What To Do When An Employee Claims Unjustified Dismissal

Summary

• In New Zealand, an unjustified dismissal occurs when an employer lacks a genuine reason for dismissal or fails to follow a fair process; employees have 90 days to raise a personal grievance.
• Employers should respond promptly, gather supporting documentation, engage in mediation where possible, and be aware that remedies can include lost remuneration, hurt and humiliation compensation, and reinstatement.
• Even where a valid reason for dismissal exists, a procedurally flawed process can still result in a successful claim against the employer.
• This article is a plain-English guide to unjustified dismissal claims in New Zealand, aimed at business owners and employers navigating personal grievance processes under New Zealand employment law.
• It has been prepared by LegalVision, a commercial law firm that specialises in advising clients on employment law matters.

Tips for Businesses

Document every stage of a dismissal process, from performance management through to termination. Respond to claims promptly and engage in mediation, most disputes settle there. Review your employment agreements and HR policies regularly, and train managers on fair disciplinary procedures to reduce exposure to future claims.

An unjustified dismissal claim arises when an employee alleges their employer terminated their employment without a fair reason or proper process. Employers who handle these claims poorly risk significant legal and financial consequences. This article outlines the key steps you should take when faced with an unjustified dismissal claim and how to navigate the process effectively.

Understanding Unjustified Dismissal

In New Zealand, most employees (except those on a valid 90-day trial period) can make a personal grievance if they think they were unfairly dismissed.

An unjustified dismissal happens when:

• the employer did not have a good reason to fire the employee, or
• the employer did not use a fair process when firing them.

Employees usually have 90 days from when the dismissal takes effect to raise a claim, although this can sometimes be extended.

Employees can challenge:

• the reason for the dismissal (was there a real and fair reason?), and
• the process (was it handled properly and fairly?).

Even if there was a good reason to dismiss someone, a poor or unfair process can still make the dismissal unjustified.

1. Review the Claim Carefully

When you receive notification of an unjustified dismissal claim, your first step should be to carefully review the details. The claim may arrive as a formal letter, through:

• a union representative; or
• via a mediation request from the Ministry of Business, Innovation and Employment (MBIE).

Read through the allegations thoroughly and note the specific complaints being made.

Take time to gather all relevant documentation related to the employee's dismissal, including:

• their employment agreement;
• any performance management records;
• disciplinary notes;
• correspondence;
• meeting notes; and
• thetermination letter.

This documentation will form the foundation of your response and defence.

2. Seek Legal Advice Promptly

Unjustified dismissal claims can be complex, and the consequences of getting your response wrong can be costly. It is advisable to consult with a lawyer as soon as possible after receiving the claim. A lawyer can help you assess the following:

• strength of the employee's case;
• identify any weaknesses in your position; and
• develop an appropriate strategy for responding.

Your lawyer will also ensure you meet all relevant deadlines and comply with procedural requirements throughout the process. Early legal advice can often help you resolve matters more efficiently and potentially avoid costly Employment Relations Authority (ERA) proceedings.

3. Respond Within Required Timeframes

When you receive a personal grievance claim, you should provide a response within a reasonable timeframe. While there is no fixed statutory deadline for your response, you should aim to acknowledge receipt of the claim promptly and provide a substantive response within a few weeks.

Your response should address the specific allegations raised by the employee and outline your position on why the dismissal was justified. Be factual, professional, and avoid emotional language. Stick to the relevant facts and refer to supporting documentation where appropriate.

4. Consider Mediation

If you cannot reach a settlement directly, the employee will often ask for mediation through MBIE's employment mediation service.

Mediation is:

• free and confidential, and
• run by an independent mediator who helps both sides talk through the problem and try to agree on a solution.

You do not have to take part, but it is usually in your best interests to do so.

Mediation can save you time, money, and stress compared to going to the Employment Relations Authority (ERA). Many disputes are resolved at this stage. Outcomes can include:

• an apology,
• an agreed reference, or
• a financial payment.

Go into mediation with an open mind and realistic expectations.

To prepare:

• review the facts and documents,
• understand your legal position, and
• think about what outcomes you would accept.

Your lawyer can attend with you to support you and help with negotiations.

5. Understand Potential Outcomes and Remedies

If the matter does not resolve at mediation and proceeds to the ERA, it is important to understand the potential remedies that may be awarded if the employee is successful. The ERA has broad powers to order various remedies, including:

• Lost Remuneration:Compensation for wages the employee would have earned if they had not been dismissed, typically calculated from the date of dismissal until the date of the ERA's determination.
• Compensation for Hurt and Humiliation:Awards for the emotional harm suffered by the employee, which can range from a few thousand dollars to several months' salary, depending on the circumstances.
• Reinstatement:In some cases, the ERA may order that the employee be reinstated to their former position, though this is relatively uncommon in practice.

The ERA may also order you to pay costs and potentially impose penalties for breaches of employment obligations. Understanding these potential outcomes can help you make informed decisions about whether to settle the claim or proceed to a hearing.

6. Learn from the Experience

Regardless of the outcome of the unjustified dismissal claim, use the experience as an opportunity to review and improve your employment practices. Consider whether your dismissal procedures are clearly documented and consistently followed. Moreover, ensure your managers are properly trained in performance management and disciplinary processes.

Review your employment agreements to ensure they are up to date and contain appropriate clauses. Implement or update your HR policies and procedures to minimise the risk of future claims. Regular training for managers on employment law obligations can help prevent issues before they arise.

Key Statistics:

• 1,539: unjustified dismissal claims, including 280 constructive dismissal claims, were lodged with the Employment Relations Authority in 2024.
• 65%: of personal grievances, including unjustified dismissal cases determined by the Authority, were found in favour of employees.
• $26,972: average total remedies awarded to successful unjustified dismissal claimants in the year to November 2023.

Sources:

1. Employment Relations Authority (2024)
2. University of Auckland Faculty of Law (2025)
3. Business New Zealand (2024)

7. Maintain Professionalism Throughout

Throughout the entire process, maintain professional conduct and avoid any actions that could worsen the situation. Do not discuss the claim with other employees or make disparaging comments about the former employee. Ensure all communications are respectful and factual.

Be cautious about social media and public statements.

Anything you say or post could potentially be used as evidence in proceedings. Keep detailed records of all interactions and communications related to the claim.

Guide to NZ Employment Disputes

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Key Takeaways

Facing an unjustified dismissal claim requires prompt action, careful consideration, and often professional legal guidance. By responding appropriately, engaging constructively in mediation, and learning from the experience, you can manage the claim effectively while minimising potential damage to your business. Remember that proper procedures and documentation from the outset of employment relationships remain the most effective way to prevent unjustified dismissal claims and protect your organisation from costly disputes.

LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee.

Frequently Asked Questions

How long does an employee have to raise an unjustified dismissal claim?

An employee usually has 90 days from the date their dismissal takes effect to raise a personal grievance. In some cases, this time can be extended if there is a good reason for the delay.

Do I have to go to mediation if an employee requests it?

Mediation is technically voluntary, but it is usually in your best interests to take part. It is free, confidential, and often helps resolve disputes faster and at lower cost than going to the Employment Relations Authority. Many cases settle at mediation.

Is mediation mandatory?

No, but participating is strongly recommended as it resolves many disputes cost-effectively.

Can I dismiss an employee on a 90-day trial without a claim?

Yes, provided the trial period is valid and correctly documented in the employment agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.