Navigating Medical Incapacity and Medical Retirement: How to Avoid the Personal Grievance Trap

Lately

My desk has been flooded with a worrying trend. I’ve had an influx of clients coming to me who have been "medically retired" or terminated due to medical incapacity, and they are ready to launch Personal Grievance (PG) claims. Why? Because from where they are sitting, the process felt like a weapon. They felt targeted, rushed, and essentially managed out of their jobs under the guise of a medical issue.

When health impacts work, it is one of the most legally sensitive areas in New Zealand employment law. If an employer handles it poorly, it creates an ugly paper trail that practically hands the employee a valid PG claim on a silver platter.

To show you exactly how this goes right and how it

goes completely wrong let’s look at three distinct scenarios I’ve been dealing with this week.

Scenario 1: The Rushed Employer (The "5-Month Out" Case)

​I recently stepped in to assist an Employer who wanted to terminate an employee because they had been off work on sick leave and ACC for five consecutive months.

Unfortunately, before I got onboard, the employer had already handled it incorrectly. They viewed the 5 month absence as an automatic trigger to cut ties, without doing the background work. This reactive approach resulted in the employee raising a personal grievance claim.

While we managed to resolve it through mediation, it cost time, money, and stress. Had this been done correctly from day one, we could have resolved the business’s staffing needs quickly and efficiently, without creating a paper trail that led to a dispute.

For Employers facing long-term ACC/Sick Leave:

DO:

• Keep the lines of communication open: Maintain regular, supportive contact from day one. Do not ghost the employee for months and then suddenly pop up with a termination letter.

• Investigate the true medical position: You must gather up-to-date, objective medical data or specialist reports. You need to know the likelihood of their return and the estimated timeframe.

• Consult before deciding: Gather your evidence, share it with the employee, outline the business impact of their absence, and ask for their feedback before making any final calls.

DON'T:

• Don't assume ACC means automatic termination: There is no "magic number" of weeks or months that automatically allows you to terminate. You must prove the business can no longer reasonably sustain the absence.

• Don't treat it like a disciplinary process: The employee has done nothing wrong. Writing aggressive, overly formal letters creates a defensive environment and a toxic paper trail.

• Don't act without expert advice: If you haven’t established a clear business justification and a fair process before sending termination letters, you are stepping straight into a mediation trap.

Scenario 2: The Targeted Employee (Roy’s Story)

Roy came to see me after being medically retired by his firm. He wants to raise a personal grievance because he firmly believes the entire process was an engineered hit job designed to remove him from his employment.

Medical retirement cannot be forced on someone; it requires mutual agreement. When an employer uses it aggressively to bypass a standard redundancy or performance process, it looks and feels like a sham.

For employees in Roy’s position:

DO:

• Request all documentation: Ask for the business data showing how your absence is actively hurting the company, alongside the medical reports they are relying on.

• Check your employment agreement: Look for specific "Medical Retirement" clauses. See if there are agreed-upon payouts, notice periods, or support packages tied to this path.

• Call out hidden motives: If you suspect you are being singled out while others with injuries or performance issues are treated differently, note these dates and conversations down immediately.

DON'T:

• Don't feel forced to agree: Medical retirement is a voluntary, mutual exit strategy focused on leaving with dignity. If you don't agree, do not sign the paperwork.

• Don't cut off contact: Even if you feel targeted, completely shutting down communication can make you look non-responsive, which gives the employer leverage to move to a medical incapacity dismissal.

• Don't ignore the paper trail: Keep copies of all emails, texts, and meeting invites. If the process is a sham, that paper trail is what will win your personal grievance case.

Scenario 3: The Active Process (Anita’s Journey)

​Anita is a client who is currently in the thick of a medical incapacity process. She is anxious, vulnerable, and unsure of what her next steps should be to protect her livelihood.

​This is the critical window. What Anita does right now determines whether she can successfully return to work through a rehabilitation plan, secure a fair alternative role, or lay the groundwork for a solid legal defense.

For employees in Anita’s position:

DO:

• Engage in good faith: Participate actively in the process. Provide relevant medical information from your GP or specialist regarding what you can do, not just what you can't.

• Bring a support person or representative: These meetings are highly emotional. Having a professional or a trusted friend there ensures you have an objective witness and advocate.

• Propose alternative solutions: If you cannot do your old role, suggest temporary light duties, reduced hours, or alternative tasks that fit within your medical restrictions.

DON'T:

• Don't withhold medical information unreasonably: While you have privacy rights, if you refuse to provide any medical updates, the employer is legally allowed to make a decision based only on the limited information they have on hand.

• Don't wait until the final meeting to speak up: If you disagree with the employer's view of your recovery timeframe, object early and put it in writing.

• Don't navigate this alone: The moment your employer mentions "medical incapacity" or hints that they cannot hold your role open, get professional advice immediately to ensure your rights are protected before a decision is locked in.

The Takeaway: Whether you are an employer trying to manage a business or an employee dealing with a health crisis, shortcuts do not work. True medical incapacity requires patience, up to date medical facts, and genuine consultation. Skipping these steps doesn't solve the problem it just trades a medical issue for a legal one.