How should HR deal with 'conflict of interest'?

Case examines when an employee deals with a competitor

How should HR deal with 'conflict of interest'?

The Fair Work Commission (FWC) had recently decided on an unfair dismissal claim after an employer said its employee committed “serious misconduct” when she allegedly failed to declare a “conflict of interest.”

The employee was a trainer and assessor of the employer, a registered training organisation. The former’s husband previously worked for the latter. When the employee was on leave, she was made the CEO of her husband’s newly created training business, a direct competitor to the employer.

Is dealing with a direct competitor considered “serious misconduct”?

The employer dismissed the employee for serious misconduct because she did not declare a conflict of interest. It cited a clause in her employment contract and its code of conduct.

The employee admitted to signing the employer’s code of conduct but contested the validity of their contract, saying “it was never agreed to and was not valid.”

She also resigned as CEO of her husband’s business but maintained that there was “no competitive work” during her tenure with her employer.

She further argued that her performance was “never questioned” and was “often praised with positive feedback” from clients and management. She also claimed that the responsibilities and tasks she performed for the employer and her husband’s business were “totally different.” She also said that her conduct did not cause “any serious and imminent risk to a person’s health and safety or the reputation, viability or profitability” of the employer’s business.

The FWC’s decision

The FWC found the employee was involved in developing a competitor business while employed with the employer. A forensic analysis of her laptop showed documents created for the other business’ benefit while under the employer.

It said that the employer “faced a risk” given the employee had access to its business documents and intellectual property. The FWC no longer determined which employment contract was binding between the parties but still found a significant breach of the employer’s code of conduct.

Should all employment contracts contain a clause for disclosing “conflict of interest”?

Yes, a clause that requires disclosure if there’s a conflict of interest would protect the employer. It would also benefit both parties to have a list of clear duties and obligations. But the FWC ruled that in the absence of such a clause, “common law duties of loyalty and fidelity [are] fundamental to an employment relationship [and] implied into any employment contract.”

As to the employee’s defence that she had not performed work for the competitor due to her resignation, the FWC said it was “immaterial.”

“She was the CEO of a competitor and this is fundamentally at odds with the employment relationship and her common law duties,” the FWC said. Thus, it ruled that the employer had a valid reason to dismiss her. The decision was handed down on 23 March.

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