A recent Fair Work Commission decision has addressed the potential conflict of interest involved when employees are in a relationship with each other, particularly where there is a direct reporting relationship and the employees have failed to disclose their personal relationship.

The case involved a senior manager at Westpac who was in a relationship with his direct subordinate. Not only did the manager fail to disclose the relationship, but he in fact denied it when questioned by his superiors on two separate occasions.

The manager had moved in with the female team member over a year before the company discovered the relationship. It did not assist the manager’s cause that it was only after the relationship broke down, and the police had been called to an altercation between the couple, that the manager disclosed to the company that they were in a relationship which by that time had broken down.

Senior Deputy President Hamberger commented that, while employers cannot prevent romantic relationships in the workplace, there is the potential for a conflict of interest and that “..this is most obviously the case where a manager forms a romantic relationship with a subordinate..”[1]

He went on to say that, in these circumstances, the employer is entitled to a reasonable expectation that employees will disclose the actual or potential conflict of interest to enable the employer to properly manage it. Senior Deputy President Hamberger took into account that the employment contract referred to disclosure of potential conflicts of interest, and there was a policy in place also addressing this issue, and concluded that it was reasonable for the employer to expect disclosure of the relationship.

The case did not directly address whether failure to disclose the relationship of itself was sufficient justification for summary dismissal, as there was also the fact that the manager was dishonest when asked about the relationship on two occasions. Senior Deputy President Hamberger said that these issues could not be separated and that, taken together, the employee’s failure to disclose and dishonesty were valid reasons for his dismissal.

Lessons for Employers

Employers are entitled to know about romantic relationships between employees where this creates a real or perceived conflict of interest, so that this can be properly managed. In this case the company said that, had it known about the relationship, it would have moved one of the employees to another branch and would have assessed the manager’s recommendation for promotion of his subordinate taking into account the knowledge that they were in a relationship.

The question remains whether, in a smaller company where separating the employees may not be possible, the company would be entitled to dismiss an employee in these circumstances on account of the conflict of interest. In our view, provided that the obligation to disclose is clear, and the conflict is sufficiently serious, then this option may be available to an employer where it was not able to be otherwise managed.

Regardless of the size and nature of the business, in order to ensure that employees are clear about the obligation to disclose and to provide protection for the business, employers should include a conflict of interest clause in the employment contract, and a conflict of interest policy.  These can then be relied upon by the employer in the event that an employee breaches these obligations and action up to and including dismissal is required.

[1] George Mihalopoulos v Westpac Banking Corporation T/A Westpac Retail and Business Banking