Understanding Unfair Dismissal (2026 Updated)

Letting someone go is one of the hardest parts of running a business. Even if you’re confident you’ve got good reasons, an employee can still challenge the dismissal if the process wasn’t fair or the decision wasn’t justified.

That’s where “unfair dismissal” comes in. In New Zealand, employment relationships are heavily shaped by the idea of good faith and fair process - and in practice, that means you can’t treat termination as a quick admin task.

This 2026 update reflects current, practical expectations around dismissal processes in New Zealand workplaces, including what employers should document, how to run a fair meeting, and where things often go wrong.

If you’re worried about getting it wrong, don’t stress - once you understand the framework, you can build a termination process that’s fair, consistent, and much easier to defend if challenged.

What Is Unfair Dismissal In New Zealand?

“Unfair dismissal” isn’t a single term in one neat box - it’s usually raised as part of an employee’s personal grievance.

In simple terms, a dismissal may be considered unjustified if:

• the employer didn’t have good reason to dismiss; and/or
• the employer didn’t follow a fair process before dismissing.

In New Zealand, the key question is often whether the employer acted as a fair and reasonable employer would have acted in all the circumstances.

That means you generally need both:

• Substantive justification (a valid reason, supported by facts); and
• Procedural fairness (a fair process before making the decision).

It’s very common for employers to focus on the reason (“they did something wrong”) and underestimate how much the process matters. Unfortunately, process failures are one of the fastest ways to turn a defensible dismissal into a legal headache.

One of the best “from day one” protections is having clear terms and expectations in place, including a properly drafted Employment Contract and policies that match how you actually run your workplace.

Common Situations Where Unfair Dismissal Claims Come Up

Unfair dismissal concerns can arise in almost any termination scenario, but there are a few repeat themes we see in small business and growing teams.

Dismissal For Misconduct

Misconduct dismissals often go wrong when employers move too quickly. Even where the behaviour seems obvious, you’ll usually need to:

• investigate what happened (and keep an open mind)
• put the allegations clearly to the employee
• give them a real opportunity to respond
• consider their explanation before deciding outcomes

There’s also a difference between “misconduct” and “serious misconduct” - and that difference matters because it affects whether dismissal is a proportionate response (and whether you can dismiss without notice in extreme cases).

Dismissal For Poor Performance

Performance-related dismissals are a common source of disputes because they often involve judgement calls.

Employers are generally expected to provide:

• clear performance expectations
• feedback and support to improve
• a reasonable opportunity and timeframe to improve
• warnings that employment is at risk if improvement doesn’t happen

If you jump straight from “this isn’t working” to dismissal without a documented performance process, it can look unfair - even if your concerns are genuine.

Medical Incapacity Or Health-Related Termination

Health issues can be especially sensitive. If an employee can’t perform their role due to ongoing health problems, dismissal might be possible in some situations - but the process needs extra care.

You’ll usually need to look at:

• medical information (handled carefully and lawfully)
• the role requirements and whether duties can be adjusted
• whether time off and recovery is likely within a reasonable timeframe
• consultation with the employee before any decision

Because personal and medical information is involved, it’s worth having your privacy settings right from the start, including a fit-for-purpose Privacy Policy and internal processes for handling employee information.

Redundancy (Restructure) Dismissals

Redundancy is one of the most misunderstood areas. It’s not simply “we can’t afford them anymore”. A redundancy needs to be a genuine business decision, and you must run a fair consultation process.

If you’re changing roles, reducing headcount, or cutting costs, a restructure that affects an employee’s job can trigger legal obligations around consultation and redeployment options.

If you’re considering redundancy, it’s often worth getting early advice - it’s much easier (and cheaper) to set the process up correctly than to try to fix it after an employee has raised a personal grievance.

How Do You Dismiss Someone Fairly? A Practical Process Checklist

A fair dismissal process doesn’t need to be overly formal, but it does need to be real. In other words: not a “tick-the-box” meeting where you’ve already decided the outcome.

While every situation is different, a practical approach usually looks like this.

1) Be Clear On The Issue (And Gather The Facts)

Start by identifying what the dismissal is actually about:

• What specific conduct or performance issue has occurred?
• What evidence do you have (emails, rosters, time records, customer complaints, CCTV where appropriate)?
• What policies or expectations apply?
• Is this a one-off issue, or part of an ongoing pattern?

If you’re relying on workplace monitoring (like CCTV or computer monitoring), make sure you’ve thought through employee privacy and transparency obligations. This is a common “gotcha” area - especially where employers install cameras but don’t properly communicate why and how footage will be used. (For workplaces using cameras, the practical compliance risks are similar to those discussed in Are Cameras Legal In The Workplace?.)

2) Invite The Employee To A Meeting (And Give Enough Information)

If you’re considering dismissal, you should invite the employee to a meeting and provide enough detail so they can respond properly.

That invitation will often include:

• the concerns or allegations (in plain language)
• the possible outcomes (including that dismissal is being considered, if that’s true)
• the time and place of the meeting
• notice that they can bring a support person or representative
• any key documents you’re relying on (so there are no surprises)

Surprising someone in a meeting with a pile of allegations they’ve never seen is a fast track to “unfair process”.

3) Hold A Genuine Meeting And Listen To Their Response

In the meeting, your job is to explain the concerns and then actually hear the employee out. Even if you think the situation is straightforward, their explanation might change how you view what happened.

