Conflicts of Interest – Can you avoid a "Setchell" situation?

When Madeline Setchell applied for, and was appointed to, the position of Communications Manager with the Ministry of the Environment, she disclosed her personal relationship with Kevin Taylor, Chief Press Secretary for National Party leader John Key.  However, after only three days in the job, questions were raised about political interference and the potential for a conflict of interest.  These questions ultimately led to Ms Setchell leaving the Ministry's employment.

Recruitment

New Zealand's statutory framework allows businesses the opportunity to avoid this situation.  In today's workplaces, where political correctness may seem to be of the utmost importance, there are exceptions to the general rule that employers must not discriminate when recruiting staff.

Section 21 of the Human Rights Act 1993 contains the prohibited grounds of discrimination, which include:

• marital status, which means the status of being single, married (including in a civil union or de facto relationship), separated from a spouse or civil union partner, a party to a marriage that is now dissolved (including a civil union or de facto relationship), or widowed;

• family status, which means being married to, or being in a relationship in the nature of a marriage with a particular person, or being a relative of a particular person.

Also, Section 22 of the HRA deals specifically with discrimination in employment matters.  Among other things, this section provides that it is unlawful for an employer to, because of any of the prohibited grounds,

• refuse or omit to employ; or

• offer an employee less favourable terms of employment or conditions of work to employees of the same (or substantially similar) capabilities employed in the same (or substantially similar) circumstances.

This section of the HRA also prohibits dismissing the employee, subjecting the employee to detriment or causing the employee to resign because of any of the prohibited grounds.

However, these sections and restrictions are subject to the exceptions found in section 32 of the HRA.  Section 32 provides that it is lawful for employers to discriminate where an employee is in an otherwise protected family status with an employee of another employer and there is a risk of collusion to the detriment of the employer between the two employees. 

If the employment is of a political nature, section 22 of the HRA does not prevent different treatment based on political opinion, where the positions are, among others, those of:

• a political advisor or secretary to a Member of Parliament;

• a political advisor to a member of a local authority;

• a member of staff of a political party.

Can you dismiss an employee because of a conflict?

What would happen if an employee of a business became involved in a relationship with an employee of a competing business?  The main issue tends to concern the confidentiality of information.  If neither party has access to confidential information there may be no reason for concern.  However, if one or both of the employees have access to confidential information there may be potential risk for the employer.

Also, employees whose personal relationships could give rise to a conflict of interest risk breaching their duty of fidelity, a term implied into every employment relationship.  This duty requires employees to not do anything to harm their employers' business during the term of their employment.  Employees may leave themselves open to dismissal if self-interest comes into conflict with duties to their employer to such an extent that it destroys the relationship of trust and confidence.

It may be easier for employers to justify disciplinary action if the employment agreement contains an express term that deals with such situations.  However employers with genuine problems arising out of such situations are probably served well by the law as it currently stands.

Dismissals following genuine employer concerns about the risk of disclosure of confidential information have been upheld as substantively justified by the courts, even where there is no evidence of any actual disclosure.  For example, the Employment Court in Power Beat International Ltd v Anderson, found that employers may dismiss the partner or spouse of a former employee when confidentiality is threatened.  The Court held the dismissal of the employee was a reasonable response to prevent the intentional or inadvertent disclosure of confidential information.

The Court has made it clear that employers must:

• consider possible solutions less drastic than dismissal;

• give adequate notice and discuss the matter with the employee;

• allow the employee an opportunity to respond and suggest other solutions (ie moving the employee to a different position where they do not have access to sensitive information);

• decide whether dismissal is necessary in the circumstances.

Whether dismissal is justified will depend on a range of factors, including the nature of the information, the employee's day-to-day familiarity with it, the value of the information to competitors and, possibly, the degree of risk of the information passing.  As with any situations where dismissal may arise, an employer must comply with the usual requirements of procedural fairness.

Employees seeking to challenge their dismissal or make claims of discrimination have the option to pursue a personal grievance under the Employment Relations Act 2000 or seek relief under the HRA.  The circumstances in each situation will determine which jurisdiction is the most appropriate.

The Ministry for the Environment has stressed, on the issue of conflict of interest, that it was the nature of Ms Setchell's and Mr Taylor's professional positions that led to the decision that there was a potential conflict of interest to be managed.  The Chief Executive of the Ministry is currently writing a report, which will be made public, on the employment issues that arose in Ms Setchell's situation.  From this report, the State Services Commission hopes to be able to share what they have learnt from the matter and to avoid any recurrence.

If you have any questions about conflicts of interests in employment relationships, please do not hesitate to contact us.

Erin Davies
Partner
t: +64 9 979 2177
m: +94 29 622 2300
e: Erin Davies

Last updated: 4 September 2007