Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Hiring someone new is a big step for any small business. You’re investing time, training, wages, and trust - and you want a practical way to make sure the new hire is the right fit.
That’s where trial periods in New Zealand employment agreements often come into the conversation. Used properly, a trial period can give you more flexibility early in the employment relationship. Used incorrectly, it can create the exact risk you were trying to avoid (including an unfair dismissal claim).
This guide breaks down how trial periods work in New Zealand, what you need to include in your employment agreements, and the common traps employers fall into - so you can hire confidently and stay legally protected from day one.
Note: This article is general information for New Zealand employers and isn’t legal advice. Because trial period validity can turn on small facts (like timing, headcount and how notice is given), consider getting tailored advice for your situation.
What Is A Trial Period (And How Is It Different From Probation)?
In New Zealand, a “trial period” is a specific legal mechanism under the Employment Relations Act 2000 that can allow an employer to dismiss a new employee within an agreed period (up to 90 days) and, if all legal requirements are met, limits the employee’s ability to bring a personal grievance for unjustified dismissal.
It’s important not to confuse this with a “probation period”. They sound similar, but they have very different legal effects.
Trial Period
- Purpose: Gives you the option to end employment early if it isn’t working out.
- Key feature: If the trial period is valid and you follow the required steps, the employee generally can’t raise a personal grievance for unjustified dismissal if they’re dismissed during the trial period.
- Strict rules: There are specific requirements for it to be legally effective.
Probation Period
- Purpose: A performance “settling in” period where expectations and support are often documented.
- Key feature: The employee can still bring a personal grievance for unjustified dismissal.
- More flexible: But it doesn’t give you the same protections as a lawful trial period.
If your goal is to reduce risk when hiring, you’ll want to understand which tool you’re using - and why - before you put anything into your employment paperwork.
When Can You Use Trial Periods In New Zealand Employment Agreements?
Trial periods aren’t available to every employer in every situation. There are eligibility rules, and you need to get the timing right.
1) Your Business Must Have Fewer Than 20 Employees
In general, trial periods can only be used by employers who employ fewer than 20 employees at the time the employee starts work.
This headcount test can be trickier than it looks. For example, you may need to consider:
- part-time employees
- fixed-term employees
- employees across different locations or branches of the same legal entity
- whether related entities are involved (this can raise more complex questions about who the “employer” is)
If you’re close to the threshold, it’s worth getting advice before relying on a trial period, because if you weren’t eligible, the clause may be invalid.
2) The Employee Must Be New (You Can’t Re-use It)
A trial period is intended for genuinely new employment. If the person has been employed by you before, you generally can’t use a trial period again for the “new” role.
This includes situations where someone:
- previously worked for you and is returning
- transfers from a related business entity in a way that still counts as prior employment (this can be fact-specific)
3) The Trial Period Must Be Agreed Before The Employee Starts Work
This is one of the most common mistakes.
For a trial period to be effective, it must be included in the employment agreement and signed before the employee starts work. If the employee starts first and signs later (even later that day), you may not be able to rely on the trial period.
That’s why having a properly prepared Employment Contract ready before day one matters - especially when you’re hiring quickly.
What Must Be Included In A Valid Trial Period Clause?
Trial periods are a “strict compliance” area. In other words, small drafting or process errors can make the clause unenforceable.
While trial clauses should be tailored to your business and the role, a legally effective trial period clause will typically cover the following:
- Clear statement that a trial period applies (and that it is under the Employment Relations Act 2000)
- The length of the trial period (up to 90 days)
- Your right to dismiss during the trial period
- A statement that the employee can’t bring a personal grievance for unjustified dismissal if dismissed during the trial
- The notice period required to end employment (this should align with the rest of the agreement and be applied carefully in practice)
Don’t Forget Your Usual Agreement “Basics”
A trial period doesn’t replace the rest of your employment obligations. You still need a properly drafted employment agreement with all the usual foundations (for example: duties, pay, hours, leave, confidentiality, and termination provisions).
It’s also smart to ensure your termination clause works cleanly alongside the trial period clause. For example, if you rely on payment in lieu of notice, your agreement should be drafted so you can actually use that option lawfully (and in a way that reduces disputes).
Why “Template Clauses” Often Backfire
Many trial period problems come from using a generic template that:
- doesn’t match the current law
- conflicts with other clauses in the agreement
- doesn’t reflect how you actually run onboarding and performance management
Trial periods can be helpful, but only when the paperwork and your process line up.
How To Dismiss Someone During A Trial Period (Without Creating Risk)
A valid trial period can limit an employee’s ability to raise a personal grievance for unjustified dismissal - but it doesn’t mean you can ignore fair process altogether.
You still have legal obligations, including acting in good faith. And employees may still be able to bring claims in other categories (for example, discrimination, harassment, or other unlawful conduct).
A Practical, Safer Process For Trial Period Dismissals
If you’re considering ending employment during the trial period, a sensible approach usually looks like this:
- Check the paperwork first: confirm the trial period clause exists, was signed before the start date, and that you were eligible to use it (fewer than 20 employees).
- Confirm the timing: make sure you are still within the trial period days.
- Review the notice requirements: check what notice the agreement requires, and plan the timing carefully so the notice is actually given (and takes effect) within the trial period timeframe.
