Health issues

Medical incapacity is when an employee is no longer able to do their job due to illness or injury, it can be a challenging time for both employees and employers.

Medical incapacity

In these situations, employees often feel vulnerable, stressed and worried about not being able to do their job, and concerned about what will happen to them financially if they lose their job.

Similarly, their employer may be feeling pressure about how long they’re going to keep the job open, how they’ll run their organisation, treat the employee with dignity and manage the workload while they recover or undergo treatment.

Employers are not required by law to hold jobs open indefinitely for employees who are unable to carry out their duties. The question is how long an employer should keep the role open for the employee to return to.

Before making a decision on what to do, the employer needs to understand how long the employee is likely to be off work and whether they’ll be able to do their job again. To get this information, the employer should work in a positive and supportive way with their employee.

Employers should make sure that any investigation into understanding the medical situation for their employee is not viewed as a disciplinary investigation - the employee has not done anything wrong.

Employers must follow a fair and reasonable process, which includes considering the range of factors below. The Employment Agreement Builder has a draft medical retirement clause that can be included in

Employment Agreement Builder - Business.govt.nz(external link)

Deciding to end employment relationship

To end an employment relationship, an employer needs to reasonably believe that an employee can no longer do their job and that the employer cannot reasonably keep the job open for them. To do this the employer should consider a range of factors listed below.

  • The terms of the employment agreement.
  • The nature and extent of the problem, including how long the employee has already been away from work. Where the incapacity is caused by a health issue, the employer should request appropriate medical advice. Sometimes it may be appropriate to ask for independent or specialist advice. 
  • Employees have the right to refuse to provide an employer with access to their medical information unless this is required in their employment agreement (even then they can decline). If an employee is not willing to provide this information, the employer can make a decision based on the information the employer has.
  • The nature of the employment and how important the employee’s role is to the employer’s organisation. Consider:
    • the size of the organisation
    • if the employer has been able to manage for long periods of time without the employee or they’ve had to bring in someone else to do the job
    • what the impacts of the employee’s absence are on the organisation.
  • The chance of recovery and the likely timeframe for returning to work (which should be based on objective information such as a doctor's report).
  • The employee's entitlement to (paid and unpaid).
  • The employee's length of service.
  • Steps the employer can take to help with rehabilitation, such as providing part-time or light duties.
  • How long the employee's employment would have continued if not for the health issue.
  • If there are any alternatives to dismissal that are reasonable in the circumstances – such as part-time or reduced hours.
  • If the employer is at fault for the employee’s problems in any way. For example, where the employer may have failed to provide a safe workplace causing mental stress to the employee, who then has to take a lengthy period of time off to recover.

Types of worker

Dismissal for medical incapacity

When dismissing an employee for medical incapacity, the employer must follow a fair process.

Employers should be aware that it is common for a dismissal for medical incapacity process to take a number of weeks, if not months, and there will be a number of meetings or exchanges of information. This makes sure that both parties have had an opportunity to present evidence and give feedback, and to ensure that all alternatives have been considered.

We recommend that employers seek professional advice before deciding on or starting a process for dismissal for medical incapacity.

Dismissing an employee for incapacity while they are on long-term accident compensation because of injury, whether work-related or not, should be handled carefully.

Under the Accident Compensation Act 2001, employers have an obligation in relation to work-related (vocational) rehabilitation. This applies when ACC decides it is reasonably practicable to return the claimant to their pre-injury employment with the same employer. If this is the case, ACC will notify the employer in writing, and the employer must then take all practicable steps to help the employee to meet the work-related rehabilitation goals. The duty on employers to help rehabilitate injured employees applies to both work-related and non-work-related injuries.

Where an employer is considering the dismissal of an employee on long-term accident compensation, they should:

  • act in line with any relevant provisions in the employment agreement or the workplace policies
  • assist with any vocational rehabilitation programme for the employee through ACC
  • fully investigate an employee’s work capability and the actual needs of their job
  • base their decision-making on up-to-date medical information about what the long-term effect of the injury will be
  • warn the employee that their long-term absence may result in dismissal, and ask the employee to give feedback during the decision-making process
  • consider giving the employee alternative, light work if they are temporarily unable to carry out their normal job.
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