Medical incapacity at work: What NZ employers need to know

Published 7 February 2025 | 2 min read

As a business owner, manager or HR in New Zealand, you want to do right by your employees.

But what happens when a valued team member is unable to work for an extended period due to illness or injury?

How long can you keep their role open before it starts impacting your business operations?

Managing medical incapacity can be one of the toughest challenges employers face, especially when balancing legal obligations with commercial realities.

Why we often struggle with medical incapacity

New Zealand businesses often struggle with medical incapacity cases, unsure of how long to wait before making a decision. Employers hesitate, worried about potential legal consequences, while employees face uncertainty over their future.

Many businesses hold roles open for too long, only to find themselves in a difficult position when it’s no longer viable. Others move too quickly, risking claims of unfair dismissal.

The lack of clear-cut rules creates confusion, making it critical to follow a structured, legally sound process.

The legal and ethical complications

The biggest complication with medical incapacity is that there’s no fixed timeline for when an employer can lawfully end an employment relationship.

The law requires businesses to consider multiple factors, such as the role’s importance, the likelihood of the employee’s return, and whether reasonable adjustments can be made.

We must also ensure that their investigations into an employee’s condition are not mistaken for disciplinary action. This legal grey area makes it easy for employers to misstep, leading to costly disputes.

Considerations NZ owners, managers and HR must know

Before making any decisions about an employee’s future, you need to be aware of the following legal requirements and best practices:

• No indefinite job security – Employers are not legally required to hold a role open forever, but they must take reasonable steps before making a final decision.
• Fair and reasonable process – Employers must engage in ongoing communication, seek medical advice, and explore alternative work arrangements before considering dismissal.
• Employment agreement obligations – Contract terms, workplace policies, and past practices all play a role in determining a fair approach.
• Medical information rights – Employees can refuse to share medical details, but decisions must be based on available information, including independent medical assessments if needed.
• ACC and rehabilitation duties – If an employee is on long-term accident compensation, businesses must comply with ACC’s vocational rehabilitation requirements.
• Genuine consideration of alternatives – Part-time work, light duties, or other adjustments should be explored before concluding that the role cannot be kept open.

Balancing fairness and business needs

Handling medical incapacity cases requires a proactive, well-documented approach. Leaders must maintain regular communication with affected employees, seek medical clarity, and genuinely consider all options before making a decision.

Rushing the process risks legal backlash, while delaying too long can disrupt business operations. Striking the right balance is crucial, and seeking expert guidance can help avoid costly mistakes.

How to manage sickness and long term illness?

If you're navigating a medical incapacity case, listen to our podcast where consultants Steve and Charlotte provide a complete breakdown of managing absenteeism, mental health concerns, and long-term illness in the workplace:

Listen here

Note: This information is based on official details from Immigration New Zealand and is subject to change. Always refer to the latest guidelines for the most accurate information. Visit Immigration New Zealand here.