Good practice includes:

• taking notes (and keeping them)
• staying calm and professional
• asking questions where something isn’t clear
• avoiding making a final decision “on the spot” if you need time to consider

If you already have a decision letter printed and ready before the meeting, it can look like the meeting wasn’t genuine consultation.

4) Consider The Response Before Deciding

This is the step many employers forget to document.

After the meeting, take time to consider:

• whether the allegation is proven (on the evidence)
• whether the employee’s explanation changes anything
• whether there are “context” factors (training gaps, unclear instructions, health issues, personal circumstances)
• whether dismissal is proportionate, or whether a warning/training/support plan is more reasonable

Even if you decide dismissal is the outcome, being able to show you considered alternatives can be important.

5) Communicate The Decision Clearly (And Pay The Right Entitlements)

If you decide to dismiss, put the decision in writing, including:

• the reason(s) for dismissal
• the process you followed
• what you considered (including the employee’s response)
• termination date and notice arrangements
• final pay details (including any leave owing)

If the employment is ending with notice (or payment instead of notice), make sure you do it correctly. Notice mistakes can create separate disputes, and it’s worth understanding how Payment In Lieu Of Notice works in practice.

If the employee resigns first (sometimes after being told their job is at risk), the situation can still become messy if the resignation wasn’t truly voluntary. If you’re unsure where you stand, the issues are often similar to those in resigning without notice scenarios.

What Are The Risks If You Get A Dismissal Wrong?

If a dismissal is found to be unjustified, the consequences can be significant - not just financially, but also in time and stress.

Depending on the situation, outcomes can include:

• Reinstatement (the employee returns to their job)
• Lost wages (reimbursement for money the employee lost)
• Compensation (for hurt and humiliation, loss of dignity, and injury to feelings)
• Penalties in some circumstances
• Legal costs and significant management time responding to the dispute

Even where the dollar amount isn’t huge, the disruption can be. For small businesses, a personal grievance can absorb weeks of attention when you really need to be focused on customers, staff, and cashflow.

The good news is that most unfair dismissal risk is preventable. The “secret” is rarely fancy legal arguments - it’s having a clear process, documenting decisions, and treating people fairly and consistently.

How Can You Reduce Unfair Dismissal Risk From Day One?

If you’re building a team (or you’ve already hired staff), there are a few practical steps that make termination decisions much safer if you ever need to make them.

Use Clear Documents And Set Expectations Early

When expectations are vague, performance management becomes harder. Clear documentation helps everyone stay on the same page.

At a minimum, you should have:

• a tailored Employment Contract (with the right notice periods, duties, and policies)
• role descriptions and measurable expectations where possible
• workplace policies that match your actual operations (conduct, performance, leave, tech use, privacy)

If you use contractors in your business, make sure you don’t accidentally treat them like employees - misclassification can create disputes that look like dismissal issues when a contract ends. Having the right contractor setup and paperwork makes a big difference.

Document Performance Issues As They Happen

If you only start documenting issues when you’re ready to dismiss someone, it can look like the concerns were invented after the fact.

Instead, aim for:

• regular check-ins (even informal ones)
• written follow-ups after serious discussions (“as discussed today…”)
• clear improvement plans with dates and expectations

This doesn’t need to be harsh or overly formal - it’s just good management, and it gives the employee a fair chance to improve.

Be Consistent Across Your Team

Consistency matters. If two employees do the same thing, but only one is dismissed, it raises questions.

That doesn’t mean every situation must have the same outcome (context matters), but you should be able to explain why you treated one situation differently to another.

Keep Privacy And Information Handling Tight

Dismissal situations often involve sensitive information: complaints, witness statements, medical details, and investigation notes.

Make sure you:

• only collect information you genuinely need
• store it securely and restrict access
• avoid workplace gossip (this can create extra claims and reputational harm)
• use a proper Privacy Policy and internal privacy processes

Handling information casually can undermine your process and create separate privacy issues.

Get Advice Early If You’re Unsure

Sometimes the hardest situations are the grey areas: long-term underperformance, cultural fit problems, repeated “minor” misconduct, or roles that are changing quickly as your business grows.

In those cases, a quick legal check-in before you start the process can save you a lot of time later - especially if you need help framing allegations, running a meeting, or ensuring you’re meeting your good faith obligations.

Key Takeaways

• In New Zealand, unfair dismissal is usually raised through a personal grievance and often turns on whether the employer had both a valid reason and a fair process.
• Even if you have strong reasons to end employment, a rushed or predetermined process can still lead to an unjustified dismissal finding.
• Common unfair dismissal risk areas include misconduct dismissals without investigation, performance dismissals without support and warnings, health-related terminations without careful consultation, and redundancies without genuine process.
• A practical fair process usually includes: gathering facts, giving clear written allegations, allowing a support person, holding a genuine meeting, considering the response, and communicating the decision properly in writing.
• Getting termination entitlements and notice right matters - mistakes around notice, final pay, and leave can escalate disputes even where the dismissal reason is sound.
• The best way to reduce unfair dismissal risk is to set expectations early with a tailored Employment Contract, keep performance documentation consistent, and get advice before high-risk terminations.

If you’d like help managing a dismissal process, updating your employment documents, or responding to an employee complaint, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.