- Document your reasons: you don’t need to run a full performance management process, but you should still be able to explain why it wasn’t working out in a factual, non-discriminatory way.
- Communicate clearly and respectfully: avoid surprises where possible, and keep records of what was said and when.
- Pay final entitlements correctly: wages up to the end date, holiday pay/annual leave entitlements, and any contractual payments.
If you’re not sure whether to treat the issue as a performance problem vs a conduct issue (or whether a disciplinary process is needed), getting advice early can save a lot of time and cost later. This is especially true if you’re close to the end of the 90-day window.
Remember: A Trial Period Isn’t A “Free Pass”
Even if an employee can’t bring a personal grievance for unjustified dismissal, other claims may still be possible depending on what happened. This is why it’s important that your workplace processes are consistent, documented, and supported by suitable policies.
If your wider employment documentation needs tightening up, you may also want to review how you approach termination more generally (not just trial periods). In many businesses, having a clear process for terminating an employee is just as important as the trial clause itself.
Common Mistakes Small Businesses Make With Trial Periods (And How To Avoid Them)
Trial periods can be a great tool for small businesses - but in practice, most problems come from a handful of repeat issues. Here are the big ones to watch out for.
1) Getting The Employee To Sign After They Start
If the employee starts work before signing the agreement, you may not be able to rely on the trial period at all.
How to avoid it: send the agreement early, encourage the employee to take independent advice, and make signing a pre-condition of starting work.
2) Using A Trial Period When You Have 20+ Employees
If you’re over the headcount threshold, the clause may be invalid and you may be exposed to an unjustified dismissal claim if you terminate without a proper process.
How to avoid it: confirm your headcount before hiring (and consider getting advice if the situation is complex).
3) Poor Drafting (Or Clauses That Conflict With Other Terms)
A trial period clause that’s vague, incomplete, or inconsistent with your termination clause can create uncertainty - and uncertainty is where disputes live.
How to avoid it: ensure the clause is tailored and aligns with your broader employment documentation.
4) Treating A Trial Period Like A Substitute For Onboarding
A trial period doesn’t fix a poor hiring process. If the employee isn’t trained properly, doesn’t know what success looks like, or doesn’t get feedback early, you can end up “failing” a hire that could have been a great long-term employee.
How to avoid it: treat the first few weeks as structured onboarding, with clear expectations and regular check-ins.
5) Changing Hours Or Role Conditions Without Agreement
Many trial-period relationships become strained because the business needs change quickly - you might want to adjust shifts, reduce hours, or move the employee into different duties.
How to avoid it: make sure changes are lawful and documented. If you’re changing rosters or availability in a way that affects agreed hours, you’ll want to tread carefully. (This often overlaps with issues discussed in reducing staff hours.)
What Should You Use Instead If A Trial Period Isn’t Right For You?
Not every business can (or should) use trial periods. If you’re not eligible, or you want a different approach, there are still ways to reduce hiring risk while staying compliant.
Probation Periods With A Clear Performance Process
A probation period doesn’t remove personal grievance rights, but it can support a fair and well-documented approach to managing early performance issues.
If you do this, make sure your process is consistent and your expectations are clear. In many cases, having an organised performance management pathway helps you avoid disputes later (especially if termination becomes necessary). This overlaps with having good documentation and a sensible approach to performance management and employee termination.
Fixed-Term Agreements (Only When There’s A Genuine Reason)
Fixed-term agreements can be useful in limited situations (for example, a genuine short-term project, seasonal demand, or parental leave cover). But they can’t be used simply to “test” someone without the obligations of ongoing employment.
If you’re considering a fixed term, make sure the agreement is properly drafted and the reason is genuine and recorded.
Contracting Arrangements (Be Careful)
Sometimes businesses think they can avoid employment risk by engaging someone as a contractor first. But if the working relationship looks like employment, the person may still be an employee legally - regardless of what the contract says.
If you’re weighing up contractor vs employee, it’s worth getting advice before you commit to the structure and paperwork.
Better Hiring Systems (Often The Best “Legal Strategy”)
Even with a trial period, prevention is better than cure. Solid hiring practices reduce the chance you’ll need to rely on a trial clause at all, such as:
- role descriptions that match what you actually need
- reference checks
- structured interviews
- clear KPIs or success measures in the first 30–60 days
Think of the trial period as a safety net - not the whole plan.
Key Takeaways
- Trial periods in New Zealand employment agreements only work if you meet the legal eligibility criteria and follow the correct process.
- In most cases, only employers with fewer than 20 employees can use a lawful trial period, and the agreement must be signed before the employee starts work.
- A valid trial period clause should clearly set out the trial length (up to 90 days), the employer’s right to dismiss, the notice requirements, and the limits on unjustified dismissal personal grievances.
- Even during a trial period, you still need to act in good faith and manage the dismissal process carefully to reduce the risk of other types of claims.
- Common mistakes (like late signing, poor drafting, or using a trial period when you’re not eligible) can make the clause unenforceable and expose your business to disputes.
- If a trial period isn’t suitable, alternatives like probation periods, genuine fixed-term agreements, and strong onboarding/performance processes can help manage hiring risk.
If you’d like help putting the right trial period clause into your employment documents (or reviewing whether you’re eligible to use one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
