28 Sep 2012

Employment & Pension Law Department - Material non-disclosure found to be dishonest

The case of Herholdt v Nedbank Ltd involved a financial broker who failed to disclose to his employer, Nedbank, that a client had nominated him as a beneficiary in his will.  This was in contravention of Nedbank's Conflict of Interest and Ethics policy. Herholdt avoided a number of opportunities to disclose the bequest to his employer, which lead to a finding of dishonesty and he was dismissed from the Bank after 14 years' service.

Facts of the case

One of Herholdt's clients, Smith, which he had befriended, informed him that he wished to make the bequest to Herholdt.  Herholdt's initial response was that he did not think it would be appropriate because he was Smith's financial adviser.  On that same day, Herholdt contacted a legal adviser at BOE Trust which provided a service to Nedbank, and advised him of the bequest. The adviser said that Herholdt should inform his manager as there is potential for a conflict of interest and Nedbank would need to assess the risk.  About 5 months after becoming a beneficiary, Herholdt spoke with his regional manager and mentioned to her that he might be becoming an heir in a will.  The regional manager confirmed that he would need to disclose this to his area manager for consideration by the compliance department. Herholdt failed to follow the regional manager's advice to make disclosure and on the next occasion he saw her, he failed to tell her that he had become an heir in his client's will. He was found guilty of dishonesty and dismissed.

CCMA ordered reinstatement

The CCMA commissioner, however, found that the Bank failed to prove that Herholdt knew a conflict existed and did not establish he had acted dishonestly or caused any regulatory or reputational risk.  The commissioner ordered his reinstatement.

Labour Court review

The Labour Court on review held that the commissioner failed to apply her mind to a number of material issues and substituted the order with a finding that the dismissal was fair.

Labour Appeal Court

The Labour Appeal Court ("LAC") agreed with the Labour Court and the appeal was dismissed.  The LAC held that "the conclusion that the appellant deliberately did not disclose the conflict is inescapable." The commissioner ignored material evidence and misconstrued the Bank's Conflict of Interest policy. The LAC confirmed the dismissal was fair. A sound warning for employees who fail to make material disclosures and confirmation for employers that a comprehensive conflict of interest policy is necessary.