You may recall we reported on the Labour Appeal Court case of Herholdt v Nedbank Ltd in September 2012. Mr Herholdt was 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 (without notice) after 14 years' service.  

Facts of the case

One of Herholdt's clients, Smith, who he had befriended, informed him that he wished to include him in his will.  Herholdt's initial response was that he did not think it would be appropriate in that 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 BOE of the bequest. The BOE 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 in Smith's will, 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 the 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 found that the Bank had failed to prove that Herholdt knew that a conflict existed and more importantly that the Bank did not establish that he had acted dishonestly or caused any regulatory or reputational risk.  As a consequence, Herholdt's dismissal was declared unfair and the commissioner ordered his reinstatement.

Labour Court disagrees with the CCMA

Aggrieved with the CCMA's award, the Bank approached the Labour Court with an application to review the award.  The Labour Court 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 Agrees with the Labour Court

Herholdt approached the Labour Appeal Court ("LAC") in order to argue that the Labour Court ought not to have set aside the CCMA's award, however, the LAC agreed with the Labour Court and Herholdt's appeal was dismissed.  The LAC criticised the CCMA's award by stating that "the conclusion that the appellant deliberately did not disclose the conflict is inescapable." The LAC further held that the commissioner ignored material evidence and misconstrued the Bank's Conflict of Interest policy. The LAC confirmed that Herholdt's dismissal was fair. 

 Supreme Court of Appeal has its say

The Supreme Court of Appeal ("SCA") delivered its judgment on 5 September 2013.  The SCA confirmed that the test on review is a narrow one:

• A review of a CCMA award is permissible if the defect in the proceedings falls within one of the grounds in section 145(2)(a) of the LRA.
• For a defect in the conduct of proceedings to amount to a gross irregularity as contemplated by s 145(2)(a)(ii), the arbitrator must have misconceived the nature of the inquiry or arrived at an unreasonable result.
• A result will only be unreasonable if it is one that a reasonable arbitrator could not reach on the material that was before the arbitrator.

The SCA found that the commissioner "dealt exhaustively with the evidence and concluded he [Herholdt] had not been dishonest." In view of the evidence before her, the commissioner's conclusion was not that of a reasonable decision maker. Clearly, the employee had been dishonest in failing to disclose to his employer the conflict of interest. The appeal was dismissed.

It seems that Herholdt has come to the end of the road. It is a sound warning to employees who fail to make material disclosures and particularly those employed in the financial sector.