Mental Health Leave of Absence

If you employ people in New Zealand, chances are you’ll eventually receive a request for mental health leave (sometimes described as a mental health leave of absence) - whether that’s a short period away from work to recover, an extended absence supported by medical advice, or a flexible arrangement while an employee gets treatment.

For small businesses, these situations can feel tricky because you’re balancing:

your legal obligations as an employer,
your employee’s health and privacy, and
the practical reality of keeping the business running.

The good news is: with the right process, you can support your employee and protect your business from unnecessary risk. Below, we break down what a “mental health leave of absence” usually means in practice, what laws apply, what you can (and can’t) ask for, and how to handle extended time away from work in a fair and compliant way.

What Counts As A “Mental Health Leave Of Absence” At Work?

In New Zealand, “mental health leave of absence” isn’t a standalone legal leave type with its own rules. Instead, employees typically take time off for mental health reasons under existing employment and leave frameworks.

Common examples include:

Sick leave (when the employee is unwell, including mental health conditions like anxiety, depression, burnout, or stress-related illness).
Annual leave (if the employee chooses to use annual leave, for example to rest or reset).
Unpaid leave (by agreement, especially where sick leave has been used up or where longer recovery time is needed).
Other agreed arrangements (reduced hours, work-from-home, temporary alternative duties, or a phased return to work).

Some employees may describe this as “mental health leave”, “stress leave”, “burnout leave”, or “a leave of absence”. From your perspective as the employer, what matters is which legal entitlement (if any) applies, and whether the request is supported by medical advice.

If you’re also trying to distinguish between a one-off day and a longer absence, it helps to remember: even a single day can be legitimate sick leave if the employee is unwell. (This often comes up in practice with a Mental Health Day request.)

What Are Your Key Legal Obligations As An Employer?

When an employee requests mental health leave, your obligations usually sit across a few key areas of law. You don’t need to be a legal expert - but you do need to understand the “guardrails” you must operate within.

1) Leave Entitlements (Holidays Act 2003)

The Holidays Act 2003 governs sick leave and annual leave entitlements (among other things). Mental health conditions can absolutely qualify for sick leave, just like physical illness.

If you need a refresher on minimum entitlements and how they accrue, it’s worth checking what applies in your situation (including eligibility and carry-over): Sick Leave.

2) Good Faith Obligations (Employment Relations Act 2000)

The Employment Relations Act 2000 requires employers and employees to deal with each other in good faith. In simple terms, that means you must be communicative, fair, and not misleading - especially when handling sensitive employment issues like health-related absence.

In practice, good faith means:

you consider the request properly (rather than dismissing it),
you communicate clearly about what you need from the employee,
you keep the employee informed about business impacts where relevant, and
you explore reasonable options where the employee is unwell or recovering.

3) Health And Safety Duties (Health And Safety At Work Act 2015)

Under the Health and Safety at Work Act 2015, you must take reasonably practicable steps to ensure the health and safety of workers. “Health” includes psychological health.

This is a big deal for mental health leave because it means you should treat psychosocial hazards (like bullying, unreasonable workloads, fatigue, or unsafe work culture) as part of your health and safety responsibilities - not just “HR issues”.

If an employee says their mental health is being impacted by work, don’t ignore that. You’ll usually need to look at:

whether there are workplace risks contributing to harm,
whether adjustments are possible, and
whether you need to investigate any complaints (for example, harassment or bullying).

4) Discrimination And Workplace Adjustments (Human Rights Act 1993)

The Human Rights Act 1993 prohibits discrimination on various grounds, including disability. Mental health conditions can fall within “disability” (depending on the circumstances).

That doesn’t mean you must always hold a role open indefinitely no matter what - but it does mean you need to be careful that decisions about employment (hours, duties, performance management, or termination) aren’t influenced by unlawful discrimination. Where adjustments can reasonably be made to support an employee to do their job safely, it’s generally a good idea to consider them as part of a fair process.

