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Long-Term Illness

HR Policies

20 June 2025 (Last updated 3 Dec 2025)

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When facing a long-term illness or injury, it is common for employees to not only be concerned about their health, but also their ability to work and the chance of finding employment in the future. Employers, on the other hand, have to keep their business running and may be faced with the decision on how long to keep a position open for an employee with a long-term illness or injury that has rendered them incapable of fulfilling their role.

Determining the status of the injury or illness

It can be difficult to manage a business when an employee is away from work because of a long-term illness or injury. If the employee is not able to fulfill their role there will come a point where the employer may need to consider whether to keep the position open – and for how long – and if it is reasonable to end their employment. Whether a dismissal on medical grounds is reasonable, will depend on the facts of each case and will be subject to the statutory test of justification.

As a starting point, open communication with the employee is the best way to determine how to proceed. Ask the employee to provide you with the following information:

  • How long the employee thinks they will be off work
  • Whether they need to take unpaid long-term sick leave or not
  • If they think they will be able to do their job again

These questions should be asked in a respectful, supportive manner and only relate to the employee’s ability to fulfill their role. Employees should not be under the impression they are being disciplined or discriminated against.

For employees, it is important to be upfront about their illness and explain how it may impact their ability to work. This may be confronting at first, but this information can help employers look for alternative roles or positions that may be more suitable for the employee.

An employee can refuse to provide medical information if an employer asks for it – even if it is part of their employment agreement.

How to Manage Employees with a Long-Term Illness

Take reasonable steps to allow the employee to recover from their long-term illness:

  • Allow the employee to take paid sick leave, they are entitled to 10 days of paid sick leave each year.
  • Thereafter, if the employee is still unwell, the employee and employer may agree that they use their annual leave to cover the period of sickness
  • Maintain communication with the employee about their illness or injury, and how their recovery is going.
  • If the employee is receiving payments from the Accident Compensation Corporation (ACC), seek to understand their current capacity from their Case Manager. The employee may have a return to work (RTW) plan from their treating doctor, which will assist an employer with understanding what work the employee could potentially complete and what adjustments may need to be made to their job.

Dismissing Employees with a Long-Term Illness or injury

If an employer has good reason to believe the employee is not able to do their job and the position cannot be left open, they may be able to end the employment on reasonable grounds.

  • To ensure the dismissal process is fair and reasonable, employers should consider:
  • The terms and conditions of the employment agreement
  • If the employee has used up their paid sick leave entitlements
  • How long the employee has been away from work
  • The amount of medical information they have about the employees illness or injury
  • If there is any way to reassign the employee into another role or position that is more suitable

While there are protections at law, an employer is not bound to hold an employee’s job open indefinitely, however, any dismissal must be justified. This includes having good reasons for the dismissal and following a fair process. What constitutes long-term incapacity and how long an employer must hold a job open will vary according to circumstances including the:

  • nature of the illness and prospects of recovery
  • business, size and complexity of arrangement, and practical requirements
  • nature of the position and the business’ reliance on the employee’s skills

Where an employee’s absence is temporary, this would not be appropriate for a capabilities dismissal.

What is the process?

It is crucial to get advice to confirm whether there are grounds to dismiss an employee on the basis of capabilities. Even if an employer has the grounds, it is important to follow a fair process.

What is an informal welfare meeting?

Where an employee has been absent due to long term illness or injury, the first step should be to invite the employee for an informal welfare meeting where the employee’s current situation is discussed. The employer informally enquires about the employee’s current diagnosis and prognosis in relation to their long-term ability to perform their role. It is also a useful touchpoint to allow the employee to discuss their view on their ability to continue or return to work.

Can I direct an employee to attend a medical assessment?

Following the informal meeting, where there is continued concern of the employee’s capability to perform their role, the next step will be to ask the employee to attend a medical assessment to determine their current or future ability to fulfil their role requirements. The employer will require the employee’s permission to obtain such a medical assessment.

The employer should pay the cost of any assessment so that a written medical report may be obtained. The report should be structured to address the employee’s ability to perform the inherent requirements of their role.

What is a formal welfare process?

Once the employer has received the results of the medical assessment, it should invite the employee to a formal welfare meeting. At the outset, the results of the medical assessment should be discussed with the employee. The employer should outline any reasonable adjustments they can identify that would potentially allow the employee to return to their role, such as light duties. In turn, the employee should then be invited to raise any reasonable adjustments that would potentially allow them to return to their role.

Should I consider allowing the employee to return to work?

Following the formal meeting, the employer should consider any reasonable adjustments that could be made to allow the employee to return to work. Any suggestions raised by the employee should be considered in depth.

Reasonable adjustments refer to any form of assistance or adjustment that is possible to make to working arrangements, work methods, equipment or the work environment.

How do I conclude the process?

Finally, the employer should meet with the employee to discuss the outcome of the process. Ultimately, it must be decided whether the employee can perform the inherent requirements of the pre-injury role, with or without reasonable adjustments.

Where an employee is not able to perform the inherent requirements of the role with reasonable adjustments, then there may be a valid reason for dismissal. After exhausting all alternative options, the employer can propose termination to the employee.

Get HR support

Need help with implementing sickness and absence policies? Peninsula provides tailored HR policies and processes for your business and employees. Call us on 0800215034 to learn how we can help you.

This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

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