Derivative misconduct – What employers need to know

labour-guideBy Neil Coetzer, Senior Associate, Employment Law, Benefits & Industrial Relations, Cowan-Harper Attorneys

Derivative misconduct refers to a situation where an employee who has knowledge of wrongdoing towards his or her employer subsequently fails to disclose such knowledge to their employer. In failing to make such a disclosure, the employee breaches the duty of faith owed to his or her employer and may be disciplined for such misconduct.

The Labour Appeal Court (“LAC”) was recently called upon to reconsider the principles applicable to derivative misconduct in the case of Western Platinum Refinery Ltd v Hlebela & Others (Case no. JA32/2014, 3 June 2015). In this case the employee, Hlebela, had been charged with failing to make a full and frank disclosure to the employer regarding losses of precious metals while allegedly having knowledge of those losses.

The employer had not considered Hlebela to be a person of interest in its investigation into the losses of precious metals until the South African Police Services (“the SAPS”) advised the employer that he was considered to be a person of interest due to his ‘wealth’ which seemed disproportionate to his monthly salary of R14 000.00 per month. The SAPS however had no information about Hlebela being involved any ‘nefarious acts’.

As a consequence, the employer focused its investigation on Hlebela and attempted to track down the assets owned by him, which included two houses and four motor vehicles. The assumption made by the employer was that the assets had been acquired through the proceeds of the theft of the precious metals. It was also discovered that Hlebela was the owner of a construction business, namely Ceba Construction CC. The investigation also involved an examination of the clocking system used to monitor the movements of employees around the employer’s premises.

Although the reports of the clocking system showed that Hlebela had been in areas which, according to the employer, he was not permitted to be, the employer could not explain why it was that his access card permitted him access to those ostensibly forbidden areas. Nevertheless, Hlebela was charged and after being found guilty, was dismissed. Hlebela referred a dispute to the CCMA, where the arbitrator ruled that his dismissal was fair. Dissatisfied with this finding, Hlebela reviewed the matter in the Labour Court where the arbitrator’s finding was reviewed and set aside and Hlebela was awarded 12 months’ compensation. The employer then appealed the matter to the LAC, while Hlebela cross-appealed the award of 12 months’ compensation as he believed that he should have been reinstated by the Labour Court.

In determining the issue, the LAC traced the origins of the concept of derivative misconduct and elaborated further on the basic principles by finding, inter alia, that in order for an employee to be dismissed for derivative misconduct there must be actual knowledge of the wrongdoing complained of. The non-disclosure of such knowledge also had to be deliberate.

In the present case, the LAC found that the information which Hlebela had been required to disclose was in fact information pertaining to his personal financial affairs. The employer demanded the disclosure of this information only after he had been charged. Hlebela had however refused to provide this information as he had been advised by his Union that he was under no obligation to do so.

The LAC found that such personal information was not information of any wrongdoing, even if the employer suspected that such information would implicate him in the theft of the precious metals. In any event, it emerged that the assets acquired by Hlebela were done so through his own efforts, as well as those of his wife, his mother and the tenants of a house of which he was the owner. Furthermore, the evidence about Hlebela’s movements around the employer’s premises was of no substance as when he was cross-examined on the issue, he stated that he had been attending to his duties. This was not refuted by the employer. The employer’s opinion that his movements around the plant were in order for him to meet with co-conspirators was therefore pure speculation and could not be proven.

The LAC found that there was simply no evidence against the employee and found the dismissal to be substantively unfair. The LAC then considered Hlebela’s cross-appeal against the award of compensation and found that the Labour Court had incorrectly interpreted a passage of the cross-examination in finding that reinstatement was not the appropriate remedy. Accordingly, the LAC granted the cross-appeal and ordered that Hlebela be reinstated.

The issue of derivative misconduct is complex and employers should exercise caution when instituting disciplinary action against an employee on that basis. Derivative misconduct is prevalent in instances of violence or damage to property during industrial action and theft of stock or equipment. It is important to take legal advice on the issue before embarking on an investigation into such misconduct, particularly as there may be legal aspects which may be relevant to the investigation.

For more information please contact Neil Coetzer at or (011)  783 8711 /(011) 048 3000

Article published with the kind courtesy of Cowan-Harper Attorneys

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