Terminating on medical grounds is a tricky decision

Deciding whether to terminate employment based on medical grounds can be a difficult decision for many employers, a decision which requires consideration of the risk that the employee could raise a personal grievance for discrimination based on ‘disability’.

While it is well established that an employer is not required to keep open a job indefinitely where an employee is suffering from a prolonged illness, and that there comes a time that the employer can “fairly cry halt”, there are significant risks in making the decision to terminate – including the possibility that the employee could raise a personal grievance for discrimination based on ‘disability’, along with an unjustified dismissal grievance.

Helpfully, the Courts have examined the requirements for termination based on medical incapacity and developed the core principles to follow in medical incapacity situations. These principles have recently been reconfirmed by the Employment Court in Lyttelton Port Company Limited v Arthurs, where the Court overturned a finding by the Employment Relations Authority (Authority) that the dismissal was unjustified.

The employee had been a cargo handler at Lyttelton Port Company (LPC) for 8 years when he witnessed a fatal workplace accident in 2008, and again in 2014 when a friend and colleague was killed. Suffering from PTSD as a result, the employee went off work in 2014, providing medical certificates contained limited information, and did not return.

In July 2015, after seven months off work, LPC commenced an investigation into Mr Arthurs health status and his ability to return to work. The medical report and specialist evaluation of Mr Arthur indicated no clear recovery time and suggested the possibility that he would never recover. Based on that there was no likelihood of Mr Arthur returning to work in the foreseeable future, LPC terminated his employment for medical incapacity. This decision was successfully challenged in the Authority, which found the dismissal was unjustified.

However, on appeal the Employment Court overturned this finding, confirming that the time had come that LPC could “fairly cry halt” and setting down the core principles to be considered in medical incapacity cases:

  1. The employee must be given reasonable time (in the circumstances) to recover;
  2. The employer must carry out a fair enquiry before making the decision to terminate, balancing fairness to the employee and its reasonable and practical business requirements;
  3. A fair and reasonable procedure must be followed including notifying the employee of the possibility of dismissal, a fair enquiry enabling an informed decision, seeking input from the employee;
  4. Assessment of what is reasonable in the circumstances taking into account relevant factors including the employment agreement and relevant policies, the nature of the position of the employee, and the length of time employed;
  5. If the employer’s actions caused the employee’s condition, whether the employer has an ongoing responsibility to take reasonable steps to rehabilitate the employee;
  6. Employers are not obliged to keep a job open indefinitely – even in large organisations; and
  7. The relationship is a “two-way street”. Both the employer and employee have obligations to positively engage, and a failure of the employee to do so will be taken into account.

Based on the above, the Court found that the decision to terminate was justified in the circumstances. LPC had acted reasonably in commencing the enquiry into Mr Arthur’s health and prolonged absence, and was objective in considering the prognosis and information available, before making a decision to terminate.

Termination based on medical incapacity is always a risky process which is highly dependent on the employee, and employers, individual circumstances. However, this decision provides some helpful guidance and reassurance for employers facing potential issues with employees on prolonged sick leave, that termination can be justified in certain circumstances.

Workplace Law team

If you have any queries in respect of the above, or any other Workplace Law issues, please contact a member of Lane Neave’s Workplace Law team:

Employment: Andrew Shaw, Fiona McMillan, Gwen DrewittMaria Green,  Hannah Martin, Joseph HarropHolly StruckmanAlex Beal, Giuliana Petronelli, Abby Shieh
Immigration: Mark Williams, Rachael Mason, Daniel Kruger, Nicky Robertson, Julia StrickettKen Huang, Mary Zhou, Shi Sheng Cai (Shoosh)Sarah Kirkwood, Janeske SchutteLingbo Yu
ACC: Andrew Shaw
Health and Safety: Andrew ShawFiona McMillan

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