Essence

Reason for dismissal related to a conflict of interest regarded as dishonest and fraudulent, but it was not reported to the police.

Judgment

City of Cape Town v SALGBC (C353/16) [2017] ZALCCT 35 (2 August 2017).  Reinstatement award reviewed and set aside.

Related books

Labour Relations Law at 199, 442, 446, 450, 549, 702

Significance

 

Senior managers need to consider the legal consequences of failing to report gross misconduct involving corruption, in the broad sense, to the police to avoid been found guilty of the crime of failing to report such incidents.

Summary

The reason for the dismissal of a technician employed by  the City of Cape Town was alleged gross dishonesty.  He failed to declare a personal interest in the businesses belonging to his wife and his brother, both vendors to the City.  He referred an unfair dismissal dispute to SALGBC (South African Local Government Bargaining Council).  The arbiter found that the dismissal was unfair and the City applied to the labour court to review and set aside the reinstatement award.

Discussion by GilesFiles
An employee with 29 years of service was dismissed (presumably without notice) for failing to disclose a conflict of interest.  The reason relied on by senior management was gross dishonesty in the sense that he acted fraudulently.  The arbiter reinstated him but this award was set aside on review by the labour court.  In other words the award was regarded as unreasonable.  But if the conduct was regarded as so gross as to warrant summary dismissal did senior management report the matter to the police?  The dismissal suggests a form of unacceptable punishment?  Did it also mean that he forfeited any rights to retirement funding?  If management failed to detect the conduct and failed to report it as corrupt are they not also in the wrong?  Surely it would have been more sensible to base the reason on operational requirements and accept that management was partly to blame for failing to detect the “corruption”.  The issue of failing to report it to the police, as required by law, needs further serious consideration.  Bear in mind that failure to report suspected corruption in certain circumstances can be a crime in itself!
Quotations from judgment

 Review grounds

[14]   The City argues that the arbitrator committed an error of law as well as other reviewable irregularities that made his conclusion – i.e. that the dismissal was unfair and that the employee had to be reinstated – so unreasonable that no reasonable arbitrator could have come to the same conclusion.  In short, the City argues that, once the arbitrator had endorsed the chairperson’s finding on three charges of gross dishonesty, she could not have found that his dismissal was unfair.

Evaluation / Analysis

[15]   The starting point is the arbitrator’s finding that the employee “is guilty of the first three charges”. Those three charges relate to his failure to declare his personal interest in his wife’s and brother’s companies.  And, as the arbitrator pointed out, all of those charges alleged gross dishonesty.  Ergo, the arbitrator accepted the finding of the disciplinary hearing chairperson that the employee was guilty of gross dishonesty.

[16]   Despite that unequivocal finding, the arbitrator then does a volte-face and finds that there was no “gross dishonesty” because, although there was a rule and the employee knew about the disclosure requirement, “he did not knowingly or with intention break the rule” and there was no material evidence of what the effect of the non-compliance with the rule was.

[17]   As Mr Ackermann argued, that finding is a reviewable error of law, in that it conflates the subjective test for dolus relating to dishonesty (knowledge of wrongdoing) with the objective test for negligence (“should have known better”, as he put it). And Goldfields Investment Ltd v City Council of Johannesburg  is authority that an error of law is reviewable if it prevented a fair trial of the issues.  It amounts to a gross irregularity when the arbitrator does not direct her mind to the issue before her and so prevents the aggrieved party from having its case fully and fairly determined.  In this case, the arbitrator embarked on the wrong enquiry.  She did not direct her mind to the correct legal definition and elements of dishonesty.  What she had to do, was to answer three questions:

  • 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?

Was there a rule and did the employee knowingly breach it?

[18]   The arbitrator found that there was a rule and that the duty was on the employee to make a valid disclosure. His failure to do so led to her finding that “he is guilty of the first three charges”, all of which relate to gross dishonesty.

[19]   Having found that, it must be accepted that dolus had been proven; intention of wrongdoing is an essential element of gross dishonesty.

[20]   The arbitrator’s contrary finding that “there was no gross dishonesty” and that, although the employee knew about the rule, he did not knowingly or with intention break the rule, is irrational and constitutes a reviewable defect.

