Avoid conflicts of interest with your employer

outside business interests
17 Nov 2017

In the recent case of City of Cape Town v SALGBC and Others (C353-16, 2 August 2017) the Labour Court found that an employee’s failure to declare his involvement in other business entities warranted his dismissal by the employer. The case serves as an important reminder to employees that a failure to declare their involvement in outside enterprises may compromise their duty of good faith owed to their employer and result in their dismissal.

The employee had worked for the City of Cape Town for some 29 years and at the time of his dismissal he worked as a technician in the City’s Housing Maintenance Unit in Elsiesrivier. After receiving an anonymous tip-off the City discovered that the employee had failed to declare his involvement with three entities. One of the entities was owned by his wife and was registered as a vendor with the City. Another was owned by his brother and had traded with the City for an amount totalling some R285 000 over a period exceeding two years. The third entity was jointly owned by the employee and his brother, but it appeared that the employee had resigned his membership of the entity.

As the City had clear rules in regard to the duty on employees to disclose their outside business interests and to avoid a conflict of interest at all times, the employee was charged with six counts of gross dishonesty. The first three charges related to his failure to disclose the outside interests mentioned, while the remaining charges dealt with the employee’s involvement in supply chain and other processes which created a conflict between his personal interests in the three entities and those of the City. The employee was dismissed following a disciplinary enquiry and he subsequently referred an unfair dismissal dispute to the CCMA.

At the CCMA, the arbitrator found that the employee had indeed failed to disclose his involvement in the three entities and had made himself guilty of gross dishonesty as charged. She therefore found that he was guilty of the first three charges of gross dishonesty. Notwithstanding this, when considering the appropriate sanction the arbitrator found that the employee had not engaged in ‘gross dishonesty’ and ordered the City to reinstate him and pay him one year’s back pay.

The City reviewed the arbitrator’s award in the Labour Court. It argued that the Commissioner had committed an error of law which rendered the award so unreasonable that no other arbitrator could have come to the same conclusion. The Court held that after the Commissioner had found the employee to be guilty of the first three charges of gross dishonesty, she then made an about turn by stating that he had not been guilty of ‘gross dishonesty’. The Court found that such a finding was ‘irrational’ and constituted a reviewable defect. The evidence before the arbitrator was that the employee had deliberately withheld information regarding his outside business interests from the City, in circumstances where he knew that he was required to disclose it. It was also clear from the employee’s evidence that he had knowledge of the rule, as he had resigned from one of the entities in the hopes of avoiding a conflict. For the arbitrator to have found that the employee was guilty of gross dishonesty, but to find that such gross dishonesty did not warrant dismissal rendered the award unreasonable. The Court accordingly found that the dismissal of the employee was fair and set aside the arbitration award.

Employees increasingly have to resort to outside business interests or even secondary employment to ensure that they are able to make ends meet in the modern economy. This has important implications for employers, even in circumstances where the outside business interests may not at face value appear to be in competition or in conflict with the employer’s interests. It often happens that outside business interests or secondary employment impacts on an employee’s ability to perform their normal duties, either due to fatigue or due to having to deal with issues arising from the outside interest during working hours. Employers should therefore carefully consider how these issues should be dealt with and implement appropriate policies to regulate them. Nevertheless, as in this case, any outside activity which conflicts with the interests of the employer is likely to result in dismissal.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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