ZZP v Commissioner of Inland Revenue [2026] NZERA 367

This Employment Relations Authority (ERA) determination concerns a medical incapacity dismissal by the Commissioner of Inland Revenue. ZZP had worked for Inland Revenue from March 2013 until 16 December 2024, when their employment was terminated on medical grounds after a lengthy absence and an unsuccessful return-to-work attempt. The ERA accepted that Inland Revenue had given ZZP a reasonable opportunity to recover and had been entitled to treat the later return-to-work medical evidence with caution. However, the dismissal was still unjustified because the decision maker relied on several concerns in the final dismissal letter that had not been put to ZZP for comment before the decision was made. Reinstatement and lost wages were declined. Compensation was assessed at $25,000 and then reduced by 25 percent for contribution, leaving $18,750 payable. The full determination is embedded at the end of this page.

The short point

This was not a case where the ERA said Inland Revenue had rushed immediately to dismissal. The opposite is closer to the point. ZZP had been away from work for a lengthy period, had attempted a graduated return, and that return was not successful. The ERA accepted that Inland Revenue had given ZZP a reasonable opportunity to recover and had carried out a fair and reasonable inquiry into the medical prognosis by relying on the medical information ZZP supplied.

Inland Revenue also did not lose because it questioned whether a future return-to-work date meant ZZP was actually fit to work. The Authority accepted that the later medical certificates were forward-looking and did not prove present fitness, particularly because an earlier return-to-work plan had already failed.

The problem was narrower but decisive. The group lead's final dismissal letter relied on concerns that had not been put to ZZP before the decision was made. That deprived ZZP of a chance to answer matters which materially influenced the decision to terminate the employment relationship on medical grounds.

Background

ZZP was employed by Inland Revenue from March 2013. At the time of dismissal, they held a leadership role with around 12 direct reports in a busy call centre environment. The work involved regular engagement with customers in emotionally charged situations or experiencing financial difficulty.

In March 2024, ZZP provided a medical certificate requesting flexible hours for four weeks because of significant stressors affecting psychological wellbeing. Inland Revenue approved that request. Further medical certificates followed. By April 2024, ZZP was certified fully unfit for work. By May and June 2024, medical certificates from a psychiatrist certified ZZP as unfit to work for longer periods.

The medical material referred to depressive features precipitated by burnout. ZZP also had chronic physical pain which was later diagnosed as fibromyalgia. The determination records that the physical condition was later well controlled, but the mental health issues and work capacity remained central to the dismissal decision.

The attempted return to work

On 27 September 2024, the psychiatrist recommended a gradual return to work. The plan was for ZZP to work three half-days from 7 to 11 October, five half-days from 14 to 25 October, and then five full days from 28 October 2024. Inland Revenue agreed to the plan.

ZZP returned to work in October. Before they returned, a team lead contacted them to discuss the transition, including buddying with another team lead in the interim. On 14 October, ZZP told the group lead they were finding the return difficult, there had been changes while they were away, and they had reservations about returning to the leadership role.

ZZP returned to full-time work on 29 October 2024 but called in sick the next day and did not return after that. A further medical certificate referred to a relapse, a change in treatment, and a need to monitor the response to that new treatment regime.

The medical retirement proposal

On 26 November 2024, the psychiatrist recommended that ZZP remain excused from work until 13 January 2025. The psychiatrist set out positive and poor prognostic factors and recommended a further graduated return-to-work plan from mid-January 2025.

On 29 November 2024, Inland Revenue wrote to ZZP proposing to bring the employment relationship to an end on medical grounds. A meeting occurred on 4 December 2024. ZZP attended with their father and union representative. ZZP explained that their absence had been due to genuine illness, that the recovery timeline had kept extending for reasons outside their control, and that they now considered themselves on a solid path to recovery.

The union representative and ZZP's father emphasised the effect of the late fibromyalgia diagnosis, the change in medication, and the role of psychotherapy in the recovery process. They said ZZP now had tools and treatment support to return to work.

