WHEN A CONFLICT OF INTEREST LEADS TO TERMINATION OF EMPLOYMENT
By James WaNjeri-Advocate
A conflict of interest occurs when an individual’s personal interests – family, friendships, financial, or social factors – could compromise his or her judgment, decisions, or actions in the workplace. In such a scenario, the employee is likely to be swayed by such extraneous factors into making a decision that may not be in the best interest of the business. Most employees will find that their employment contracts have a clause on conflict of interest.
So how does an employer deal with a case where an employee fails to disclose their conflict of interest? This was the subject of a claim in ELRC Cause 262 of 2018. The claimant filed a petition before the Employment Court in Nakuru, claiming that his termination was unfair and unlawful. According to court filings, he had been employed by the KCB Bank as an assistant business manager. He was then terminated vide a letter dated 9th May 2018. The Bank commenced his termination by issuing a show cause letter followed by a disciplinary hearing.
He was charged with two offences namely that while appraising a loan for a company, he failed to disclose that the company was owned by his boss who was the branch manager and the Manager’s spouse. Additionally, he failed to disclose that the Branch Manager had been listed with the CRB. The company was issued with the facility. This action violated the bank’s code of conduct on disclosure. Secondly, he was accused of having processed an application for a facility for his brother and concealed his brother’s default against bank policy. His actions were said to have occasioned a loss to the bank to the tune of Kshs. 3.5 million since his brother did not service the loan.
In his defense, the employee claimed that while he knew the Branch manager was a director in the said company, he was unaware that the other director was the Manager’s spouse. He stated that the customer qualified for the facility and that, in any case, he did not have the capacity to approve the facility, which was within the authority of the Branch Manager.
Regarding approving facilities for his brother, he stated there was no conflict of interest as the client qualified for the facility.
The claimant admitted that mistakes had been made in the non-disclosure of the two relationships and pleaded for forgiveness.
While terminating him, the Bank stated that proceeding to forward the application for a facility to the Branch Manager by a company owned by the Branch Manager amounted to a conflict of interest and a failure to disclose wrongdoing on his part. He had violated the bank’s code of conduct on disclosure of wrongdoing. Further, by concealing material facts touching on his relationship with the Bank’s client (his brother), he violated the conflict-of-interest guidelines. In addition to this, by rolling over an STA facility extended to his brother, he concealed the default of repayment of the facility and violated the Bank’s Credit Policy and credit manual.
While upholding the termination of the employee, the Court noted that
“the banking industry is unique in that the employees are placed in a fiduciary position whereby they deal with confidential information on the finances and financial positions of customers and even that of the bank, the employer. It is an industry based on utmost good faith, trust, and honesty on the part of the employees who are expected to be honest and trustworthy in their dealings with customers and the bank. Lack of honesty, trust, and integrity are some of the most serious acts of misconduct that an employee may commit and face serious disciplinary sanction due to the sensitive nature of the industry.”
The Court first began by noting that it was true that the Claimant was not the final authority in determining the fit of the application. The final decision rested with the Branch manager and the credit department at the headquarters. However, the failure to disclose and note each and every material aspect of the application and the applicant demonstrated a lack of professionalism, amounting to misconduct.
The court further found that his failure to disclose that the Branch manager had been blacklisted with the CRB, a fact that he ought to have established when carrying out a background check, was an act of negligence.
The court held that even though he was not the ultimate decision maker, as an assistant business manager, he was not a conveyor belt. His role was not simply forwarding documents without noting any anomalies and reporting every notable aspect to the next person in line for processing and approval of the facilities. His failure to note and report amounted to a serious neglect of duty, misconduct or unprofessional conduct.
Employees must be aware that their actions must always align with the policies, practices and culture of their organization. Regular training on organizational policies will be helpful in this regard.
Disclosure should be a formal and documented process that clearly shows employees how to identify a conflict of interest. Your policy needs to help your team differentiate between perception and actual conflict. The policy will also show the process to be followed by employees when it comes to reporting cases of conflict. If employees operate based on their gut, they are bound to involve themselves in activities that may amount to misconduct in the workplace. The outlined process also needs to create a framework for feedback, which should be completed on time as it can be a bottleneck for decision-making. The purpose of disclosure is to help the team to be transparent and accountable for their actions and decisions. Disclosure of a potential conflict of interest does not make it an actual conflict but may help eliminate the perception and protect employees from victimization.
Does your organization have a specific and thorough policy on identifying and addressing potential conflicts of interest? If not, you must immediately create the policy with straightforward well-laid-down processes. Alternatively, you may have the policy, but it may need revision to ensure that it is updated in line with recent court decisions. At James Njeri and Co. Advocates, our expertly prepared policies have helped organizations and businesses ensure that they address this and other risk areas. To consult us and obtain an expert opinion on this topic, please engage us by email at legal@jnadvocates.com.
The contents of this newsletter do not constitute legal advice and are provided for general information purposes only.