CONFLICT OF INTEREST/OUTWORK – FAILURE TO DISCLOSE – CONSEQUENCES

“I would draw a really big distinction between competition, or potential competition, and a conflict of interest. A conflict of interest implies wrongdoing, whereas competition is really healthy.” – Bill Maris

Introduction

Generally speaking, employees hold a duty to act with loyalty and honesty towards their employer. This includes a duty to act in the employer’s best interests, avoiding possible conflicts of interests. The duty on an employee to disclose possible conflicts of interests, and act in good faith towards the employer goes to the heart of the trust and working relationship.

This concept was previously explored in a MISA article “Can your side hustle get you fired?” In this article we look at a Labour Court decision, which confirmed the consequences of acting to the prejudice of your employer for own benefit. This, according to the Labour Court, destroyed the relationship of trust between the employee and the employer.

Disclosure of a Conflict of interest

In the matter of City of Cape Town v SALGBC and Others (C353/16) [2017] ZALCCT 35 in a judgement handed down on 2 August 2017; the Labour Court was tasked with deciding on the fairness of the dismissal of a long-service employee, Mr. Herwels, (a technician with 29 years of service), found himself guilty of gross dishonesty, due to a personal interest / conflict of interest; in that he failed to declare a personal interest in the businesses belonging to his wife and his brother, both vendors to the City.

The municipality, where Mr. Herwels was employed, held a policy entitled, “Private Work and Declaration of Interests” requiring employees to disclose or declare possible conflicts that extended to their families and business associates as well. These conflicts had to be reported the moment it occurred or when an employee becomes aware thereof. The policy further defines conflict of interest to mean “a conflict shall arise whether an employee stands to benefit directly or indirectly and shall include any benefit to the employee, the employee’s spouse, immediate family and extended family and to close friends and business associates.”

In this instance; and given that the employee and his wife were married in community of property, the municipality found that he directly benefited from the vendor status his wife’s business held with the municipality.

• The CCMA:

The dismissal was referred to the relevant bargaining council and the arbitrator erroneously concluded that the dismissal was unfair, awarding re-instatement with one year’s back pay. The Arbitrator confirmed that Mr. Herwels was guilty of dishonesty, stating that “dishonesty implies deception which entails wilful misrepresentation of the truth, with the intention to cheat and induce a belief that the misrepresented fact is indeed the truth;” ruling, further that, “I find that whilst there was a rule (Herwels knew about the disclosure requirement), he did not knowingly or with intention break the rule. He made a half-hearted attempt to comply with the rule… There was no gross dishonesty. There was no material evidence of what the effect of the non-compliance with the rule was. Dismissal was not the appropriate sanction.”

• The Labour Court – Dishonesty and Dismissal

However, upon review to the Labour Court the court was entrusted to explore the question: “If guilty of dishonesty – does it warrant dismissal?”

In addressing the above question, the court carefully measured the following three elements:

• Was there a rule?
• If so, did the employee knowingly breach it? and
• If he breached it, was this breach serious enough to warrant dismissal?

In addressing the first two questions, the court found that once it is established that there is a rule, an inquiry into dolus (intent) must be established. Intention of wrongdoing is an essential element of gross dishonesty.

This was confirmed in Stoop v Rand Water [2013] ZALCJHB 258 (13 September 2013), the Labour Court through Basson J summarised the issue of dolus relating to dishonesty as follows: “Dolus directus, dolus indirectus or dolus eventualis is sufficient to constitute the intent required for fraudulent misrepresentation. Where the representor knows or foresees and reconciles him to the possibility that the representation is false and intends the representee to act upon it, the second requirement will have been satisfied. In determining whether Stoop and Buckle had the intention to defraud, it is necessary to investigate their state of mind at the time.

In this regard Greenberg, JA held as follows in R v Myers: ‘In English Law the house of lords decision in Derry v Peek (14 ac 337) is the locus classicus on the question of the state of mind of a person who makes a false representation which justifies a finding that he has been fraudulent in making such representation. I think it can be summed up, for the purposes of the present case, by saying that if the maker of the representation which is false has no honest belief in the truth of his statement when he makes it, then he is fraudulent… Fraud is proved when it is shown that a false representation has been made (1) knowingly or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false’”

The Labour Court found that the Arbitrator embarked on the wrong enquiry when she focused on whether the employee did or did not influence the award of work to his wife’s company.

“The question was whether or not he had to make a disclosure; and whether he had in fact done so.” He was aware of the rule and he breached it. Whether or not he influenced the City assigning work to his wife’s company is irrelevant. [Own emphasis]

In considering the third question, above, in regards to sanction; the Labour court set the arbitration award aside and held that “he committed a serious misconduct amounting to gross dishonesty,” stating further that “his long service does not diminish the gravity of the misconduct,” and ordering that the sanction of dismissal of Mr. Herwels was fair in the circumstances.

Conclusion

Therefore, be transparent with your employer. Rather be forthcoming and disclose any potential conflicts of or personal interests that you are invested in. Protect yourself and the trust between you and your employer!

Remember, should you find yourself guilty of conduct that falls within the definition of conflict of interest, your actions may very well justify dismissal.

In the wise words of Benjamin Franklin, “Honesty is the best policy.” Otherwise, when in doubt, MISA – Just a phone call or an e-mail away!

(Article by Nichole Turner, edited by Tiekie Mocke)

MISA – Just a phone call or an e-mail away!

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