Unjustified Dismissal Under The Employment Relations Act 2000 In NZ

Ending someone’s employment is one of the toughest parts of running a small business. You might be dealing with poor performance, repeated lateness, serious misconduct, or a restructure you didn’t plan for six months ago.

But in New Zealand, it’s not enough to have a “good reason” in your head. If you get the process wrong (or can’t show you acted fairly and reasonably), you could face an unjustified dismissal claim under the Employment Relations Act 2000.

This guide breaks down what unjustified dismissal means, what the law expects from you as an employer, and the practical steps you can take to reduce risk before you terminate an employee.

What Is Unjustified Dismissal In New Zealand?

In simple terms, unjustified dismissal is when an employee is dismissed and the dismissal isn’t justified.

Under the Employment Relations Act 2000, an employee can raise a personal grievance if they believe they’ve been unjustifiably dismissed. The key idea is that dismissal must be both:

• Substantively justified (there was a genuine and fair reason to dismiss), and
• Procedurally fair (you followed a fair process before making the decision).

Even if you have a valid reason, you can still end up in trouble if your process is rushed, inconsistent, or doesn’t give the employee a real chance to respond.

It also works the other way around: a perfect “textbook process” won’t save you if the underlying reason isn’t strong enough to justify termination.

The Legal Test Employers Need To Know

When decision-makers look at a dismissal, a common question is essentially:

Was the dismissal what a fair and reasonable employer could have done in the circumstances at the time?

That means context matters. A small business with limited resources isn’t expected to run a “corporate HR department”, but you are expected to act fairly, communicate clearly, and document your steps.

Common Situations That Can Lead To An Unjustified Dismissal Claim

Most unjustified dismissal issues don’t start with a dramatic event. They start with a messy situation that wasn’t handled early, then escalates quickly.

Here are common scenarios where employers can get exposed:

1) Dismissal For Poor Performance Without Clear Warnings

Performance issues usually require a fair improvement process. If you dismiss without clearly explaining what’s wrong, what “good” looks like, and giving a reasonable chance to improve, the employee may argue the dismissal was unjustified.

Performance management should be structured, consistent, and documented. If you’re relying on “we’ve talked about it heaps” but there’s no paper trail, you’re taking a risk.

Having a clear Employment Contract that sets expectations and references workplace policies can make these conversations more straightforward from day one.

2) Dismissal For Misconduct Without A Proper Investigation

Misconduct (and serious misconduct) can justify dismissal, but you generally need to:

• investigate what happened (not just accept one person’s version),
• put the allegations to the employee clearly,
• give them a real chance to respond, and
• consider their explanation with an open mind before deciding.

A common mistake is deciding the outcome first (“they’re gone”) and then running a “process” that’s really just a formality. That approach can backfire.

3) Instant Dismissal “In The Heat Of The Moment”

Firing someone on the spot because you’re frustrated is one of the fastest ways to end up with an unjustified dismissal problem.

Even in serious situations, it’s often safer to take a breath, send the employee home, and follow a proper process. If you’re considering suspension while you investigate, this usually needs to be approached carefully and fairly (including consultation where required) - and in many cases it will be on pay unless your agreement clearly provides otherwise.

4) Redundancy Done Without Genuine Consultation

If you’re making a role redundant, you need to be able to show the business reasons are genuine and that you consulted properly before finalising the decision.

Redundancy isn’t meant to be “performance management by another name”. If the real issue is conduct or performance, treat it that way instead of trying to shortcut it with redundancy.

In practice, a fair redundancy process will often involve explaining the proposed change, giving the affected employee a real chance to comment, genuinely considering alternatives (including redeployment where feasible), and using a fair selection process if more than one person could be affected.

If you’re considering redundancy, it’s worth getting advice early and using a proper Redundancy Advice approach so you don’t end up with unnecessary disputes later.

What A Fair Process Looks Like Before Dismissing An Employee

There isn’t one single process that applies to every dismissal. What’s “fair” depends on the situation (performance vs misconduct vs redundancy), what’s at stake, and how serious the issues are.

That said, there are a few building blocks that come up again and again.

Step 1: Identify The Issue Clearly (And Check Your Documents)

Before you start, be clear on what type of issue you’re dealing with:

• Performance (capability, skill gaps, not meeting targets)
• Misconduct (behaviour, breaches of policies, dishonesty)
• Medical incapacity (inability to perform duties due to health)
• Redundancy (role no longer required for genuine business reasons)

Then, check the relevant paperwork: the employment agreement, policies, job description, any warning letters, and any correspondence about the issue.

If your workplace policies are scattered across old emails and half-updated Google Docs, this is where having a properly drafted Staff Handbook can help create consistency (especially if you have multiple team members and want everyone managed under the same rules).

Step 2: Investigate And Gather Information

If the issue involves potential misconduct or factual disputes, you’ll typically need to investigate.

That may include:

• speaking to witnesses,
• reviewing documents, rosters, time records or CCTV (where lawful and appropriate),
• collecting relevant communications, and
• identifying what policy or expectation may have been breached.

Be careful with surveillance and employee privacy. If you use workplace monitoring tools or cameras, your approach should align with privacy expectations and clear workplace rules.

Step 3: Put The Concerns To The Employee (In Writing Where Possible)

Generally, you’ll want to tell the employee:

• what the concern is,
• what the possible consequences are (including dismissal, if that’s on the table), and
• when and where the meeting will take place.

This is often done with a “letter inviting the employee to a disciplinary meeting” or a performance review meeting invitation.

Clarity matters here. Vague allegations like “you have a bad attitude” are hard to fairly respond to. Specific examples are much easier to manage properly.

