What do these recent rulings by the Fair Work Commission say about how the law treats personal relationships at work?

Personal relationships in the workplace are a fact of life; they are not uncommon and have traditionally been considered a private matter. However, the law has something to say about workplace relationships and steps which can be taken by employers to protect themselves from accusations of bias or being negatively impacted when conflicts of interest arise.

Case study 1: Disclosure of personal conflict of interest

In Mihalopoulos v Westpac Banking Corporation [2015] FWC 2087, a senior bank manager (the applicant) was dismissed for having a romantic relationship with an employee who reported directly to him. Westpac submitted the applicant should have disclosed the romantic relationship in accordance with Westpac’s conflict of interest policy.

The Fair Work Commission (FWC) ruled that the applicant’s dismissal was not harsh, unjust or unreasonable. The FWC stated that while employers cannot stop their employees forming romantic relationships, in certain circumstances there is the potential for conflict of interest. This is most commonly seen where there is a power imbalance, such as when a manager forms a romantic relationship with a subordinate, especially where the manager is in a  supervising role.

The FWC held that it was a combination of the applicant’s failure to disclose his relationship, combined with his dishonesty in lying to his manager about the affair on two occasions, which constituted a valid reason for dismissal.

Case study 2: Pay the price for romance in the workplace

In a large ASX-listed company’s most recent annual report, it was revealed that the board had cut the remuneration of its chief executive by $550,000 because of his delay in disclosing that he was in a relationship with his personal assistant. While the chief executive did eventually disclose, the board was concerned about the delay in disclosure and implemented its pay penalty.

It is unclear whether the remuneration cut was agreed upon or whether there was a contractual mechanism which kicked in, however unilaterally cutting an employee’s remuneration in these circumstances could lead to a constructive dismissal claim or breach of contract.

What position should employers take?

While it is near impossible and inadvisable for employers to enforce a strict ‘no relationship’ policy, employers can implement ‘disclosure’ and ‘conflict of interest’ policies that oblige employees to promptly disclose their relationship. This allows appropriate steps to be taken to ensure that no potential conflict of interest arises from the relationship.

For example, an employee having a personal relationship with his or her subordinate and not disclosing that when recommending pay increases is inappropriate and is a conflict of interest. A conflict of interest policy outlines steps to be taken should such a relationship form. Expressing actual or potential conflict of interest terms can also be useful and provide additional support.

These measures are intended to prevent issues arising in the workplace such as allegations of bias, work health and safety issues, and workers’ compensation issues.