[21]   In Stoop v Rand Water (2014) ILJ 1391 (LC) Basson J summarised the issue of dolus relating to dishonesty:

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.  (There may be other factors, such as materiality or inducement, but they are not relevant to the point I am discussing.)”

“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.  Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in its truth.”’

[22]  In this case, the employee acted dishonestly by not disclosing his conflict of interest, well knowing that he had to do so.

[23]   Despite the employee’s protestations that the rule had not been “fully workshopped” with him, he knew very well what was required of him: as far back as 2007 he told his brother, Robert, that he was not “… able to link my name with a company working with the City and that is it.” In fact, that is why he resigned from RFH and why did not want any part of RH. He explained in cross-examination:

“I do not want to link my name with his [Robert’s] company and I do not want to be involved in a company that is trading with the City either.”

[24]   The existence of the rule and the employee’s knowledge of the rule had been established. The arbitrator accepts as much.  Her endorsement of that chairperson’s finding of gross dishonesty ipso facto establishes wrongdoing.  To then find that dismissal was not a fair sanction, especially where public funds are involved, is not a decision that a reasonable arbitrator could have reached.

[25]   The employee also knew what the consequences would be if he broke the rule. When questioned about his alleged involvement in obtaining work for his wife’s company, Jay Dee, he said:

“No.  I did not assign her to that job.  I tried to recuse myself from this job.  The reason being I know what the consequences would be.”

[26]   That evidence is incompatible with the arbitrator’s finding that dolus was not present. She thus failed to have regard to material evidence.  Had she had proper regard to the law and the facts, she would have come to a different conclusion.

[27]   The employee knew that he could not give jobs to friends and family. He conceded as much.  And he gave direct evidence that his supervisor, Julies, told him in terms as far back as 2008 that he had to declare the conflict.

[28]   The Commissioner 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.  Neither he nor his wife disclosed the conflict of interest; she did benefit from the company receiving work from the City; and the employee, who signed as a witness, was party to the non-disclosure.  They were married in community of property.  He benefited directly from his own non-disclosure.  That was the effect of the non-compliance with the rule.  For the arbitrator to find that dismissal was not an appropriate sanction because “there was no material evidence of what the effect of the non-compliance with the rule was” cannot be sustained on the evidence before her.

[29]   Mr Ackermann referred to Gaga v Anglo Platinum Ltd where the Labour Appeal Court found that the Commissioner had committed a reviewable irregularity when he failed to grasp the definitional requirements of an act of sexual harassment and consequently failed to undertake a proper enquiry into guilt. Similarly, in this matter, the arbitrator failed to appreciate the “definitional requirements” of an act of gross dishonesty.  Once she had found that the employee did commit gross dishonesty, his knowing and intentional misrepresentation was established.  To find otherwise, is a reviewable irregularity that led to an unreasonable outcome.

The decision on sanction

[30]   Given the employee’s gross dishonesty, I agree that the arbitrator’s finding that dismissal was nevertheless not an appropriate sanction is one that fell outside of a range of reasonable outcomes. As Zondo AJP [as he then was] held in Toyota South Africa Motors (Pty) Ltd v Radebe:

“After carefully considering the commissioner’s reasoning and reading his award over and over again, I still have no idea what the commissioner meant by saying dismissal was not the only sanction available to the appellant.  The closest I can think of is that he meant that the misconduct committed by the first respondent was not sufficiently serious to justify his dismissal.  If that is what he meant, then, in my view, it would contradict his earlier finding that this was a case of gross dishonesty.  As the commissioner had described the first respondent’s dishonesty as gross, he must have found the misconduct extremely serious.”

Conclusion

[31]   The arbitrator committed an error of law. She misconceived the enquiry before her and she failed to take material evidence into account.  All of these factors led to an unreasonable decision on the fairness of the employee’s dismissal.  The award must be reviewed and set aside.

[32]   There is no reason to remit the matter for a fresh hearing. All of the evidence was before the Court.  The employee committed serious misconduct amounting to gross dishonesty.  His long service does not diminish the gravity of the misconduct.  The sanction of dismissal was fair in those circumstances.  This Court is in a position to substitute the finding of the arbitrator.

{Note: All footnotes omitted]