5) Privacy And Confidentiality (Privacy Act 2020)

Mental health information is highly sensitive personal information. Under the Privacy Act 2020, you should only collect health information if you genuinely need it for a lawful purpose (and only to the extent necessary).

As a small business, a practical way to stay on track is to have a clear internal approach to employee information handling (including who can access it and what gets recorded). Many businesses do this through an Employee Privacy Handbook.

Can An Employee Use Sick Leave For Mental Health? What Evidence Can You Ask For?

Yes - sick leave can be used for mental health. The Holidays Act does not restrict sick leave to physical illness only.

From an employer’s point of view, the key questions are usually:

Is the employee entitled to paid sick leave?
How much paid sick leave do they have available?
Do you need (and are you allowed to request) a medical certificate?

When Can You Ask For A Medical Certificate?

Generally, you can ask for proof of sickness/injury (like a medical certificate) if the employee has been away for 3 or more consecutive calendar days. You can also request proof earlier than 3 days if you agree to pay the cost of getting that proof.

In a mental health leave of absence scenario, a medical certificate may confirm that the employee is unfit for work for a period - but it usually won’t (and shouldn’t) disclose detailed diagnoses unless the employee chooses to provide that.

What Information Should You Actually Request?

Try to focus on what you need to manage the workplace, rather than “what the employee has”. For example, it’s more appropriate to ask:

How long is the employee likely to be unfit for work?
Are there any restrictions (e.g. reduced hours, no night shifts, lower workload)?
Is a return-to-work plan recommended?

Be cautious about asking for:

the employee’s diagnosis,
details of treatment or medication, or
information that isn’t needed to make workplace decisions.

If you’re unsure what’s reasonable, it’s usually worth getting advice early - it’s far easier to manage properly from day one than to try to “fix” a privacy or process issue later.

How Do You Manage An Extended Mental Health Leave Of Absence Fairly?

A short mental health leave of absence is usually straightforward: approve sick leave (if entitled), keep things confidential, and check in appropriately.

Extended absence is where small business owners often feel stuck - especially when:

the role is critical to operations,
there’s uncertainty around return dates, or
the employee has used all paid sick leave.

Here’s a practical, legally safer approach.

Step 1: Keep The Communication Open (But Not Intrusive)

It’s reasonable to check in and ask for updates - especially around timing and work capacity - but keep it supportive and not pressuring.

Good practice is to:

agree on how often you’ll check in,
confirm who the main contact person is (manager/owner/HR), and
avoid asking for excessive medical detail.

Step 2: Consider Temporary Adjustments And Workplace Support

Sometimes, the best way to manage a mental health leave of absence is to prevent it becoming longer than necessary by offering adjustments, such as:

reduced hours for a period,
a phased return to work,
work-from-home (where the role allows),
temporary reassignment of certain tasks, or
additional supervision/support.

Of course, not every role can be done remotely or flexibly. But where it’s genuinely possible, a written plan can avoid misunderstandings. If you are exploring remote work arrangements, make sure you’re thinking through your broader obligations too (health and safety, privacy, hours and availability): Working From Home.

Step 3: Be Clear About Paid Vs Unpaid Leave (And Get Agreement In Writing)

If the employee has sick leave available, it’s typically paid sick leave. If they run out of sick leave, the next steps might include:

annual leave (if the employee requests it),
unpaid leave by agreement, or
other mutually agreed support arrangements.

Be careful about directing annual leave in a mental health context - there are legal rules about when and how you can require an employee to take annual leave (including giving notice), and it can create unnecessary conflict if it isn’t handled properly. Your Employment Contract should also be checked for any additional leave provisions or processes you’ve agreed to.

Step 4: Document What You’re Doing (In A Respectful Way)

When things get difficult later, the question often becomes: “Did the employer act reasonably and follow a fair process?”

You’ll want a clear record of:

leave requests and approvals,
any medical certificates received (stored securely),
work adjustments offered/considered, and
agreed return-to-work plans.