Step 4: Give A Real Opportunity To Respond

A fair process means the employee must have a genuine chance to respond before you decide the outcome.

That usually involves:

• giving them time to consider the allegations,
• allowing them to bring a support person or representative to the meeting, and
• listening to their explanation with an open mind.

As a practical tip: take notes, confirm what was discussed, and follow up in writing. If you ever need to defend your decision later, your documentation can make or break your position.

Step 5: Consider Alternatives Before Termination

Dismissal is generally a last resort.

Depending on the circumstances, alternatives might include:

• additional training or coaching,
• a performance improvement plan with check-ins,
• a written warning (or final warning),
• mediation or conflict resolution steps,
• a change in duties (where lawful and agreed), or
• a negotiated exit (where appropriate and handled carefully).

If you jump to termination too quickly, you can increase your risk of an unjustified dismissal claim (even where there were real issues).

Step 6: Make The Decision, Communicate It Clearly, And Pay The Right Entitlements

If, after a fair process, dismissal is the outcome, make sure you communicate:

• the decision and the reasons,
• the effective termination date,
• notice (or what will happen about notice), and
• final pay arrangements (including any holiday pay).

Some employment agreements allow payment in lieu of notice, but it generally needs to be permitted by the contract (or agreed with the employee) and handled consistently with the circumstances and any applicable policies.

How “Good Faith” Affects Dismissal Decisions

The Employment Relations Act 2000 includes a duty of good faith. In employment, good faith is more than just “don’t lie”. It’s about being active and constructive in maintaining the relationship, and not misleading or deceiving each other.

In a dismissal context, good faith often shows up in practical ways like:

• not ambushing an employee with new allegations in a meeting,
• sharing relevant information the employee needs to respond,
• genuinely considering the employee’s explanation, and
• not predetermining the outcome.

If the relationship has broken down, it can be tempting to rush the process just to “get it over with”. But this is usually when employers make the kind of mistakes that turn a manageable issue into an unjustified dismissal dispute.

What Can Happen If A Dismissal Is Found To Be Unjustified?

When you’re in the middle of a tricky employee issue, it’s easy to focus only on the day-to-day disruption. But it’s also worth understanding what’s at stake if a dismissal is challenged.

If a dismissal is found to be unjustified, remedies can include things like:

• reinstatement (putting the employee back into their job, in some situations),
• reimbursement of lost wages,
• compensation for humiliation, loss of dignity, and injury to feelings, and
• contribution to legal costs (in some cases).

There’s also the “hidden cost” that small business owners feel most: time, stress, distraction from customers, and the impact on your wider team.

It’s also worth remembering that there are strict time limits for employees to raise personal grievances - usually within 90 days. Even so, it’s generally best to assume any dismissal decision could be challenged and to focus on getting the substance and process right from the start.

That’s why it’s usually worth getting advice early before you terminate someone, rather than trying to fix it after a claim lands in your inbox.

Practical Ways To Reduce Your Unjustified Dismissal Risk (Before Problems Start)

The easiest dismissal to defend is the one that never needs to happen because expectations and processes are clear from day one.

Here are some practical ways to reduce your unjustified dismissal risk as you grow your team.

Use Clear Employment Agreements And Role Expectations

Your employment agreement should match the reality of the role, your workplace, and how you operate. It should clearly cover things like duties, hours, wages, notice, and key policies.

If you’re hiring, updating, or standardising your contracts, having a properly drafted Employment Contract for full-time or part-time staff can help you start the relationship on solid legal footing.

Document Performance And Conduct Issues Early

Most disputes get harder because nothing was recorded early on. A quick email summary after a conversation can help create a clear timeline if issues continue.

Documentation doesn’t need to be aggressive or overly formal. It just needs to be accurate, dated, and consistent.

Train Your Managers (Even If That’s Just You)

If you have team leaders or supervisors, make sure they understand:

• how to give feedback appropriately,
• when to escalate issues, and
• why “off the record” chats aren’t a substitute for a fair process.

If it’s just you running the business, it’s still helpful to have a simple process you follow every time so decisions stay consistent.

Be Careful With Changes To Roles, Duties, Or Hours

Employment problems often start when a business is changing - new systems, reduced demand, tighter margins.

If you’re reducing hours or changing duties, do it carefully and check your agreements. Unilateral changes can create disputes, and they can also set the scene for dismissal claims later.

If you’re considering changes across the business, it may help to read up on reducing staff hours and get advice before you roll anything out.

Consider Mediation Before Termination Where Appropriate

Not every situation is suited to mediation, but many are - especially where the issue is miscommunication, interpersonal conflict, or a relationship breakdown that hasn’t reached serious misconduct.

A well-managed resolution early can often avoid termination entirely (and reduce the chance of an unjustified dismissal claim down the track).

Key Takeaways

• Unjustified dismissal is one of the most common and costly employment risks for NZ employers, especially when the process is rushed or poorly documented.
• A dismissal usually needs both a genuine reason (substance) and a fair process (procedure) to be justified under the Employment Relations Act 2000.
• Fair process commonly involves investigating concerns, clearly putting allegations to the employee, giving a real opportunity to respond, and genuinely considering alternatives before termination.
• Redundancy must be for genuine business reasons and typically requires meaningful consultation (and a fair selection approach if applicable) - it shouldn’t be used as a shortcut for performance issues.
• Strong documentation, clear expectations, and fit-for-purpose contracts and policies can reduce your risk and make difficult decisions more defensible.
• If you’re unsure whether you’re on the right track, getting advice before you dismiss someone is usually faster, cheaper, and less stressful than dealing with a dispute afterwards.

If you’d like help managing a tricky dismissal process or putting the right documents in place to protect your business from day one, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.