Derivative Misconduct and the Duty of Good Faith: When can an Employee be Dismissed for Derivative Misconduct?

What is derivative misconduct and when does it occur?

An employer must have a fair reason for dismissal in order to satisfy the element of substantive fairness. Misconduct is one such reason. Derivative misconduct refers to cases where an employee has knowledge of misconduct by other employees/ co-workers and opts not to disclose it to their employer. Such non-disclosure can be seen as a material breach of the duty of good faith upon which the employment relationship is founded. It is important to note that derivative misconduct is not a new form of misconduct. In fact, derivative misconduct stems from the primary misconduct which an employee fails to disclose. In essence, it is misconduct that is derived from the conduct of another. Notwithstanding this, an employee cannot be found guilty of derivative misconduct if they negligently failed to take steps to acquire knowledge of the primary misconduct.

Recent case law

The issue of derivative misconduct was recently dealt with by the Metal and Engineering Industries Bargaining Council in Tshabangu / Mgwezi Brand Manufacturer (2022) 31 MEIBC. The employee in this case referred an unfair dismissal dispute to the CCMA claiming that he was unfairly dismissed by his employer. The employee was dismissed for dishonesty and challenged the substantive and procedural fairness of his dismissal. The substantive leg will be discussed in further detail below.

The dispute arose when the employer was informed of theft being perpetrated by a group of its employees. The employees were selling goods belonging to the employer which upon investigation was estimated to be valued at R75 000 over a period of 1 year. The Applicant was amongst the employees who were issued with a notice to attend a disciplinary hearing. Eleven employees admitted guilt prior to the hearing, and all entered into a mutual separation agreement with their employer. The Applicant refused to admit guilt despite five of the employees interviewed implicating him in committing the theft. The Applicant denied being involved in the theft and instead admitted to being aware thereof. His colleagues not only claimed that the Applicant was aware of the theft but that he also received a portion of the proceeds of the stolen goods. The Applicant further admitted that (i) he knew that his colleagues’ conduct was wrong and (ii) disciplinary action would be taken against them if their employer were to become aware of their wrongful conduct. The Applicant was found guilty of dishonesty and dismissed. 

Distinction between derivative misconduct and dishonesty

The Commissioner found that the Applicant was not accused of derivative misconduct for not disclosing the misconduct by his colleagues. He was accused of dishonesty for breaching his duty of good faith by failing to disclose the misconduct by his colleagues to his employer and theft.

The Commissioner highlighted that the charge of dishonesty was due to the Applicant’s breach of his contractual duty of good faith and not specifically his failure to disclose the misconduct of his colleagues. Because the allegation of dishonesty was vague, the Commissioner found the Applicant guilty of dishonesty for breaching his duty of good faith and it was not necessary for him to consider whether the Applicant was guilty of derived misconduct from the actions committed by his colleagues. There appears to be a fine line between the two. The Commissioner further held that the Applicant failed to disclose the theft by his colleagues when he first became aware of it, nor during the investigation when questioned about it. The Applicant only admitted to being aware of the theft towards the end of the disciplinary hearing. In addition, the Commissioner held that the Applicant was not only aware of the theft, but also involved in perpetrating the theft. This does not amount to derivative misconduct as he was found to be involved and not only aware of the theft. It is for these reasons that the Applicant’s dismissal was found to be substantively fair. 

Employers should be cautious when characterizing or drafting allegations of misconduct for purposes of disciplinary hearings. In my opinion, it is likely that the Commissioner would still have found the Applicant’s dismissal to be substantively fair had the Applicant been dismissed for misconduct deriving from the primary misconduct of his colleagues. This is based on the Applicant’s own admission during the disciplinary hearing that he was aware of the on-going theft by his colleagues. 

Silence is not always golden, especially in cases involving alleged misconduct. Non-disclosure of information which may be harmful to an employer’s interests has the potential to break down the trust relationship between the parties and may result in an employee being dismissed.

Andrea Miguel – Candidate Attorney

Justine Del Monte & Associates Incorporated