Terminating employment - Part 2: Employee-led termination

By Isla Amin

In an ideal world, every employment relationship would end neatly and amicably, but the reality is that resignations don’t always happen in writing and retirement sometimes can’t come soon enough.

People choose to leave their place of work in many different ways. It’s up to employers to make sure you’re prepared for all of them.

This article focuses on employee-led termination, i.e. when an employee decides they want to end their employment with your business. There are a variety of ways this can happen and each requires its own response and process.

Here are some key insights and tips for handling all facets of employee-led termination.

Resignation

The most obvious version of employee-led termination is resignation, offered in writing, a phone call or a text.

We strongly advise that you only accept a resignation when it’s offered in writing. This is because if an employee offers their resignation by phone call, for example, they may change their mind and show up again to work, making things awkward for everyone.

Best practice is to follow up any resignation (whether letter, email, text or phone call) with a written response, reiterating the time and circumstances of the resignation and confirming the last day of employment. This eliminates all ambiguity from the equation.

You will also need to let the employee know about any contractual obligations, like honouring the notice period that’s in their employment agreement.

Abandonment of employment

Most employment agreements will say that when an employee has been absent from work for a certain period (typically 3 to 5 days) and has not made contact, then they will be deemed to have abandoned their employment and their employment will end automatically on the final day of the abandonment term outlined in the agreement. 

We often hear people talking about abandonment in situations where an employee has been on sick leave for a few days, called with a loose explanation, but didn’t return when they were expected to.

Note that this is NOT abandonment of employment as contact was made by the employee. As a rule, if you know where they are, that is not abandonment.

If you think the situation is unreasonable, you can still consider another form of termination, for example the misuse of sick leave or extended time off work that results in medical termination.

To terminate on abandonment grounds, it’s really important that you can demonstrate that you attempted to contact the employee on multiple occasions and that you called their emergency contact - these attempts at contact should be clearly logged on a daily basis.

When you reach 5pm on the final day of unexpected leave (day 3, 4 or 5) with no contact from the employee, we recommend that you wrap up with a letter outlining attempts at contact and proposing to terminate employment.

Find out more about abandonment of employment at Employment.govt.nz.

 

Retirement

Finally, there’s retirement - which is really just another form of resignation. One question employers sometimes ask is: can you force someone to retire?

New Zealand doesn’t have a statutory retirement date, so telling someone to quit based on their age is discrimination. While pensions (superannuation) are available from age 65, that does not mean an employee has to retire at that time.

So if you have concerns about an employee’s performance you will need to manage them on that basis. Ensure that any performance issues are articulated in an objective way that clearly relates to the role and the employee’s capability to perform it adequately.

Any attempt at dismissal on the basis of age will be considered discriminatory practice and in breach of employment law.

Finally, deductions

Recent revisions to employment law have redefined the rules around deducting from final pay. There are clauses that say if an employee resigned and did not work out their contractual notice period, their employer can deduct an amount equivalent to their contractual notice from their final pay.

That in itself, if applied correctly, is not illegal but we strongly recommend (and this is just our opinion) that you don’t include these clauses in your employment agreements, as they are largely unenforceable.

Any deduction from final pay must be backed up by proof that this was done to cover other costs that you have incurred as a result of the resignation (e.g. contractors or temporary labour).

Most of the case law around this negates the idea that the clause just allows you to deduct 4 weeks pay if an employee quits - that is flawed thinking and the case law supports that.

There have been a number of cases where the Employment Relations Authority has clearly ruled that the deduction was unlawful; the employer has been required to pay deductions back often along with extra payment for issues like hurt and humiliation.

Our view is that forcing people to stay in a job is never a good thing. It’s better that people want to stay and if they do resign for genuine reasons, they give you their proper notice period because your relationship with them is positive.

What to include in final pay

The wages or salary for the hours worked, along with a notice period you either pay as they go if they work it out, or if they don’t want to work their notice, you pay in lieu of them working. If the employee refuses to work or says they’re not going to work their notice, you do not have to pay the notice period.

You must also pay out any accrued annual leave, but sick leave does not need to be paid out. Other forms of leave like Family Violence or Bereavement are not paid out either, however alternative holidays, like days in lieu, are paid.