How trial period errors lead AKL business to $24K payout

Published 31 January 2025 | 2 min read

Trial periods allow businesses to assess new employees before making long-term commitments, but they must meet strict legal requirements to be enforceable.

A recent Employment Relations Authority (ERA) decision highlights the financial and reputational risks of getting it wrong. An Auckland business dismissed a worker under an invalid trial period, resulting in a substantial compensation payout.

This case raises key issues for New Zealand businesses: when a trial period is legally binding, the importance of timely agreements, and the need for clear communication around performance concerns.

Employment agreement timing proves critical

The worker was hired on October 12, 2023, under what the employer described as a three-week trial. However, the employment agreement containing a 90-day trial period was not signed until October 23—after the worker had already started.

On January 5, 2024, the employer dismissed the worker, citing the trial period. When challenged, the employer attempted to withdraw the dismissal and initiate a performance management process instead.

The ERA found that the trial period was unenforceable because it was not agreed upon before employment began. The attempt to reinstate the worker while also signalling disciplinary action further damaged trust in the employment relationship.

ERA findings and financial impact on the employer

The ERA ruled in favour of the worker and ordered the employer to pay:

• $8,125 in lost wages
• $12,000 in compensation for humiliation and loss of dignity
• $2,500 as a penalty to the Crown

The decision reinforces the importance of following correct procedures and ensuring employment agreements comply with New Zealand law from the outset.

How we can avoid the same mistakes

• Agreements are signed before employment starts: Trial periods are only valid if agreed to in writing before the employee begins work. Any agreement signed after the start date is not legally enforceable.
• Raise performance issues early: The ERA found no evidence that the employer had communicated concerns about the worker’s performance before dismissal. Regular feedback and documentation are essential.
• Fair dismissal processes: Dismissal decisions must be based on valid grounds and follow good faith procedures. Relying on an invalid trial period can lead to legal and financial consequences.
• Maintain trust in employment relationships: Attempting to reinstate a dismissed employee while also planning disciplinary action undermines trust and makes reinstatement impractical.

Compliance protects business growth

This case reinforces the need for New Zealand businesses to follow employment law carefully. Trial periods can provide flexibility, but only when properly structured.

Employers must ensure agreements are signed before employment starts, performance concerns are addressed through clear communication, and dismissal procedures align with legal requirements.

Mistakes in these areas can lead to significant penalties, loss of trust, and damage to business reputation.