There is a type of legal error that is especially frustrating for employers, because it is avoidable, because it has nothing to do with whether the underlying decision was right, and because by the time it surfaces the employer has already paid for it twice — once in management time and once in remedies. It is the error of deciding something fair and then communicating it unfairly.

ZZP v Commissioner of Inland Revenue [2026] NZERA 367, determined on 10 June 2026, is a textbook example.

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The Facts

ZZP was a team leader in an IRD call centre, responsible for twelve direct reports in what the Authority described as "a challenging area of IRD's business" — dealing regularly with customers in emotionally charged situations or financial difficulty. By any measure, a demanding role.

In March 2024, ZZP began a slow deterioration. A GP certificate first requested flexible hours. Then full unfitness. Then a referral for psychiatric assessment. Over the following months, ten medical certificates were issued — a sequence that tracked a major depressive episode, a burnout diagnosis, a late discovery of fibromyalgia, a failed return to work in October 2024, a medication change, and finally, a psychotherapist's assessment that real progress was being made and a graduated return from January 2025 was achievable.

IRD, to its credit, had managed this carefully. It followed the recommendations of the treating psychiatrist. It put a return-to-work plan in place. When October's return failed, it sought further medical information rather than acting immediately. It held a meeting on 4 December to give ZZP the opportunity to respond to the proposal of medical retirement, and ZZP attended with their father and a union representative and made a carefully prepared oral statement.

Then, on 16 December 2024, IRD's group lead wrote the final dismissal letter — and that is where things went wrong.

What the Letter Contained That the Process Did Not

The group lead's letter introduced four concerns that had never previously been put to ZZP for comment:

  1. That he found it suspicious that the psychiatrist had become unavailable just eight days after writing her most recent medical certificate.
  2. That ZZP had given other group leads a different account of the causes of their absence — mentioning an unhappy home and family life — which he regarded as inconsistent with the burnout/fibromyalgia narrative.
  3. That there was a discrepancy in the medical advice: the psychotherapist said ZZP could return to work on 6 January; the psychiatrist had said 13 January.
  4. That the group lead perceived that at the 4 December meeting, ZZP, their father, and the union representative were simply telling him what he wanted to hear.

None of these concerns had been raised with ZZP before the letter. Each of them, however, had clearly influenced the decision. And the comment about ZZP's "unhappy family life" — a speculation drawn from secondhand accounts — was, in the Authority's words, "ill considered and lacks empathy particularly as ZZP had not been given the opportunity to comment on this concern and was mentally and emotionally vulnerable at the time."

ZZP's dismissal was found unjustified. Not because the substantive decision was necessarily wrong. Not because the process up to the letter had been flawed. But because the decision maker went into the final stage carrying concerns he had never disclosed and then used those concerns to pull the trigger.

The Legal Framework

The Authority applied the framework established by Judge Inglis (as she then was) in Lal v The Warehouse Ltd [2017] NZEmpC 66. The Lal framework requires an employer managing a medical incapacity situation to:

The third requirement is where IRD failed. Section 103A(3)(b) and (c) of the Employment Relations Act 2000 requires the employer to have raised its concerns with the employee before dismissing, and to have given the employee a reasonable opportunity to respond. The group lead's undisclosed concerns were not minor — they went to the core of whether the employer could have any confidence in ZZP's prognosis. Those concerns needed to be raised with ZZP, and answered, before the decision to terminate was made — not folded into the letter that delivered it.

What Would Have Changed?

This is worth pausing on, because one response to this kind of decision is to treat it as a technicality — the employment equivalent of a search warrant quibble. It is not.

Consider the concern about the psychiatrist's sudden unavailability. The group lead regarded this as suspicious. But as it turned out, a letter was found in June 2025 — months after the dismissal — in which the psychiatrist had written on 25 November that she was leaving private practice at the end of that month. Had ZZP been told of the group lead's suspicion at the 4 December meeting, or given any opportunity to address it, that letter might well have been found and produced in time. It would have been a complete answer to one of the concerns that influenced the dismissal.

The Authority was clear: this "comes far too late to make a material difference for ZZP." But the point is that it was the procedural failure that prevented the employer from getting the full picture. The lack of disclosure did not just harm ZZP. It left the employer deciding on an incomplete evidentiary record of its own making.

The Comment About Family Life

There is a broader point worth making about the "unhappy family life" comment. It was drawn from what other group leads had apparently told the decision maker — a secondhand account of ZZP's own explanation of their stress to colleagues. It was then used in the final dismissal letter as a basis for scepticism about whether the illness was genuinely work-related.

The comment was "offensive, deeply hurtful and grossly insulting" — made about someone who was "mentally and emotionally vulnerable at the time."

