Wrongful Vs Unjustified Dismissal In New Zealand: Key Differences

If you employ staff in New Zealand, you’ve probably heard the terms “wrongful dismissal” and “unjustified dismissal” used interchangeably.

But they’re not the same thing - and mixing them up can be an expensive mistake when you’re trying to end an employment relationship quickly, fairly, and legally.

This guide is written for employers (especially small businesses) who want a clear, practical explanation of the differences between wrongful dismissal and unjustified dismissal in New Zealand, what each one means, and how to reduce the risk of a personal grievance or court claim.

Why The “Wrongful vs Unjustified Dismissal” Distinction Matters For Employers

From an employer perspective, the key difference is where the risk sits:

• Unjustified dismissal is mainly about whether the dismissal was justified under New Zealand employment law - looking at both substance (the reason) and process (how you got there), and whether you acted as a fair and reasonable employer would have in the circumstances.
• Wrongful dismissal is mainly about whether the dismissal involved a breach of the employment agreement (for example, not providing notice or not following a contractual disciplinary process). In New Zealand, “wrongful dismissal” is generally a contract/common law concept rather than the main statutory label.

In real life, the two can overlap. A single termination can trigger:

• a personal grievance claim for unjustified dismissal; and
• a contractual dispute claim for wrongful dismissal (for example, notice pay, or unpaid entitlements).

So when business owners search “wrongful dismissal vs unjustified dismissal New Zealand”, they’re usually trying to answer a practical question:

“If we terminate this employee, what could they claim - and how do we minimise the risk?”

That’s exactly what we’ll unpack below.

What Is Unjustified Dismissal In New Zealand?

In New Zealand, unjustified dismissal is typically raised as a personal grievance under the Employment Relations Act 2000.

Put simply, an employee may claim they were unjustifiably dismissed if:

• there was not a good reason for the dismissal (a problem with the “substance”); and/or
• the employer didn’t follow a fair process (a problem with the “procedure”).

Substance vs Process (The Core Idea)

Employers often focus heavily on the “reason” (for example, performance issues or misconduct). But in practice, process is where many small businesses get caught out.

Even if you have a valid reason, a dismissal can still be “unjustified” if you don’t follow a fair approach - for example, you don’t properly investigate, you don’t give the employee a chance to respond, or you appear to have pre-decided the outcome.

In practice, the key question is often whether you acted as a fair and reasonable employer would have done in all the circumstances (including how you investigated, consulted, and made the decision).

Common Examples Of Unjustified Dismissal Risk

Here are common scenarios where employers unintentionally increase unjustified dismissal risk:

• Instant dismissal for performance without warnings, support, or a performance process.
• Termination after a complaint without investigating properly or allowing the employee to respond to allegations.
• “Restructure” dismissals where consultation wasn’t genuine, or the role wasn’t truly disestablished.
• Using a probationary period incorrectly (or assuming probation means you can dismiss “for any reason”).
• Unequal treatment (for example, one employee is dismissed for something others are allowed to do).

It’s worth noting that unjustified dismissal is heavily tied to whether you acted as a fair and reasonable employer would have in the circumstances. That involves:

• good faith communications;
• real opportunities for the employee to respond;
• proper consideration of explanations or mitigating factors; and
• documenting key steps and decisions.

Also, time limits matter: an employee generally needs to raise a personal grievance within 90 days of the dismissal (or when they became aware of it), subject to limited exceptions.

If you’re unsure what a fair termination process should look like, a good starting point is having a solid termination process mapped out before you get to a breaking point.

What Is Wrongful Dismissal In New Zealand?

Wrongful dismissal is different. It’s usually a claim that the employer ended the employment relationship in a way that breached the employment agreement (or, in some cases, a breach of contract principles that apply to employment agreements).

In plain terms, “wrongful dismissal” is often about what the contract says you must do when ending employment - and whether you did it.

The Most Common Wrongful Dismissal Issue: Notice

The most common wrongful dismissal risk for employers is not providing the correct notice period (or not paying what’s owed instead of notice).

For example, if the employee’s agreement says they’re entitled to 4 weeks’ notice, and you dismiss them immediately without a contractual basis for summary dismissal, you may be exposed to a claim for:

• notice pay (and potentially other losses flowing from that breach).

This is why it’s important to understand how payment in lieu of notice works in practice and what your employment agreement allows.

Other Examples Of Wrongful Dismissal

Wrongful dismissal can also come up where an employer:

• fails to follow a contractual disciplinary procedure (if the agreement sets one out);
• doesn’t apply a contractual dispute resolution step before termination (if required);
• terminates for “serious misconduct” where the agreement requires a particular process or threshold, and the employer didn’t meet it;
• misapplies a trial period clause (or fails to meet the legal requirements around it).

It’s also possible for an employer to do something that is not “wrongful” in the strict contract sense (for example, you paid notice), but is still “unjustified” because the process was unfair.

That’s why employers need to look at both angles when thinking about wrongful dismissal vs unjustified dismissal in New Zealand.

So What’s The Key Difference (In One Simple Comparison)?

If you want a quick way to remember it, here it is:

• Unjustified dismissal = “Was the decision to dismiss, and the way you got there, justified under NZ employment law (including a fair process)?”
• Wrongful dismissal = “Did you breach the employment agreement when you dismissed them (especially notice and contractual procedure)?”

As a small business employer, you generally need to get both right:

• follow a fair process (to reduce unjustified dismissal risk); and
• comply with the employment agreement and minimum entitlements (to reduce wrongful dismissal risk).