The psychotherapist's letter

After the 4 December meeting, the group lead sought the psychiatrist's view about an earlier return to full-time work. The union representative explained there was difficulty with that request because the psychiatrist had left her practice shortly after writing the earlier letter. Inland Revenue was then provided with letters from a GP and a psychotherapist.

The psychotherapist's letter dated 5 December 2024 was important. It recorded that ZZP had shown significant improvement from November 2024, that the acute depressive episode was in remission, and that ZZP was engaged in intensive psychological therapy. The psychotherapist believed ZZP could sustain a return to full-time work with adequate support and could return on 6 January 2025. The psychotherapist also urged that any decision be postponed so treatment could become effective and meaningful.

Inland Revenue was not required to accept that letter uncritically. The ERA later accepted that the letter was forward-looking and did not necessarily establish present fitness for work. However, if Inland Revenue had doubts or concerns about the letter, those concerns needed to be put to ZZP before the final decision.

The dismissal decision

On 16 December 2024, Inland Revenue advised ZZP that their employment was being terminated on the grounds of medical retirement. The group lead said he had no confidence that any return to work would be meaningful or sustained. ZZP was advised that they would receive a payment equivalent to 65 days' pay plus outstanding annual leave. The determination also records that ZZP had received one month's remuneration in lieu of notice.

ZZP later raised a personal grievance of unjustified dismissal. The central claim was that the decision went against recent medical evidence suggesting that they could return in the near future and that the final decision maker relied on concerns that had not been put to them for comment.

The medical incapacity framework

The ERA applied section 103A of the Employment Relations Act 2000 and the Employment Court framework for medical incapacity dismissals from Lal v The Warehouse Ltd, recently reaffirmed in Sheridan v Pact Group. The key questions were whether the employer gave the employee a reasonable opportunity to recover, carried out a fair and reasonable inquiry into the prognosis for return to work, engaged appropriately with the employee, and fairly considered what the employee had to say before dismissal.

The ERA found Inland Revenue had given ZZP a reasonable opportunity to recover. ZZP had been absent from the workplace for about 29 weeks. Inland Revenue had approved flexible work, accepted medical certificates, agreed to a graduated return-to-work plan, and continued to seek medical information after the October return failed.

The ERA also accepted that Inland Revenue had carried out a fair inquiry into prognosis by relying on the medical evidence supplied by ZZP. It was not criticised for treating the January 2025 return-to-work recommendations with caution, because they were forward-looking and had to be considered against the recent failed return to work.

Why the dismissal was still unjustified

The fatal procedural problem was that the group lead relied on concerns in the final dismissal letter which had not previously been put to ZZP for comment. The ERA identified four concerns of this kind:

• the group lead considered it suspicious that the psychiatrist was no longer contactable eight days after writing the 26 November 2024 medical certificate;
• ZZP had allegedly given other group leads an alternative explanation for their absence, including comments about an unhappy home and family life causing stress;
• there appeared to be differences in medical advice, including the psychotherapist's view that ZZP could return full-time on 6 January when the psychiatrist had recommended 13 January; and
• the group lead perceived that ZZP, their father, and the union representative were simply telling him what he wanted to hear at the 4 December meeting.

These were not minor matters. They went to the decision maker's assessment of whether a return to work was realistic and whether he could rely on what was being said on ZZP's behalf. A fair and reasonable employer would have put those concerns to ZZP before making the final decision.

The Authority also noted that after the dismissal, ZZP's father found an email that may have answered the concern about the psychiatrist's sudden unavailability. The psychiatrist had written a letter dated 25 November stating that she was leaving private practice at the end of that month. That later discovery could not change the historic decision, but it illustrated why giving the employee an opportunity to answer concerns matters.

