Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
When one of your team members goes on extended sick leave, it can put real pressure on a small business. You’re balancing compassion (and your legal duties) with the practical reality that the work still needs to get done.
At the same time, this is one of the easiest areas to get wrong legally. A rushed decision, poor communication, or a “we’ll just see how it goes” approach can quickly turn into a personal grievance or an Employment Relations Authority claim.
This guide covers the legal ground rules for employers managing long-term sick leave in New Zealand, including how to manage the process fairly, what documents to keep, what alternatives to consider, and when termination might be legally justifiable.
Note: This article provides general information only and isn’t legal advice. Because medical incapacity matters are highly fact-specific, it’s worth getting tailored advice before you take action.
What Counts As “Long‑Term” Sick Leave (And Why It Matters)?
New Zealand law doesn’t set a single bright-line definition of “long-term sick leave”. In practice, it usually means an absence that is:
- ongoing or recurring (for example, extended absence or repeated absences tied to the same condition); and
- long enough to create operational impact for your business; and
- uncertain in duration (you don’t have a reliable return-to-work date).
This matters because long-term absence can eventually raise the question of whether the employee can perform the role they were employed to do, and whether keeping the job open is still reasonable for your business.
That said, an employee being unwell isn’t misconduct. Managing long-term sick leave is typically a medical incapacity / inability to perform scenario, and the process you follow is crucial.
Sick Leave Entitlements Vs Extended Absence
Employees are generally entitled to sick leave under the Holidays Act 2003 (subject to eligibility), but long-term absence often extends beyond available sick leave. Once paid sick leave is used up, the absence may become unpaid unless your employment agreement says otherwise (or you choose to provide discretionary paid leave).
Even when sick leave is exhausted, you still need to manage the situation in good faith and follow a fair process.
Mental Health Absence Can Be Long-Term Too
Long-term sick leave isn’t just physical injury or illness. Mental health conditions can also lead to extended absence, and you should treat this the same way: respectfully, consistently, and with proper process. In practice, employers often first encounter this issue through shorter absences (for example, a Mental Health Day) that later become longer periods away from work.
What Are Your Legal Obligations As An Employer?
If you’re dealing with long-term sick leave, the “legal ground rules” come from a few key sources:
- Employment Relations Act 2000 (including good faith obligations);
- Holidays Act 2003 (leave entitlements);
- Human Rights Act 1993 (discrimination risks, including disability);
- Health and Safety at Work Act 2015 (duty to ensure health and safety, so far as reasonably practicable); and
- Privacy Act 2020 (how you collect, use, store, and share medical information).
For employers dealing with long-term sick leave, it helps to think in terms of three overlapping duties:
1) Act In Good Faith
“Good faith” isn’t just being polite. It means being communicative, not misleading, and actively engaging with the employee about what’s happening and what the options are. You should also be open to reasonable suggestions and alternatives.
2) Provide A Safe Workplace (Including A Safe Return To Work)
If an employee is medically unfit, you shouldn’t pressure them to return prematurely. If they’re fit to return with restrictions, you need to assess whether the work can be done safely and whether adjustments are feasible.
In small businesses, this often comes down to careful planning and documentation, and understanding your Duty Of Care obligations.
3) Respect Privacy And Handle Medical Information Carefully
You can ask for relevant medical information, but you should avoid “over-collecting” private health details. A good approach is to request information that helps you answer practical questions like:
- Is the employee currently unfit for work?
- What is the expected timeframe for recovery (even if approximate)?
- Can they return on restricted duties or reduced hours?
- Are there workplace adjustments that would support a return?
In many cases, you don’t need (and shouldn’t request) a detailed diagnosis. Keep any medical information confidential and only share it internally on a true “need to know” basis.
How Do You Manage Long‑Term Sick Leave Fairly And Practically?
Most disputes in this area don’t start because an employer asked questions. They start because the employee feels ignored, rushed, or replaced without being consulted.
Here’s a practical process that usually puts you on safer ground.
Step 1: Check The Employment Agreement And Your Policies
Before you do anything, check the employee’s agreement and any workplace policies. You want to confirm things like:
- any contractual sick leave above statutory minimums;
- medical certificate requirements;
- communication expectations while away;
- whether you have a rehabilitation / return-to-work process; and
- any relevant notice provisions.
If your documents are outdated or inconsistent, it’s often worth tightening them up. Many small businesses only discover gaps in their Employment Contract when long-term leave happens.
Step 2: Keep Communication Regular (But Not Intrusive)
It’s reasonable to keep in touch. In fact, it’s often part of acting in good faith. The key is to keep it supportive and practical.
For example, you might agree on a check-in schedule (weekly or fortnightly), confirm who the employee should contact, and clarify what updates you need (e.g. updated medical certificates).
Step 3: Get Medical Information The Right Way
If the absence is extended or unclear, you can ask for medical information (usually via the employee, or with their consent). In some situations, you might also consider an independent medical assessment, but this is a sensitive step: it’s typically done by agreement/with consent (and sometimes guided by what the employment agreement allows), and you should get tailored advice before going down that path.
A common mistake is assuming that “no return date” automatically means you can dismiss. Instead, you generally need to take reasonable steps to understand the medical position and consult with the employee about both the prognosis and the impact on the business.
Step 4: Consider Temporary Coverage And Operational Workarounds
While the employee is away, you might need to redistribute duties, hire a temp, or adjust work allocations.
