A common misconception that employers often hold is that they can rely on verbal warnings to justify formal disciplinary or performance management outcomes, instead of going through a formal process.

The reality is that it’s not that simple. While there is a place for verbal warnings, employers should be cautious when seeking to rely on them to justify formal employment outcomes.

Issues will often arise in situations where an employer is at their wits end and wants to dismiss a “problem employee”, but they have never undertaken a formal disciplinary or performance management process or issued any formal warnings previously. Instead, the employer may have simply expressed their dissatisfaction to the employee verbally; this can create tricky procedural and evidentiary issues for employers.

The pitfalls of verbal warnings are illustrated by the two recent cases below.

Taifau v Spring 2017 Ltd [2023] NZERA 396

Ms Taifau, who worked in a bakery, had allegedly received over 20 verbal warnings from her employer in relation to her performance. None of the verbal warnings had been documented.

Eventually, the employer decided to dismiss Ms Taifau and, in doing so, sought to rely on a verbal warning that was supposedly given in relation to a customer complaint, as well as the previous 20 or so verbal warnings. The verbal warning was referred to in the dismissal letter.

The customer complaint was not formally documented, nor was whether the complaint had been raised with Ms Taifau before her dismissal. Ms Taifau denied that she received that, or any of the previous 20, verbal warnings.

The Employment Relations Authority (ERA) found that Ms Taifau was unjustifiably dismissed, including because there was no evidence that the employer had actually issued the verbal warnings to her, including the verbal warning that the Employer sought to rely on in its dismissal letter (despite its claims that it had done so). The ERA also held that the warning referred to in the dismissal letter could not be relied on because, if it existed, it must have been unilaterally imposed, without any prior disciplinary process, which also made It unfair and unjustified. It was also held that, Ms Taifau should have been the subject of a fair and proper graduated warning process before being dismissed.  Ms Taifau received a total of $19,137.24 in wage arrears, unpaid notice and compensation for her unjustified dismissal.

Underhill v New Zealand Post Ltd [2014] NZERA 456

In October 2011, Mr Underhill, who worked for New Zealand Post (NZ Post), received a verbal warning regarding his unauthorised absences from work earlier that month. Mr Underhill was subsequently issued with a written warning and then a final written warning for absenteeism and attendance related issues. Both the written warning and final written warning relied, in part, on the earlier verbal warning.

Mr Underhill was subject to disciplinary action for a fourth and final time in April 2012, when he was dismissed. In reaching its decision to dismiss Mr Underhill, NZ Post, in part, sought to rely on the earlier verbal, written and final written warnings.

Overall, Mr Underhill was found to have been unjustifiably dismissed by the ERA. A large part of the ERA’s reasoning in making this finding was due to NZ Post’s reliance on the initial verbal warning, which it said was improperly issued. Specifically, the ERA said that there was no substantive basis for issuing the verbal warning in the first place and that NZ Post failed to follow a proper process in issuing it, including because it did not follow the prescribed process for minor misconduct under the terms of the collective employment agreement. Mr Underhill received three months lost wages and compensation for hurt and humiliation (which was reduced by 50% on account of his contribution).

So, how did this verbal warning from seven months prior to Mr Underhill’s dismissal result in a successful personal grievance? In deciding to dismiss Mr Underhill, NZ Post relied on (even if only in part) a substantively and procedurally flawed verbal warning. This effectively tainted the subsequent written warning, final written warning and, ultimately, NZ Post’s decision to dismiss.

How verbal warnings should be used

While verbal warnings alone generally cannot be relied on to justify formal employment outcomes, this does not mean that employers cannot, or should not, use them to help manage employee behaviour.

Verbal warnings, or informal discussions, are typically used by employers to put employees on notice that they may be underperforming in their role or that they have engaged in some form of unacceptable behaviour. Verbal warnings can, therefore, be a helpful tool to manage problematic behaviour in the workplace, at an early stage.

In the performance management context, verbal warnings will often involve the employer sitting the employee down to let them know that they have some concerns about the employee’s performance and what they need to do to meet the required standard. If these informal conversations do not have the desired effect, it may be time to consider a formal performance management process.

In the disciplinary context, verbal warnings or an informal conversation may be appropriate when dealing with an isolated instance of less serious misconduct. This might include, for example, when an employee is late to work. If, however, the behaviour is more serious or recurring, it may be time for a formal process.

If you have any questions about this article and what it may mean for your organisation and its processes, please contact the specialist employment team at Wynn Williams.