Illness and injury

When an employee is unable to do their job due to illness or injury, it can be a difficult time both for them and their employer.

Working through the issues

In such circumstances, an employee can feel stressed about being unable to work and worried about what will happen to them financially if they lose their job. 

Similarly, the employer may feel pressured to decide how long to keep the job open, and how to manage the relationship with the employee and the workloads of others.

The law does not require employers to retain an employee who cannot fulfil their role owing to illness or injury. It is up to the employer to work out how long to reasonably keep the role open.

Before deciding, the employer first needs to know how long the employee is likely to be off work and whether they will be able to return to their job. The employer should work in a positive and supportive way with the employee to gather this information.

Employers need to make sure that any investigation into the medical status of an employee is not viewed as a disciplinary action — the employee has not done anything wrong.

Employment agreements provide information on terms and conditions and types of agreements.

Employment agreements

The Employment Agreement Builder has a draft medical retirement clause you can use.

Employment Agreement Builder(external link)

Fair process

Ending an employment relationship

To end an employment relationship, the employer must reasonably believe that the employee can no longer do their job and that it is not reasonable to keep the job open for them. The employer should consider factors including:

  • 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
  • the employee’s right to refuse to provide the employer with access to their medical information. If an employee is not willing to provide this information, the employer can make a decision based on the information they have
  • the nature of the employment and how important the employee’s role is to the employer’s organisation. The employer should consider:
    • the size of the organisation
    • whether they have been able to manage for long periods without the employee or have had to bring in someone else to do the job
    • what the financial 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 like a doctor’s report)
  • the employee’s entitlement to paid and unpaid sick leave
  • how long an employee has been employed with the employer
  • steps the employer can take to help with rehabilitation, like providing part-time or light duties
  • how long the employee would have been employed if they had not become injured or unwell
  • whether there are any alternatives to dismissal that are reasonable in the circumstances, for example, part-time or reduced hours, or medical retirement
  • whether 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.

Once an employer has decided that it is reasonable for the employment relationship to end, they should decide which process to follow. There are 2 options: medical retirement or dismissal due to medical incapacity.

Medical retirement

Medical retirement allows an employee to leave an organisation with dignity. It is different to regular retirement where an employee will not often work again. After medical retirement, the employee may seek a different job that is not limited by the illness or injury. 

Both the employer and employee must agree to medical retirement. Employers should consider discussing the option before deciding on dismissal for incapacity. 

Medical retirement provisions may be in an employment agreement or workplace policy, but even if they are not, the employer and employee can still agree to medical retirement. The agreement to medical retirement should be in writing.

Benefits of medical retirement

There can be benefits to medical retirement for both parties.

  • The employer can hire someone else for the job sooner, and it reduces the chance of a personal grievance.
  • The employee will have medical retirement as the reason for leaving in their record of service and in any references that the employer gives them (rather than dismissal for incapacity).
  • Medical retirement may include a financial payment, career support, counselling or medical assistance.

Agreeing to medical retirement

Employers sometimes avoid discussing medical retirement because of concerns about constructive dismissal. However, because it is a retirement process it needs to be agreed to by both the employer and employee.

Once the employer has the information they need from the employee, they should follow a fair process in discussing the option of medical retirement. This can be a difficult topic and it may be helpful to get professional advice to avoid issues later.

It may be helpful for the employee to have a representative or support person with them for any discussions. 

If agreement cannot be reached

If the employee does not agree to medical retirement after a fair process has been followed, the employer may decide to dismiss them due to medical incapacity.

Dismissal for medical incapacity

The dismissal process can take time, with meetings or exchanges of information over weeks or months. This ensures both parties have had an opportunity to present evidence and give feedback, and that all alternatives have been considered.

Employers may wish to seek professional advice before deciding on a process for dismissal.

Employees on accident compensation (ACC)

Employers should proceed carefully when considering whether to dismiss an employee for incapacity while they are on long-term accident compensation owing to injury, whether work-related or not.

Employers have an obligation under the Accident Compensation Act 2001 in relation to work-related (vocational) rehabilitation.

When the Accident Compensation Corporation (ACC) decides it is reasonably practicable to return the claimant to their pre-injury employment, they will write to the employer who must then take all practicable steps to help the employee to meet the work-related rehabilitation goals.

Employers have a duty to help rehabilitate injured employees both for work-related and non-work-related injuries.

When an employer is considering dismissing an employee on long-term accident compensation, they should:

  • follow relevant provisions in the employment agreement and workplace policies
  • assist with any vocational rehabilitation programme through ACC
  • fully investigate an employee’s work capability and the actual needs of their job
  • make decisions based on up-to-date medical information about what the long-term effect of the injury might 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 work if they are temporarily unable to carry out their normal job.

It’s important that good faith principles are adhered to, and the employer must follow a fair process, taking the employee’s views into consideration before making a final decision.

Good faith

Employment Agreement Builder(external link)

What to do when an employee is injured - Accident Compensation Corporation(external link)

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