A recent Employment Court determination overturned a previous Employment Relations Authority (ERA) who initially found in favour of the employer in a medical incapacity case between a Nurse and her company when the employer terminated her employment after 6 months off work sick.
Background
The employer (Pact Group), provides residential care for vulnerable people with physical and intellectual disabilities sometimes with histories of violent assault. Following an incident in the workplace when a resident threatened to cut the throat of their employee (Ms Sheridan), she went on sick leave in early February 2021 and remained absent from work for the following seven weeks initially, with her absence regularly extended through updated medical certificates. After several such extensions, her employer advised her that the absence had become considerable in length and that covering her shifts was increasingly difficult, seeking to meet with her to discuss her medical status and obtain certainty about a possible return-to-work date. At that point Ms Sheridan had been diagnosed with PTSD.
Over the following two months, Pact Group repeatedly requested further medical information, while Ms Sheridan maintained that a meeting could not take place until an ACC report had been obtained — a report that was delayed on several occasions. Despite these delays, the employer granted repeated extensions while continuing to press the need for information and a meeting in order to make a decision.
On 23 June 2021, Pact Group wrote to Ms Sheridan setting a clear deadline of 8 July 2021 for the provision of information, after which a decision would need to be made about whether the business could continue to hold her position open. The ACC report was ultimately provided on 15 July 2021, but further extensions were sought to allow time for the information to be shared with specialists so that a return-to-work plan could be developed. Following continued correspondence, Pact Group made a preliminary decision on 20 July 2021 to terminate Ms Sheridan's employment for medical incapacity, on the basis that the role could no longer be held open without firm timeframes for return. Ms Sheridan was given an opportunity to respond to this preliminary decision but provided no further comment, and the dismissal was finalised shortly afterward.
The Grievance
Ms Sheridan subsequently raised a personal grievance for unjustified dismissal in the ERA, contending that the process followed and the decision reached were unreasonable in the circumstances to which the ERA ruled in favour of the employer in that they were justified and procedurally fair.
The case was then appealed to the Employment Court which in March this year (2026) overruled the previous ERA decision after looking in detail at the nuances of the case and all relevant information.
The Court ordered middle band compensation of $30,000.00 for humiliation, loss of dignity, and injury to feelings and 6 months' lost wages (minus ACC payments).
The learnings
While the law does not require an employer to keep a position open indefinitely for an incapacitated employee, following fair process and having informed information regarding an employee's likely return to duties, if the company decides it can no longer sustain the absence they are within their rights to terminate the employee.
But as demonstrated, the details and context of the circumstances do affect what is considered reasonable in terms of justification.
In this case the employer hadn't helped themselves by initially threatening disciplinary action against the employee for her apparent lack of "ability in dealing with clients".
The Court criticised the employer's seemingly fixed mindset towards incapacity. The expectation was that the employer should have prioritised rehabilitation over dismissal even in the light of PTSD recovery taking between 6 to 18 months in cases.
The Court further noted the employer also had a health and safety manual in which it stated the company will "proactively support" employees injured during the course of their role. Instead, the court found the company approach was "passive rather than proactive," with a focus on termination rather than the rehabilitation promised in its policies. All the while knowing the ACC was actively working on a return-to-work plan they still sought to dismiss.
Not helping their case either, the company had previously refused two direct requests to attend mediation, and further, were they unable to evidence any attempt to cover the absence with temporary workers as they had done in other circumstances.
Rarely are two incapacity cases identical of course, but where the incapacity stems from a workplace incident, there is clearly an added expectation to support recovery and consider alternatives before ending the employment relationship.
If you find yourself faced with a potential medical incapacity case we strongly recommend you to take advice on the circumstances in your scenario. Members have free phone support with us and access to our guide on medical incapacity including a documented procedure including the steps to take, meetings to call and letters to use. All this documentation is available to download in your
Employers Toolbox, or to purchase from our public site
here for non-members.