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Buying A Business – 90 Day Trial Period Clauses

A common question employment lawyers and other employment law experts are asked is,

"I have just bought a business and I am now going through doing all the employment agreements. I am not sure about some of the staff so I want to include 90 day trial period clauses into their employment agreements. Can I do this?"

In a word, yes, but that does not necessarily make it valid. You can include anything you want in an employment agreement. However, you cannot contract out of law. In other words, your clauses will be worthless and cannot be relied upon as a valid defence to a personal grievance claim if they are contrary to New Zealand employment law.

The next question then is,

"How do I make the 90 day trial period clause consistent with New Zealand employment law?"

There are some basic steps you need to take to achieve this.

This issue needs to be addressed and concluded prior to you settling the transaction for the purchase of the business. If it is not, then at the time the new employment agreements are concluded, the employees are existing employees, thus invalidating any 90 day trial period clause.

You need to plan for this in the purchase of the business. A common path to buying a business is agreeing on a price, due diligence, agreeing on the unconditional date and then finally, the settlement date. Most people want a short period of time between the unconditional date and the settlement date.  However, this is the logical period to negotiate and conclude all the new employment agreements with the staff. If you make it too short, there will not be enough time to conclude the new employment agreements with the employees. If you make it too long, however, there is the risk of something detrimental happening within the business before you take over control. Best to seek professional advice on this.

Also seek professional advice with regards to the specific wording of your 90 day trial period clause. The legislation is very specific. Unless the wording covers all these specifics, there is a very high chance that your attempt at a 90 day trial period clause will be deemed invalid.

For further advice either call us on 0800 HELP ME (0800 435 763) or email danny.gelb@employmentlaw.net.nz

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