Resigning to Take Unapproved Leave: A Costly Employer Mistake

A recent Employment Relations Authority decision provides a reminder that employers cannot use resignation as a solution to leave management issues. The employee, Sophie Kennett, had effectively been required to resign in order to take extended leave, with assurances she would be re-employed when she returned. When her employment later ended during a business sale process, the Authority found she had been unjustifiably dismissed

Ms Kennett was a Sandwich Artist with the Subway franchise in Bishopdale, which was owned by Polygone GY Developments Ltd (Polygone). Polygone owned two other Subway stores. Ms Kennett’s employment started in March 2023. She was an excellent employee and the Director, Stan Greene was looking to promote her to Assistant Manager. In November 2023, Mr Greene and Ms Kennett met for a performance review when they also discussed Ms Kennett’s leave request from 20 December 2023 to 22 January 2024.

The leave was turned down on the grounds of ‘operational requirements’ for the length of time requested. Ms Kenneth said she had already booked her flights. Mr Greene’s view was that resignation was suggested as one of the options. Ms Kennett’s said she was required to resign and was promised the Assistant Manager’s position when she returned from the leave.

Ms Kennett resigned, her holiday pay was paid out, and when she returned from her trip she was ‘re-employed’ with a new Employment Agreement.

A similar scenario happened the following year when Ms Kennett asked for leave from 21 December 2024 to 14 January 2025. She applied for the leave in September to avoid the issue of the previous year. On 12 November Ms Kennett followed up with Mr Greene asking if the leave was approved and he told her he would consider leave requests form all employees closer to the time. On 12 December Ms Kenneth asked about the leave again. Ms Kennett says she was told the leave was declined and was asked why she hadn’t resigned yet. Mr Greene denies this, claiming he said the leave was declined because it was the busiest time of year and told Ms Kennett she would have to resign if her preference was to take the leave. Ms Kennett resigned.

On 19 December 2024, Mr Greene signed a conditional Sale and Purchase Agreement for the Bishopdale store. The following day he gave a letter to Ms Kennett saying he was in the process of selling the business, and because of this he was putting forward a proposed restructure of the business that could affect Ms Kennett’s employment. Mr Kennett had been aware the business was on the market prior to this.

On 10 January, Mr Greene advised Ms Kennett that Polygon was not able to offer her employment by reason of redundancy and the new purchaser of the business did not wish to employ her.

Ms Kennett raised a personal grievance, primarily challenging she had been either unjustifiably constructively dismissed or unjustifiably dismissed (vis redundancy), and that she was owed statutory leave entitlements.

The Authority identified a number of significant errors:

1. The employee was encouraged to resign to take leave rather than explore alternative options such as leave without pay or leave in advance.
2. The employer treated the employee’s departure and return as two separate periods of employment, when the Authority found her employment was continuous for Holidays Act purposes (S85 of the ERA 2000)
3. The employer terminated employment for redundancy before the sale of the business was certain to proceed.
4. Available redeployment opportunities within the employer’s other businesses were not adequately considered or discussed with the employee.
5. Consultation occurred after key decisions had been made, relevant information was withheld, and contractual notice obligations were not met.

One of the most important aspects of this case was the Authority’s application of section 85 of the Holidays Act. Because the employee had effectively been dismissed and re-employed within a month, her service is required to be treated as continuous. This meant her leave and sick leave entitlements should not have been reset when she returned to work.

The case also highlights the significant risks that arise when resignations, annual leave requests, restructures and business sales overlap. The Authority looked beyond the wording of the resignation and focused on the reality of the arrangement.

The employer was ordered to pay:

• $19,000 compensation for humiliation, loss of dignity and injury to feelings.
• $5,848.20 in lost wages
• $3,898.80 in notice pay
• $2,657.85 in Holidays Act entitlements
• Unpaid wages, penalties, interest and KiwiSaver contributions

In total, the remedies exceeded $34,000

This case reinforces several important principles:

• Do not use resignation as a workaround for leave requests
• Carefully consider whether employment continuity obligations may apply when employees leave and return within a short period
• Ensure a genuine redundancy situation exists before terminating employment, including exploring all reasonable redeployment options (including redeployment to junior roles, roles with different hours and roles in other branches)
• Consult before decisions are made and provide employees with all relevant information, not just the information the employer thinks is relevant
• Follow contractual notice requirements, unless explicit agreement is reached

If you are dealing with a difficult employment matter, we know AI may be your first ‘go to’ and it can be a useful starting point. AI can provide information, but it can’t replace experience, strategic thinking, or an understanding of the people and risks involved. The team at Chapman ER can help you interpret the issues, identify blind spots, manage risk, and develop a practical strategy that stands up to scrutiny if challenged.