How Employers Can Reduce Dismissal Risk (Without Getting Stuck In Process Forever)

One of the biggest frustrations for employers is feeling like “we can’t do anything” when an employment relationship isn’t working.

The reality is: you can act - but you need to act in a way that’s structured, documented, and fair.

1) Get The Employment Agreement Right From Day One

A clear Employment Contract is one of your best risk management tools.

When your agreement is vague, outdated, or inconsistent with how you actually run the business, it becomes much harder to terminate safely. At minimum, your agreement should clearly set out:

• notice periods (and whether payment in lieu of notice is allowed);
• disciplinary and performance expectations (or how performance is managed);
• confidentiality and return of property obligations;
• key workplace policies that apply (and how they’re incorporated).

Even if you have a “simple” team, having solid foundations early can save you time and cost if issues arise later.

2) Use A Proper Performance Management Process For Performance Issues

If the issue is underperformance (not misconduct), employers often move too quickly to termination because they’re under operational pressure.

That’s understandable - but it’s also where unjustified dismissal claims can arise.

A structured performance management process usually involves:

• clearly explaining what the performance issues are (with examples);
• setting reasonable expectations and timeframes for improvement;
• providing support or training where appropriate;
• meeting with the employee, listening to their response, and keeping notes; and
• giving warnings where required before moving to dismissal.

This process is not about “ticking boxes”. It’s about showing you behaved fairly, gave the employee a real chance, and made decisions based on evidence.

3) Investigate Properly Before Disciplining For Misconduct

If you’re dealing with misconduct, a fair process usually includes:

• investigating what happened (without assuming the outcome);
• putting the allegations to the employee clearly;
• giving them an opportunity to respond (and time to consider);
• considering their explanation with an open mind; and
• only then deciding on the appropriate outcome (which may or may not be dismissal).

Jumping straight to dismissal - especially by text message, on the spot, or in front of other staff - is a common fact pattern we see in unjustified dismissal disputes.

4) Be Extra Careful With Redundancy (It’s Not A Shortcut)

Redundancy is a lawful reason for termination, but it’s not a “workaround” for performance issues or personality clashes.

If the employee believes redundancy was used as a pretext, you’re more likely to face challenge.

If you’re restructuring, it’s worth getting advice early, including on consultation steps and documentation. Many employers also need guidance on redundancy compensation (if any) and how that interacts with the employment agreement - this is where redundancy advice can be particularly helpful.

5) Don’t Underestimate Documentation

Documentation is not about creating “paperwork for the sake of it”. It’s about being able to show, later, that:

• the employee knew what the issues were;
• you raised concerns clearly;
• you gave opportunities to respond;
• you considered alternatives; and
• you followed a reasonable process.

If you’re trying to piece together what happened after the relationship has broken down, it becomes much harder to defend an unjustified dismissal allegation.

What Should You Do If An Employee Challenges A Dismissal?

If you receive a letter alleging unjustified dismissal or wrongful dismissal, it’s normal to feel defensive (especially if you genuinely tried your best as an employer).

The key is to slow down and respond strategically.

Step 1: Identify What Type Of Claim It Really Is

Ask yourself:

• Are they alleging the dismissal was unfair (process/reason)? That’s likely an unjustified dismissal personal grievance issue.
• Are they alleging you didn’t give the right notice or didn’t follow a contractual step? That’s likely a wrongful dismissal / breach of employment agreement issue.
• Is it both? Often, yes.

This matters because it affects the evidence you’ll need and the best resolution strategy.

Step 2: Pull Together Your Evidence (Before You Reply In Detail)

As a practical checklist, gather:

• the signed employment agreement and any variations;
• your policies (and proof the employee received them if possible);
• written warnings, performance plans, meeting notes, and emails;
• investigation material (statements, CCTV logs, system records - if relevant and lawfully obtained);
• termination letter and notice/payment details; and
• any timeline of key events (dated and factual).

This is also where having an organised set of termination paperwork can make a big difference - many employers prefer to have a consistent set of documents and templates ready to go, such as an Employee Termination Documents Suite.

Step 3: Don’t Escalate The Situation (Even If You Think They’re Wrong)

What you say after the dismissal can still impact legal risk.

Avoid:

• arguing via text;
• making broad allegations you can’t prove;
• talking to other staff about the dispute in a way that could look like retaliation; or
• refusing to engage at all (silence can inflame things).

It’s usually better to respond calmly, acknowledge the concerns, and propose a sensible next step (for example, a meeting or mediation), while you get advice.

Step 4: Get Advice Early (Before It Snowballs)

Dismissal disputes often escalate because employers try to “push through” without support, and then realise later that a step was missed.

Early advice can help you:

• assess whether the dismissal is defensible;
• identify gaps (and how to respond to them);
• negotiate a commercially sensible settlement if needed; and
• reduce the risk of repeat issues by improving your process and documents going forward.

Key Takeaways

• Unjustified dismissal focuses on whether the dismissal was justified in the circumstances under New Zealand employment law, including whether you followed a fair process (and employees generally have 90 days to raise a personal grievance, subject to limited exceptions).
• Wrongful dismissal focuses on whether you breached the employment agreement when dismissing the employee - commonly around notice, payment in lieu, or contractual procedures.
• A single termination can lead to both types of allegations, so you should assess dismissals from both a “fairness” and “contract compliance” perspective.
• For performance issues, a structured performance management approach can significantly reduce unjustified dismissal risk.
• For misconduct issues, a proper investigation and genuine opportunity to respond is essential before deciding on dismissal.
• Good documentation and clear employment agreements are practical tools that protect your business from day one.

If you’d like help reviewing a termination situation, updating your employment agreements, or putting the right process and documents in place, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.