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My boss extended my probationary period, and told me that she is convinced I won't make it during the next probation and I am most likely going to be let go.

Hence, work started to get better as I finished some tasks, and since a couple of weeks, she changed and my workload diminished.

I faced her this morning and asked her how is my probation going, and she replied "nothing has changed, have you started looking for a new job?"

I said "no, not yet", and she replied "well, good luck" and left.

I am not sure why she didn't terminate my contract abruptly, while she involved her boss in what I would call it a dummy project a month before announcing the extension of my probation.

Why didn't she just terminate my job, simply?

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    Only your boss can answer this. Take her advice to heart and start looking; it's very very difficult to overcome such an environment and history.
    – user1008090
    Apr 17, 2018 at 18:42
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    +1 @user1008090 Don't worry about why your boss acts this way, just take advantage of the fact you're getting paid while you job hunt.
    – Steve-O
    Apr 17, 2018 at 20:26
  • In case it's not clear: You should be looking for a new job. There's a good chance that you'll be fired, and even if you're not, it's going to be a bad working environment.
    – dwjohnston
    Apr 17, 2018 at 23:14

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Why didn't she just terminate my job, simply?

We can never know. Your question is opinion-based, but I think that all opinions will agree that you should find another job.

I have a feeling that she extended your probation to help you transition without gaps in your resume(while you are making money). I would not mention her on my resume though.

You should have asked her why probation extension? right then and there when she said "well, good luck", but the answer is just for curiosity really and won't change things, as she said too.

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