Lane Neave Associate Hannah Martin discusses a topical issue in employment law – medical incapacity – and where employers stand under the law when such long-term incapacity prevents an employee from performing the job they were hired for.
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We usually get an influx of similar employment law queries at various times throughout the year. At the moment a popular topic seems to be medical incapacity, with many employers querying the best way to terminate an employment relationship on the basis that an employee’s long term illness or injury is preventing them from carrying out the job they were hired to do.
The general principles to remember when dealing with issues of long-term illness/injury are that an employer must give an employee reasonable time (which is fact dependent) to recover, and an employer is required to carry out a fair and reasonable process (similar to any process which results in termination of employment).
If an employer finds themselves in a position where an employee’s long term injury/illness renders them incapable of carrying out their role, we consider that there are two possible options available to an employer (depending on the circumstances).
First, an employer can look to medically retire an employee, or terminate the employment relationship on the grounds of medical incapacity. Both can be lengthy and time-consuming and are considered ‘no fault termination’. Dismissal should be a last resort, and the grounds of incapacity should be clear; determining medical incapacity involves deciding whether an employee is well enough to be able to carry out the role/tasks they are employed to do.
Termination of the employment relationship by these measures involves consulting with the employee and working with them to determine whether they are truly medically incapacitated. There ‘must be’ a link between the incapacity and an inability to perform duties. Generally, an employer can look to commence this consultation process with an employee if there is a lengthy or ongoing incapacity, intermittent absences (i.e. 2-3 days) of a frequent nature, the employee cannot safely undertake their duties, or the employee’s incapacity is a potential risk to other employees (which could include alcoholism).
After making the decision that it is reasonable for the employment relationship to end, the employer should decide whether to medically retire the employee, or dismiss them for medical incapacity.
If the option of medical retirement is available, it must be agreed between the employer and the employee. It is useful if the employment agreement contains a medical retirement/medical incapacity clause, or there is a policy in place for the employer to rely on. In any event, medical retirement agreement/package should be recorded in writing.
If, the employee does not agree to medical retirement, an employer may need to look to dismiss the employee for medical incapacity (particularly if the employer has become aware of the medical issue as a result of a disciplinary or performance process).
The second option available to an employer, if the circumstances allow, is the doctrine of frustration. “Frustration of contract” immediately releases contracting parties from performance of a contract if an event occurs beyond their control which renders further performance “impossible” or “substantially impossible”. Technically, no termination action is required by either party because the contract simply can no longer be performed.
While relying on this doctrine to terminate an employment relationship is a much swifter process than the alternative outlined above, the threshold for declaring a contract of employment frustrated is very high. It is generally restricted to such situations as imprisonment or death (of either party), or the results of natural disasters, where businesses may have been destroyed and simply unable to fulfil the employment obligations.
In instances of medical incapacity, the application of the doctrine is questionable. We recommend that an employer seeks legal advice before engaging the doctrine of frustration in circumstances where an employer is suffering from a long-term injury or illness.
Patience is a virtue, particularly when it comes to issues of medical incapacity, as these matters are generally very sensitive and complex. Employers should take the time to ensure that they have all the facts. Empathy, privacy, and confidentiality should be paramount considerations.
Whatever method of termination is relied upon, it is important that an employer acts fairly and reasonably in the circumstances, remembering their good faith obligations, and adhering to procedural fairness requirements.
Hannah has experience advising on a variety of employment law related issues including the reviewing and drafting of employment documentation, assisting with employment procedures (including investigations and disciplinary processes), conducting negotiations and mediations, addressing health and safety (including bullying and harassment) concerns, and providing advice on ACC matters (including resolution of ACC related disputes). She also has experience practicing media and defamation law, and privacy law, and can assist with privacy and information queries.
Hannah has provided advice to a wide range of clients, from individuals through to multi-national firms and government departments, and is experienced across multiple industries. She is very approachable and has an efficient and pragmatic approach to the provision of legal advice. She provides straightforward and practical advice to enable Lane Neave’s clients to achieve their legal goals in the most cost effective way possible. Hannah has also presented at numerous employment law workshops and seminars and writes articles for publications including Lane Neave’s monthly Workplace Law Newsletter. Contact Hannah at hannah.martin@laneneave.co.nz