Reinstatement declined

ZZP sought reinstatement to their previous role. The ERA acknowledged the arguments in favour of reinstatement, including ZZP's long service, the importance of the role to them, their evidence that they had better tools to manage stress and anxiety, and the support of their family.

However, reinstatement was declined. The ERA considered that ZZP would be returning to a challenging call centre environment and a leadership role with direct reports. Their mental resilience would be tested regularly. The difficulty was the absence of updated independent medical evidence from the current psychiatrist or psychotherapist, and neither treatment provider gave evidence to the Authority.

The Authority was concerned that returning ZZP to that work environment could set them up to fail. In the absence of independent medical evidence establishing that reinstatement was practicable and reasonable, reinstatement was refused.

Compensation

ZZP sought compensation in the mid-range of loss, with $40,000 advanced on their behalf. The ERA referred to the Employment Court's updated compensation bands in GF v Comptroller of the New Zealand Customs Service, where band 2 now covers $12,000 to $50,000 and band 3 starts at $50,000.

The ERA accepted that dismissal had harmed ZZP. It also accepted that ZZP's role had been an important part of their identity after long service with Inland Revenue. The impact was made worse by comments in the final decision letter suggesting an unhappy family life, which ZZP denied and considered wrong, offensive and deeply hurtful. The Authority agreed those comments were ill-considered and lacked empathy, especially because ZZP had not been given an opportunity to comment on them and was mentally and emotionally vulnerable at the time.

Compensation for humiliation, loss of dignity and injury to feelings was assessed at $25,000.

Lost wages declined

The ERA declined to order additional lost wages. ZZP had already received one month's remuneration in lieu of notice and a 65-day payment for medical retirement, which was more than the standard three-month lost remuneration starting point.

ZZP also found alternative employment in April 2025 but left that employment after four months because it was not challenging enough. The ERA considered that was a decision ZZP was entitled to make, but it was not a loss that Inland Revenue should be required to pay for. On that basis, no lost wages were awarded.

Contribution reduction

The ERA applied a 25 percent contribution reduction. The reason was that ZZP had returned to work in October 2024 contrary to earlier psychiatrist advice that had excused them from work until 30 November 2024. That return resulted in a further relapse for which Inland Revenue was not at fault.

The $25,000 compensation assessment was therefore reduced by 25 percent to $18,750.

Why this case matters

This determination is useful because it shows both sides of medical incapacity law. The ERA did not require Inland Revenue to keep ZZP's job open indefinitely. It accepted that the absence was lengthy, the role was demanding, and the medical evidence supporting a return was not as clear as ZZP suggested.

But the employer still had to be procedurally exact. When the decision maker formed concerns about the reliability of the medical information, perceived inconsistencies, the psychiatrist's availability, or what had been said at the consultation meeting, those concerns had to be put to ZZP before the final decision. The fact that the dismissal was on medical grounds did not remove the employee's right to know and answer the case against continued employment.

Practical takeaways

• Medical incapacity is not misconduct: the issue is usually prognosis, work capacity, reasonable recovery time, and business needs.
• Follow the medical incapacity framework: give a reasonable opportunity to recover, obtain and consider medical information, and engage with the employee before dismissal.
• Forward-looking medical certificates can be treated cautiously: a proposed future return date is not always proof of current fitness, especially after a failed return-to-work attempt.
• Do not introduce new concerns in the outcome letter: concerns that materially influence the decision need to be put to the employee before dismissal.
• Be careful with personal comments: unsupported comments about family or personal life can aggravate injury to feelings and make an already flawed decision worse.
• Reinstatement needs evidence: where mental health and a demanding role are central, updated independent medical evidence may be critical.
• Lost wages are not automatic: notice payments, medical retirement payments, alternative employment, and mitigation can all affect reimbursement.
• Contribution can still apply: even where the dismissal is unjustified, employee actions contributing to the situation may reduce remedies.

Read the full ERA determination (embedded)

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Source: Employment Relations Authority determination hosted on determinations.era.govt.nz.