This isn’t about building a “case” against your employee - it’s about showing you acted in good faith and complied with your obligations.

Can You Performance Manage Or Terminate Someone Who’s On Mental Health Leave?

This is one of the most sensitive parts of handling a mental health leave of absence. There’s no blanket rule that says you can never manage performance or end employment while someone is unwell - but there are serious legal risks if you get it wrong.

As a general principle, you should not treat mental health leave as misconduct. Needing time off due to illness is not “bad behaviour”.

Performance Management While An Employee Is Unwell

Sometimes, performance concerns existed before the leave started, or the business can’t put key issues on hold forever. But if an employee is currently unwell, you should think carefully about whether performance management can be paused or adjusted.

A safer approach is often to:

focus first on recovery and capacity to work,
only restart performance management once they’re fit to participate, and
ensure any process is fair, well-documented, and medically informed where relevant.

If you do need to proceed, your process should be structured and procedurally fair - this is where many employers slip up. It can help to align your approach with a clear performance pathway like a Performance Management process.

Termination Due To Incapacity (Not “Because They Have Mental Health Issues”)

Where an employee is absent long-term and there’s no clear return-to-work timeframe, termination can sometimes be considered on the basis of incapacity. However, you should not treat this as a “quick fix”. A fair process usually includes:

seeking up-to-date medical information about capacity and likely return timeframes (without overreaching on private details),
consulting with the employee and giving them a real chance to respond,
considering adjustments or alternative duties, and
considering the impact on the business (and documenting why the role can’t reasonably be left unfilled).

Because the stakes are high, this is a situation where tailored legal advice is strongly recommended before you take action. If termination is handled unfairly, you could face a personal grievance claim (for example, unjustified dismissal or disadvantage).

How Should You Handle Privacy, Confidentiality, And Team Communication?

When an employee takes a mental health leave of absence, you’ll often have competing pressures:

the team wants to know what’s happening,
you need to redistribute work or bring in cover, and
the employee has a right to privacy.

The safest rule is: only share what you need to share.

What Can You Tell The Team?

Usually, you can tell the team that:

the employee is away on leave, and
who to contact in the meantime / how work will be covered.

You generally should not disclose that the leave relates to mental health (or any diagnosis/treatment) unless the employee has clearly consented.

Store Medical Information Carefully

If you receive medical certificates or correspondence, ensure:

it’s stored securely (limited access),
it’s not kept “in the open” on shared drives unnecessarily, and
you don’t keep more information than you need.

Even in a small business where “everyone does everything”, health information should only be handled by the person who genuinely needs to manage it.

Key Takeaways

A mental health leave of absence usually falls under sick leave, annual leave, unpaid leave by agreement, or a flexible work arrangement - there isn’t a separate legal category called “mental health leave”.
Mental health conditions can qualify for sick leave under the Holidays Act 2003, and you can request medical proof in certain circumstances (usually after 3 consecutive days, or earlier if you cover the cost).
Your legal obligations can involve multiple areas at once, including good faith (Employment Relations Act 2000), psychological health and safety (Health and Safety at Work Act 2015), anti-discrimination (Human Rights Act 1993), and privacy (Privacy Act 2020).
For extended leave, manage the situation with respectful communication, clear written agreements about paid vs unpaid time off, and (where possible) workplace adjustments like reduced hours or a phased return.
Be extremely careful about performance management or termination while an employee is on mental health leave - the right process (and the right evidence) matters, and getting it wrong can expose your business to a personal grievance.
Keep medical information confidential, share only what’s necessary internally, and store records securely to meet your privacy obligations.

This article is general information only and does not constitute legal advice. Every workplace situation is different, and you may want tailored advice for your specific circumstances.

If you’d like help handling a mental health leave of absence in a way that’s practical, fair, and legally compliant, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.

Mental Health Leave Of Absence: Employer Obligations In New Zealand