Terminating employment in New Zealand requires careful adherence to legal requirements and fair process to avoid potential disputes. Both employers and employees have rights and obligations that must be respected throughout the termination process. Understanding the nuances of notice periods, grounds for dismissal, and procedural fairness is essential for lawful and smooth transitions. While the specific terms of an employment relationship are primarily governed by the individual employment agreement, the process must always comply with the minimum standards set out in the Employment Relations Act 2000 (ERA) and other relevant legislation.
Ensuring a termination is both substantively justified (a good reason exists) and procedurally fair (a proper process was followed) is critical. Failure to meet these standards can lead to an employee raising a personal grievance, which can result in significant costs and remedies for the employer, including reinstatement, lost wages, and compensation for hurt feelings.
Notice Period Requirements
The required notice period for terminating employment in New Zealand is typically specified in the individual employment agreement. There is no statutory minimum notice period that applies universally to all employees. However, if the employment agreement does not specify a notice period, a "reasonable" period of notice is implied by law. What constitutes "reasonable" depends on factors such as the employee's role, length of service, and industry norms.
It is standard practice for employment agreements to clearly define the notice period required by both the employer and the employee. Common notice periods vary depending on the employee's position and tenure.
| Employee Category (Typical) | Common Notice Period (Examples) |
|---|---|
| Junior/Entry-Level Staff | 1-2 weeks |
| Mid-Level Staff | 2-4 weeks |
| Senior Staff/Management | 4 weeks to 3 months or more |
During the notice period, the employment relationship continues, and the employee is typically expected to work unless the employer agrees to pay them in lieu of notice (PILON) or places them on garden leave.
Severance Pay and Entitlements
Unlike some other jurisdictions, New Zealand law does not mandate statutory severance pay upon termination of employment, except in specific circumstances related to redundancy where it might be included in a collective or individual employment agreement. There is no standard legal formula for calculating severance pay.
However, upon termination, an employee is legally entitled to receive their final pay, which must include:
- Payment for all hours worked up to the termination date.
- Payment for any accrued but untaken annual leave. This is calculated at the employee's ordinary weekly pay or average weekly earnings over the past 12 months, whichever is higher, for the period of entitlement.
- Payment for any accrued but untaken alternative holidays (for working on public holidays).
- Payment in lieu of notice, if the employer chooses not to have the employee work the notice period and the employment agreement allows for PILON.
Any additional payments, such as redundancy compensation or contractual bonuses, are only payable if they are explicitly provided for in the employment agreement or a relevant collective agreement.
Grounds for Termination
An employer must have a genuine reason to terminate an employee's employment. These reasons generally fall into two categories:
- Termination with Cause: This occurs when the employee's conduct or performance provides a valid reason for dismissal.
- Misconduct: Serious breaches of company rules, policies, or expected behaviour (e.g., theft, harassment, serious insubordination). Minor misconduct typically requires warnings before dismissal.
- Poor Performance: Failure to meet the required standards of the job, despite being given clear expectations, support, and a reasonable opportunity to improve.
- Termination Without Cause (Redundancy): This occurs when the employee's role is no longer required due to legitimate business reasons (e.g., restructuring, downturn in business, changes in technology). Redundancy is not related to the employee's performance or conduct.
Termination is generally not permitted for discriminatory reasons (based on age, gender, race, disability, etc.), for exercising an employment right (like taking leave or raising a personal grievance), or for participating in lawful union activities.
Procedural Requirements for Lawful Termination
Even when a valid reason for termination exists, the employer must follow a fair and reasonable process. Failure to do so can render an otherwise justified dismissal unjustified on procedural grounds. Key procedural steps typically include:
- Investigation: Conduct a thorough and objective investigation into the issue (misconduct, performance, or the need for redundancy). Gather all relevant facts and evidence.
- Notification: Inform the employee in writing about the concerns or proposed changes (e.g., allegations of misconduct, performance issues, proposed redundancy). Provide them with all relevant information gathered during the investigation.
- Opportunity to Respond: Give the employee a reasonable opportunity to meet and respond to the concerns or proposals. They have the right to have a support person or representative present at any meeting.
- Genuine Consideration: Genuinely consider the employee's response before making a final decision.
- Decision: Communicate the final decision to the employee in writing, clearly stating the reason for the decision and the effective date of termination.
- Notice: Provide the required contractual or reasonable notice, or payment in lieu of notice if applicable and agreed.
For redundancy, the process also involves consulting with the employee about the proposed changes, exploring alternatives to redundancy, and considering redeployment opportunities if available.
| Termination Type | Key Procedural Steps |
|---|---|
| Misconduct | Investigate, Notify of allegations, Meet & allow response, Consider response, Decide, Notify of decision, Provide notice. |
| Poor Performance | Investigate, Notify of performance issues & expectations, Provide support & time to improve, Meet & allow response, Consider response, Decide, Notify of decision, Provide notice. |
| Redundancy | Identify need for redundancy, Consult with employee, Explore alternatives/redeployment, Consider feedback, Decide, Notify of decision, Provide notice. |
Common pitfalls include insufficient investigation, failing to provide all relevant information to the employee, not giving a genuine opportunity to respond, pre-determining the outcome, and failing to consider alternatives (especially in redundancy).
Employee Protections and Wrongful Dismissal
Employees in New Zealand are protected against unjustified dismissal and other disadvantages in their employment. If an employee believes they have been unfairly treated, they can raise a "personal grievance" with their employer.
A personal grievance can be raised for various reasons, including:
- Unjustified dismissal
- Unjustified disadvantage (e.g., unfair disciplinary action short of dismissal, denial of entitlements)
- Discrimination
- Harassment (including sexual harassment and racial harassment)
- Duress in relation to membership of a union or employee organisation
The employee must raise the personal grievance within 90 days of the action occurring or the employee becoming aware of it. The process typically involves the employee raising the grievance with the employer, followed by mediation services provided by the Ministry of Business, Innovation and Employment (MBIE) if the issue is not resolved directly. If mediation is unsuccessful, the matter can be referred to the Employment Relations Authority (ERA) for investigation and determination, and potentially to the Employment Court on appeal.
Remedies for a successful personal grievance claim can include reinstatement to the job, reimbursement of lost wages, and compensation for humiliation, loss of dignity, and injury to feelings. Adhering strictly to both substantive justification and procedural fairness is the best way for employers to mitigate the risk of personal grievances.
