-1.jpg)
People often get injured or suffer from illness. For minor ailments like a broken arm or a flu, employees are able to take sick leave or unpaid leave while they recover.
When an employee is no longer able to do their job because of serious illness or injury, and will be unable to work for an extended or indefinite period of time, an employer may have grounds to terminate their employment.
Raising and settling this issue can be fraught and distressing for employee and employer alike because you are dealing with a person’s health and livelihood. The process can be tough for the manager or business owner (especially if the person is a valued and trusted staff member) and can place stress on other employees.
In New Zealand, there are also legal considerations for terminating employment due to medical incapacity. As with all employment matters, you need to make sure you are completely fair and reasonable and take your employee's input into account.
What is medical termination?
Termination for medical incapacity (also known as medical termination) is the option to end a person’s employment because they are unfit to work or incapacitated, and either:
- they will never be able to return to work;
- it is uncertain whether they will return to work or in what capacity; or
- their absence will be too long for the business to reasonably support.
When can a NZ employer consider medical termination?
The key question when considering medical termination for an employee in New Zealand is whether the business can reasonably sustain the person’s absence from work.
The Ministry of Business, Innovation and Employment says that by law, an employer is not required to retain an employee who, due to illness or injury, is unable to do their work or fulfil their role. The question is how long the employer should keep the role open for the employee to return to.
As a guide, case law has shown that an absence of 12 weeks is generally considered long enough for a business to reasonably dismiss someone for medical incapacity.
We all know that three months is a long time, especially for small to medium-sized companies. You can specify a shorter time frame than 12 weeks (MyHR’s standard employment agreements stipulate 5 weeks), but this must be laid out in the terms of your employment agreement.
The criteria for termination due to medical incapacity can also depend on what is detailed in any company policies (e.g. rehabilitation and return to work policy), the business’ size and circumstances, how long the person has been with the company, and how you’ve treated other injured or ill employees in the past.
Medical incapacity is not normal sick leave or disciplinary
You cannot consider medical termination if someone is sick and can take sick leave, e.g. an employee gets a bad case of pneumonia and has accrued 20 days of sick leave over the course of their employment; they are entitled to take all that time to recover.
It’s also not about punishing the person for being absent or having a serious medical problem. The employee has not done anything wrong (the issue could well be outside their control), so you aren’t conducting a disciplinary investigation or rushing to fire them because they’ve been off work too much.
The process is about looking to the future and assessing the likelihood of their return.
Risks you need to manage when considering medical incapacity
As always, any employer or manager can do whatever they want when deciding to terminate a person’s employment, but you can’t avoid the risk of consequences under employment law.
If you handle the termination process badly, or don’t follow fair process, your employee may have grounds for raising a personal grievance for:
- Unjustified dismissal, e.g. the reason for dismissal was not sufficient to justify termination.
- Unjustified disadvantage, e.g. your actions were not justified and disadvantaged the person or made it harder for them to do their job.
- Breach of good faith, e.g. you intentionally acted in a way to undermine the employment relationship.
- Breach of contract, e.g. you failed to give proper notice of termination.
Penalties applied by the Employment Relations Authority and the Employment Court have been increasing in recent years, so you could lose substantial sums of money (in the tens of thousands) if you get this process wrong.
Your reputation as a good employer could also be affected if it is known you don’t treat your employees fairly.
Follow fair process
Like any employment procedure, you must handle the process of investigating and understanding your employee’s medical situation and ability to do the job fairly.
Fair process is as important as having good reason for considering ending the person’s employment, regardless of how obvious the situation appears.
Fair process must include:
- Giving the employee a “reasonable” time to recover from the injury or illness.
- Going through a fair enquiry into the employee’s situation, medical prognosis, and ongoing needs before you make a decision about whether to dismiss (you need to balance fairness to the employee with the needs of the business).
- Notifying the employee of the possibility of dismissal.
- Giving the person a fair chance to give you their feedback, suggestions, and thoughts on any proposition, and taking them into consideration.
- Taking into account the employee’s length of service and whether the job or business contributed to the injury/illness.
- Investigating whether there are alternative duties or working arrangements open and available to them, e.g. staggering their return to work, working from home.
Making a decision
Be aware that the process could take a number of weeks and involve numerous meetings and exchanges.
When making a decision, consider all the information and options available. Is it possible to arrange cover and for how long? Are there other duties or hours the person could work?
You also need to have enough medical information to assess how likely their return to work is. A simple letter or certificate from a GP may not be detailed enough. With the employee’s permission, you can contact their medical provider, surgeon, physio etc. to get a better understanding of their situation.
Lastly, ask yourself if the process has been fair and whether you have proposed an outcome and properly taken the employee’s feedback into consideration.
Potential outcomes
Depending on the situation, termination of employment may not be the only outcome for an employee who is unable to return to work for an extended period of time. Other potential outcomes are:
- Reduced hours of work.
- Staggered return to work.
- Alternative duties for a period of time.
- Extended period of unpaid leave.
If you do decide to end employment due to medical incapacity, you will need to provide the employee with a letter that details the reasoning behind the decision and the process you followed in reaching it.
You are not required to pay out the person’s notice period if they are not currently at work (they are not available to attend the hours of work), but it is an act of goodwill and kindness to do so.
If you are facing the decision to dismiss an employee for medical incapacity, please get in touch with us. Our professional team of HR advisors have assisted hundreds of businesses with managing the nuances of terminating employment due to medical incapacity.