This is where employers managing long-term sick leave often get stuck: you can’t just permanently replace the employee without considering process and fairness, but you also don’t have to leave the business unsupported.
Common options include:
- engaging a fixed-term replacement (carefully drafted);
- temporary redistribution of duties; or
- adjusting staffing allocations in the short term.
If you’re looking at changing hours across the team to keep things afloat, take care: changes to working arrangements can raise legal issues if they aren’t agreed properly. This often overlaps with Reducing Staff Hours obligations.
Step 5: Explore Return-To-Work Options (If Possible)
If the employee may be able to return, you should consider whether reasonable adjustments can support that return, such as:
- phased return (e.g. starting part-time and increasing hours);
- temporary duties that are lighter or less safety-sensitive;
- work-from-home arrangements (if the role allows);
- adjusted performance expectations for a short period; or
- additional training or supervision if needed after time away.
You’re not required to create a completely new role or absorb unlimited cost. But you should be able to show you genuinely considered options and discussed them with the employee.
Can You Terminate Employment For Long‑Term Sick Leave In NZ?
Sometimes, yes. But the legal test isn’t “are they sick?” It’s more like:
- Is the employee unable to perform the work they were employed to do (now and in the foreseeable future)?
- Have you gathered enough information to make a fair decision?
- Have you consulted with the employee and considered alternatives?
- Is it unreasonable for the business to keep the role open any longer?
In other words, termination can be lawful where the employee’s incapacity is ongoing and there is no reasonable prospect of a return within a reasonable timeframe, and you’ve followed a fair process.
What’s a “reasonable timeframe” depends on the circumstances (including the role, the likely duration of the absence, how certain the prognosis is, the impact on your business, and what adjustments or temporary cover are realistically available).
A Fair Process Matters As Much As The Medical Situation
Even if you have strong medical evidence that the employee can’t return, you still need to follow a procedurally fair process. That typically includes:
- raising your concerns with the employee (clearly and in writing);
- providing relevant information (for example, operational impacts, and the medical information you’re relying on);
- giving the employee a real opportunity to respond (including time to seek advice/support);
- genuinely considering their feedback and alternatives; and
- making a reasoned decision and confirming it in writing.
If you jump straight to “we’re ending your employment because you’ve been away too long”, you’re increasing the risk of a personal grievance.
Be Careful About “Using Up” Annual Leave
Some employers consider directing an employee to take annual leave to cover time away once sick leave is exhausted. This can be risky if it’s handled incorrectly. There are rules around when and how an employer can require annual leave to be taken (including notice requirements and the need to consider the employee’s views), and it can get even more sensitive where someone is off sick or there’s a dispute about capacity. If this is on your radar, read up on Annual Leave direction rules before taking action.
Notice, Final Pay, And “Payment In Lieu”
If termination is the outcome, you’ll also need to get the exit mechanics right, including notice periods, final pay, and documentation. In some cases you may want the employee to finish immediately and pay out notice instead, but this needs to be handled carefully and consistently with the contract. This is where Payment In Lieu Of Notice often comes up.
Because termination on medical grounds is sensitive, it’s worth getting advice before issuing a final decision. If you need to sanity-check the steps, our guide on How To Terminate An Employee is also a helpful starting point.
Common Mistakes Employers Make With Long‑Term Sick Leave
When you’re running a business, it’s normal to want quick certainty. But long-term sick leave situations reward patience and process.
Here are common pitfalls we see small businesses fall into:
1) Treating Long-Term Sick Leave Like Misconduct
If the employee is away because they’re unwell, the “disciplinary” pathway usually isn’t the right one. The issue is capability/incapacity, not behaviour.
2) Poor Documentation
If the situation escalates, you’ll want a clear record of:
- dates of absence and certificates received;
- check-ins and what was discussed;
- requests for medical information and what you relied on;
- operational impact on the business; and
- alternatives considered (and why they were/weren’t workable).
Documentation isn’t about being adversarial. It’s about being able to show you acted reasonably and in good faith.
3) Replacing The Employee Without Consultation
You may need temporary cover, but if you permanently fill the role without properly consulting, you may create risk (especially if the employee later becomes fit to return).
4) Not Considering Adjustments At All
You’re not expected to do the impossible. But if you haven’t considered adjustments or a phased return, it can look like you decided on termination first and worked backwards.
5) Relying On Generic Templates Or “What We Did Last Time”
These situations are fact-specific. A process that was fine for one employee might be unfair for another, depending on the role, medical outlook, business size, and available adjustments.
Key Takeaways
- “Long-term” sick leave isn’t defined by a single number of weeks - it’s about duration, uncertainty, and operational impact on your business.
- As an employer, you still need to act in good faith, manage health and safety risks, and handle medical information carefully under privacy obligations.
- A fair process usually involves regular (non-intrusive) communication, appropriate medical information, and genuine consultation about options.
- Termination for long-term sick leave can be lawful in NZ where the employee can’t perform the role now or in the foreseeable future, but only if you’ve followed a procedurally fair process.
- Be cautious about directing annual leave, paying in lieu of notice, or permanently replacing the employee without working through consultation and contractual requirements.
- The biggest risk-reducer is simple: document your steps and get advice early, before the relationship breaks down.
If you’d like help managing a long-term sick leave situation, updating your employment documents, or making sure your termination process is legally solid, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
