New Zealand: The Objective Test For Disciplinary Action Gets Another Outing

Last Updated: 20 August 2009
Article by John Hannan

One Chief Judge, three New Zealand Employment Court judges, one QC and five lawyers recently turned their collective minds to the question of whether there are any subjective decisions left for an employer to make in justifying a disciplinary action under section 103A of the Employment Relations Act 2000 (the Act).

The focus of the section 103A test

Readers may recall that the focus of the test in section 103A of the Act was a move away from the old broader test of 'what the employer could have done (within a range of reasonable responses)' to 'what a reasonable employer would have done in all the circumstances at the time of the dismissal.'

In short the subjective elements of a justified disciplinary action were removed and replaced with purely objective ones. Basically, section 103A requires that the substantive justification for any disciplinary action be determined from a neutral point of view rather than the particular employer's point of view.

The relevant facts

The backdrop for the Full Employment Court's review of section 103A was the Air New Zealand Ltd v V case1. The employee at the centre of case, V, was employed in Air New Zealand's cargo handling operation in what was agreed to be a 'safety sensitive role'.

Air New Zealand (Air NZ) operated an alcohol and drug policy (which itself had passed muster after a Full Employment Court review in 2004). The alcohol and drug policy, which formed part of Air NZ's health and safety obligations, provided for random testing in safety sensitive areas. V was subjected to a random test which produced a positive result for cannabis 20 times the threshold level for the test. V was stood down from work on full pay while an investigation took place.

The employer's investigation

Air NZ, with HR resources that would be the envy of all employers, engaged various medical experts and counsellors to help in its investigation and decision making processes. V had a strong and positive employment record and long service. But V had a very relaxed attitude to cannabis use.

During the investigation V admitted to using cannabis every night for the last two years and on and off during all of his adult life. A report was produced by Air NZ's drug and alcohol expert recommending that V abstain from all mood altering chemicals, particularly alcohol and cannabis. V was given an opportunity to comment on the report and he stated that although he would remain cannabis free he saw no reason to be alcohol free.

The Air NZ drug and alcohol policy included a rehabilitation program and encouraged employees to 'self refer' if they had alcohol or other drug abuse issues. V did not self refer. In addition Air NZ did not believe that V would give up alcohol and positively participate in the rehabilitation program, and as a result did not offer V the rehabilitation option. After a process which took approximately two months, Air NZ terminated V's employment on the grounds of serious misconduct.

In the Employment relations authority

V challenged the dismissal in the Employment Relations Authority (ERA) and won.

The ERA agreed that V's actions amounted to serious misconduct that might have justified dismissal. But the ERA believed Air NZ should have offered V the rehabilitation program provided in its alcohol and drug policy, so it said that Air NZ's decision to dismiss was unjustified.

In the Employment Court

The Full Employment Court did not agree with the ERA's reasoning and was of the view that Air NZ did not need to put to V its conclusion about whether it was appropriate to offer the rehabilitation program to him.

V had the opportunity to comment on Air NZ's report which recommended that he abstain from all mood altering chemicals. V had rejected the suggestion that he needed to give up alcohol. The Employment Court said there was no need for Air NZ to seek further comment on the issue before reaching its conclusion.

The Employment Court decided that Air NZ had acted as a fair and reasonable employer in considering:

  • The range of options open to it.
  • Whether disciplinary action was appropriate.
  • Whether rehabilitation was appropriate.
  • Whether there should be a combination of both.

The Employment Court said that Air NZ had acted in accordance with its policy and disciplinary procedures and concluded that the decision to dismiss summarily and not to continue the employment with a rehabilitation agreement was a decision that a fair and reasonable employer would have taken in all the circumstances.

Employer's section 103A argument

In the Employment Court, Air NZ agreed that factors about the seriousness of an employee's conduct will be subject to an objective examination under the section 103A test. Air NZ also agreed that the ERA or Employment Court could determine if:

  • There was serious misconduct; and
  • The particular employer's decision was one a fair and reasonable employer would have made in all the circumstances at the time of the dismissal.

But Air NZ argued that once serious misconduct has been found, the ERA or Employment Court should not substitute its judgment for that of the employer about what outcome (for example, dismissal) should be imposed on the particular employee.

The Court 's view on the section 103A test

After a full review of relevant case law and the principles of statutory interpretation, the Employment Court concluded that the plain meaning of the words in section 103A encompasses not just the employer's inquiry and decision about whether misconduct has occurred and its seriousness, but also an inquiry into the employer's ultimate decision about dismissal in the light of that finding.

The Employment Court considered the objectives of the Act and its goal to address the imbalance of power in an employment relationship. The Employment Court said that the plain meaning of the text of section 103A is that all aspects of an employer's conduct (up to and including the decision to dismiss) which adversely affect an employee are subject to objective scrutiny and review. This, the Employment Court said, was consistent with the Act's good faith obligations and its promotion of open communication.

The end result was that the Full Employment Court found that the proper interpretation of section 103A is consistent with its previous decisions over the last four years.


For employers, the important point to take out of this case is that the 'what and how' of justification for disciplinary action will be subject to objective scrutiny by the ERA and Employment Court when they determine whether an employer's ultimate decision is justified.

But employers are not required to engage in an interminable process. Any material an employer intends to rely on in its decision making process must be provided to the employee along with a fair opportunity to comment on it. The employer may then take into account that material and the employee's comments and act on any adverse views it forms without revisiting the issues again with the employee.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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