quietly, should the employer desire this).
The scope of 90-day trials has waxed and waned in the years since. In 2011, the application of trial periods was extended to all employers.
The law surrounding 90-day trials remained this way until 2018, when the recently elected Labour government restricted their application to “small-to-medium-sized” employers. Our article on this change is available here. While this did not remove 90-day trials entirely, it reverted the law to its 2009 status. This was in part in reliance on the fact that small business had appeared likelier to use a trial period than larger employers, dismissals during trial periods could cause significant distress and uncertainty to workers, and that larger employers were likelier to have more robust hiring processes in place to mitigate the risks associated with new hires.
Do they work?
In 2016, Motu, one of New Zealand’s leading economic and public policy research groups published its report The Effect of Trial Periods in Employment on Firm Hiring Behaviour (Report).[3] This had been commissioned by the New Zealand Treasury, and the Report served as a working paper for it.
The Report looked at both quantitative and qualitative data to consider (as the name suggested) how 90-day trial periods affected hiring behaviour, and if it in fact, stimulated greater employment. It did not significantly consider the impact on employees.
In brief, the Report did not find evidence that the ability to use trial periods increased hiring overall. It also did not find that it increased the likelihood of new hires being from disadvantaged jobseekers (such as beneficiaries, recent migrants, youths under 25 years old or Māori or Pasifika people under 25 years old).
Motu summarized it with the following haiku:
Ninety day trial.
Controversial policy,
with little impact.
The then Prime Minister, John Key, confirmed the government’s commitment to retaining trial periods as they were. The Report was however, referenced to justify Labour’s 2018 amendments.
Legislative changes
On the last sitting day before the election, ACT MP Dr James McDowall’s members’ bill seeking to reverse Labour’s policy was introduced. The policy justification given at this point was that employers of any size face risks employing people and by not mitigating these, jobseekers may not be offered employment at all.[4]
In light of the election results, it may be that this members’ bill is taken up as government policy. Alternatively, it may be scrapped and a new bill introduced. Regardless, we can be fairly certain that with a change in government the yo-yoing of employment law is set to continue and our team of experienced lawyers are here to help you navigate those changes.
[1] Employment Relations (Trial Periods) Amendment Bill 2023 (290-1).
[2] Employment Relations Act 2000, s 103A.
[3] (June 2016)
[4] At explanatory note.
