Unjustified Dismissal NZ: The Fair and Reasonable Employer Test

Unjustified dismissal is the personal grievance an employee can raise when a dismissal was not something a fair and reasonable employer could have done in the circumstances. New Zealand law looks at both the reason for the dismissal and the process the employer followed to get there.

This is general information about New Zealand employment law, not legal advice. For your own situation, consult a lawyer or your local Community Law centre.

What unjustified dismissal means

An employer does not need a court's permission to dismiss an employee, but the dismissal has to be justified. Under section 103A of the Employment Relations Act 2000, the question the Employment Relations Authority or Employment Court asks is whether the employer's actions, and the way the employer went about them, were what a fair and reasonable employer could have done in all the circumstances at the time of the dismissal. If a dismissal fails that test, the employee can raise a personal grievance for unjustified dismissal.

The fair and reasonable employer test

The test has two sides. First, there generally has to be a genuine reason for the dismissal, connected to conduct, performance, incompatibility, redundancy, or another legitimate business reason, not a pretext. Second, the process the employer followed matters. In applying the test, the Authority or Court must consider, having regard to the resources available to the employer, whether the employer:

• Sufficiently investigated the allegations or concerns before deciding to dismiss.
• Raised those concerns with the employee.
• Gave the employee a reasonable opportunity to respond before any decision was made.
• Genuinely considered the employee's explanation before dismissing them.

The Authority or Court can also take into account any other factors it considers appropriate. In practice this usually means the employer clearly explaining the concern, sharing the information it is relying on, allowing a support person, and, for performance or conduct issues, generally giving warnings and a genuine chance to improve before dismissal.

A 2026 change to how procedural defects are treated

The Employment Relations Amendment Act 2026 changed how the Authority and Court treat process problems. A dismissal will not be found unjustified purely because of a defect in the process, such as a missed step or a document that was not provided. The defect has to have actually resulted in the employee being treated unfairly for it to make the dismissal unjustified. An employer that got the substance right but stumbled on a procedural detail is not automatically at risk the way it may have been before this change, provided the defect did not cause real unfairness.

The $200,000 threshold

A separate change under the same 2026 Act put an income ceiling on this grievance. Since 21 February 2026, an employee whose annual remuneration is at or above $200,000 generally cannot raise a personal grievance for unjustified dismissal, or for unjustified disadvantage that relates to the dismissal. An employee who was already in the job keeps the right for a transition period: if, at the time of the dismissal, they are in the same position they held immediately before 21 February 2026, or in a different position because of a restructure, they can still raise an unjustified dismissal grievance for a dismissal that happens before 21 February 2027. The threshold does not touch other personal grievance grounds, such as discrimination, sexual or racial harassment, or duress connected to union membership. An employer and employee can also agree in writing to opt back into full unjustified-dismissal protection despite the employee's income.

This threshold is separate from, and works differently to, the 90-day trial period exclusion. A trial period removes the unjustified-dismissal grievance only for a dismissal within the first 90 days of a new job. The $200,000 threshold removes it based on income, for as long as the employee remains above the threshold, regardless of how long they have worked there.

Raising the grievance

A personal grievance for unjustified dismissal generally has to be raised with the employer within 90 days of the dismissal, or of the employee becoming aware of it, whichever is later (12 months for a grievance based on sexual harassment). Mediation through MBIE is the normal next step if the employer and employee cannot resolve it directly, and if that does not work, either side can take the matter to the Employment Relations Authority, generally within 3 years of first raising it. See personal grievances for the full time limits and process.

Remedies if the grievance succeeds

Where the Authority or Court finds a dismissal unjustified, it can award reinstatement to the employee's former position, or one no less advantageous, where that is practicable and reasonable. It can also order reimbursement of wages lost because of the dismissal, and compensation for hurt and humiliation, loss of dignity, and injury to feelings. None of these outcomes is automatic or guaranteed: they depend on the facts, and compensation is set case by case. Remedies can be reduced, or withheld entirely, if the employee's own conduct contributed to what happened, or if the conduct amounted to serious misconduct.

Related employment topics

A resignation can sometimes be treated as an unjustified dismissal in itself. See constructive dismissal for when that applies. For the wider picture of employment law in New Zealand, see the employment law hub.