The clause that costs employers thousands, and takes two minutes to get wrong
Most Kiwi business owners know that the 90-day trial period exists. Fewer know the specific rules that make it valid, or what happens when the clause is drafted incorrectly. Even fewer employers know the distinction between a trial period and a probationary period, until they need to rely on one of them in a dispute.
The 90 day trial period: what it means
A trial period can only be used with someone who has never been employed by your business before, and that’s in any capacity. That rule goes further than most employers expect. An employee who worked for you ten years ago, and is returning, cannot be placed on a trial period. However, the rules are different if someone previously worked for you as a contractor (for example, if the worker invoices you rather than receiving a salary) you can place them on a trial period when they transition into an employee role. There is one further restriction worth knowing: employees on an accredited employer work visa cannot be placed on a 90-day trial period under any circumstances.
The 90 days commence from the official start date of employment and count calendar days, not working days. This is another pitfall for employers. For example, January, February, and March do not add up to 90 calendar days, they add up to 89 or 90 depending on the year.
Always count specific days rather than months. The trial period is fixed, cannot be extended and expires exactly at the 90 day mark.
What the trial period gives you
The real value of a trial period is what it removes from the standard employment process. If the arrangement is not working out, you are not required to run a formal performance improvement plan or a disciplinary hearing. You must give the required notice set out in the employee’s employment agreement, this could vary from one day's notice or more. The employer can advise the employee that the role is not working out and then confirm the decision in writing. That letter should confirm the final day of employment, whether notice will be worked or paid in lieu, instructions for the return of company property and details regarding the final pay and when it will be processed.
That is the minimum. It is not a lot, but its validity only holds up if the clause has been drafted correctly in the first place.
It’s worth noting that an employee on a trial period is not entirely without recourse. They cannot raise a personal grievance for unjustified dismissal, provided the dismissal falls within the 90-day window and the clause is valid. However, they can raise a grievance for unjustified disadvantage. For example, if you simply email someone a termination notice without prior conversation or no explanation, it could be considered an unjustified disadvantage. Also, certain categories of grievance, such as those related to sexual harassment, remain available regardless of trial period status.
The case where two extra days cost a business thousands
An employer terminated an employee under a 90-day trial period. The performance concerns were real, the timing was within what the employer believed was the valid window and due process had been followed. Then the employee’s lawyer pointed out a critical oversight: the employment agreement specified both a start date and an end date for the trial period. When those calendar days were counted, the clause ran to 92 days, not 90.
Under New Zealand law, a trial period clause that does not correctly reflect the 90-day requirement is simply void. The fact that the dismissal happened before the intended end date was irrelevant. The clause itself was invalid and unenforceable.
As the trial period clause was void, the employee was entitled to raise a personal grievance claim for unjustified dismissal. The employer ultimately ended up settling and paying a significant sum.
The lesson is a straightforward one: avoid outlining an explicit end date for the trial period in the employment agreement. Instead, define that the trial period is 90 calendar days from the start of employment so that it is legally valid and enforceable.
So what is a probationary period, and when should you use one?
Probationary periods operate differently from trial periods, and the distinction is critical.
Unlike trial periods, a probationary period can be used with any employee — including staff who are returning to the business, or existing employees moving into a new role. The probationary period offers more flexibility in duration; it can be extended by mutual agreement if an employee needs more time to meet the performance standards. In contrast, a trial period cannot be extended under any circumstances.
The trade-off is that ending a probationary period requires more from the employer. You cannot rely on simply issuing a termination letter. Instead the employer needs to demonstrate that the decision was justified, following a process broadly similar to standard performance management — informal conversations, documented concerns and providing an opportunity for the employee to respond before a final decision is made.
Small businesses tend to favour trial periods for the flexibility they offer when a hire does not work out early on. Larger organisations more commonly prefer and use probationary periods because they are investing more heavily in the recruitment process and want to give the employee the opportunity to develop and grow into the role.
If you are not sure whether your employment agreements include both clauses, or whether your trial period clause is valid and enforceable, we are happy to take a look. Our initial conversation is always free, and a 15-minute review now is considerably cheaper than a personal grievance down the track.