6 April 2010

The employee's duty to advise the employer of breaches of the Competition Act

Firms are increasingly being taken to task by the Competition Commission and Tribunal in respect of contraventions of the Competition Act (the Act). Collusion (price-fixing, market allocation and bid rigging) is the hot topic in competition law enforcement at the moment, with unprecedented numbers of collusion cases being investigated by the Commission at the moment, along with a variety of cases relating to abuses of market power. Firms found guilty of engaging in anticompetitive behaviour are liable to pay significant financial penalties, not to mention having to deal with reams of unfavourable press generated.

But corporate entities are not living, breathing, creatures that function autonomously. Firms act on direction of shareholders who appoint a board of directors to manage the affairs of the business. The board, in turn, appoint managers to run the business in line with the shareholder mandate. It is thus not unusual to find that employees within organisations misdirect themselves in carrying out their duties in contravention of the law.

The question arises as to the duty of employees to disclose potential breaches of the Act to their employer. Is an employee under obligation, at risk of victimisation or sanction, to advise her employer as the wrongdoing of colleagues (in this case in relation to breaches of the Act)? The short answer is 'most definitely'.

Employees are under a common law obligation to act in good faith in all their dealings with their employer. The English High Court of Justice held in Robb v Green [1895] 2 QB 1 that "… there is involved in every contract of service an implied obligation… on the servant that … he shall honestly and faithfully serve his master…."

This decision has been imported into South African employment law and followed in a number of local cases.

In the well-known case of Council for Scientific and Industrial Research v Fijen (1996) 17 ILJ 19 (A) the Appelate Division (as it was then) confirmed that

"…the relationship between employer and employee is in essence one of trust and confidence and that, at common law, conduct clearly inconsistent therewith entitles the 'innocent party' to cancel the agreement." 1

The Appellate Division confirmed the position under South African law to be the same as that under English law, namely that there is a reciprocal duty on the employee not to act "…in any manner calculated or likely to destroy or seriously damage the relationship of trust or confidence between the parties."

Contraventions of the law, including failures to comply with provisions of the Act, pose obvious difficulties for an organisation. The Competition Tribunal has recently handed down multi-million Rand fines to companies found to have contravened the Act. Employees who are aware of conduct that leads to such contraventions fail in their duty to serve their employer's interests where they do not disclose such contraventions to the employer. This is true even in the absence of a specific instruction to disclose such information, a pertinent workplace rule directing such disclosure or even a contractual provision placing such obligation on the employee. The employee's common law duty to further the employer's best interests and not engage in conduct that will detract from it is wide enough to allow an employer to take disciplinary action against employees who are aware of contraventions of the Act but then fail to disclose it to their employer. Where an employer explicitly instructs an employee to disclose information about such wrongdoing, but the employee still refuses to cooperate, the offence multiplies in its magnitude.

In Chauke & others v Lee Service Centre CC t/a Leeson Motors (1998) ILJ 1441 (LAC) the Labour Appeal Court has also stated, in passing, that an employer may dismiss a group of employees for operational requirements where the culprit of the misconduct could not be identified but that the dismissal of a group of employees suspected of being involved in the misconduct was necessary to ensure the survival of the business. It would be interesting to see whether an employer ever takes such drastic action. In the face of a multimillion Rand fine, employers may be forgiven for resorting to harsher actions against employees who either contravene the Act or are aware of such contraventions but to do bring this to their employer's attention.

1 At paragraph 26 of the judgment.

Johan Botes, Director

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