Employers navigating medical incapacity situations deal with people who are, by definition, unwell. The risk of speculation — particularly about causation and credibility — is real and significant. Any concern an employer has about the narrative it has been given belongs in a conversation with the employee, not in a letter that arrives after the decision has already been made.

Remedies

The Authority declined reinstatement. ZZP would have been returning to a demanding call centre leadership role, no current medical evidence was before the Authority, and the Authority was not satisfied that reinstatement was practicable and reasonable given the circumstances and the lack of independent medical evidence presented by ZZP at the investigation meeting.

Compensation was assessed at $25,000, placing it in band 2 (mid-range) of the revised GF v Comptroller of the New Zealand Customs Service [2023] NZEmpC 101 scale. That figure was then reduced by 25% for contribution — ZZP had, contrary to their psychiatrist's earlier advice, chosen to return to work in October 2024 before they were ready, which triggered the relapse that led to the eventual dismissal. Contribution here was not punitive but calibrated: ZZP's own decision contributed to the sequence of events, and the Act requires the Authority to reflect that.

Net award: $18,750 plus costs reserved.

The Practical Lessons

For any employer managing a long-term medical absence toward a possible medical retirement, this case offers a clear checklist.

Maintain a running concerns register. If concerns develop during the process — about the reliability of medical evidence, about inconsistencies in the employee's account, about what you can and cannot accept in terms of a timeline — record them as they arise, and put them to the employee before you make your decision. Not in the final letter. Before.

The final meeting is a genuine step, not a formality. The 4 December meeting in this case was properly constructed and well-intentioned. But the group lead then went away, formed additional concerns, and communicated them only in the dismissal letter. Had those concerns been raised at or after the 4 December meeting — with a further opportunity for ZZP to respond before the final decision — this outcome would likely have been different.

Be careful with secondhand information about an employee's state of mind or private circumstances — and treat this differently from colleagues reporting actual workplace conduct. A colleague's account of something they witnessed at work is ordinary evidence. What happened here wasn't that. Neither the group lead nor the colleagues he relied on were medically trained, yet their secondhand impressions were used to question whether a diagnosis backed by a treating psychiatrist, a psychotherapist, and a GP was genuinely what it appeared to be. If you have doubts about the medical picture, the answer is to go back through medical channels — not to weigh untrained workplace impressions against a qualified clinical record. The Authority's finding was that this needed to be disclosed and tested before the decision was made. The deeper risk is using it at all, in place of evidence you're actually qualified to challenge.

You cannot introduce new issues or concerns in the very letter that terminates the employment. As this case shows, doing so can undo months of careful, patient process in a single letter.

Medical evidence is forward-looking, not conclusive. The Authority accepted that IRD was right to approach the November and December certificates with caution — they recommended a return date, not a declaration of current fitness. Given the October relapse, that caution was reasonable. What was not reasonable was failing to share the reservations that caution generated.

Document your consideration of alternatives. IRD was assisted here by the evidence that alternatives — demotion, final written warning, performance improvement process — had been genuinely considered and rejected with reasons.

Two Cases Worth Noting

Two further ERA determinations from the same week deserve a place in any employment law briefing.

Nicholas and Ors v Jetconnect Limited [2026] NZERA 364 clarified when a training bond crosses the line into an unlawful employment premium under s 12A of the Wages Protection Act 1983. Jetconnect required pilots who already held the B737 type rating to sign bond agreements as a condition of employment, covering the cost of operator-specific CASA training that was non-transferable to any other airline. The Authority found the bonds were unlawful premiums — the training conferred no portable benefit on the pilots beyond the right to hold the job; the benefit ran one way, to Jetconnect. The Full Court's framework from Tech 5 was applied with precision. Any employer considering bonding staff for system-specific or compliance training that provides no independent qualification or portable skill should read this case carefully before proceeding.

Gonsalves v Watercare Services Limited [2026] NZERA 365 offers a useful counterweight — a justified dismissal in a safety-sensitive role. A water supervisor directed relief crew back into an excavation site after a power cable strike without confirming the power had been isolated. The ERA found the investigation adequate, the process proper, and the conduct serious enough to meet the misconduct threshold even as a one-off decision, because of the nature of the supervisor role and the risk created. Employers in health and safety-sensitive industries will find the reasoning useful: it confirms that a single serious lapse in judgment, by someone in a position of responsibility, can justify dismissal where the potential consequences were significant.

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Lex Praxis provides employment law intelligence and advisory services to employers and law firms. This article is for informational purposes and does not constitute legal advice. For advice specific to your circumstances, contact us directly.

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