In a recent unreported case, the Labour Court had reason to consider the question whether or not an employer can proceed with an enquiry to consider allegations of dishonesty after the employment relationship has come to an end.

The employer (a major South African Bank) proposed to hold such an enquiry and was met with an application by its former employee seeking to (1) interdict it from holding the enquiry and (2) asking for an order interdicting the Bank from placing its former employee's name on the 'REDS database'.

'REDS' is an acronym for 'Register of Employees Dishonesty System', a system established in the mid 1990's by the Banking Association of South Africa ("the Association"). The Association represents all registered banks in South Africa, including domestic as well as international banks. In summary, its role is to promote responsible, competitive, and profitable banking and all its members subscribed to a Code of Banking Practice which aims to cultivate ethical practices within the industry.

The REDS system forms an important part of this program. The Association maintains a central database on which is recorded the names of all employees in the Banking industry who have been dismissed for dishonesty-related offences. This database provides a useful resource for the use of participating banks in respect of prospective employees.

The employer in this case has developed an integrity management system that incorporates the REDS system as a recruitment and selection check by screening prospective employees whom have been found guilty of dishonesty in the banking environment.

Participation in the REDS system takes the form of a written agreement, which includes implementation guidelines issued by the Association. The Association advocates three principles:-

• An employee's name will be placed on the register only if he or she is dismissed for a dishonesty-related offence;

• A disciplinary hearing will still take place, in abstentia, if needs be, in the circumstances where the affected employee resigns or leaves before the hearing takes place; and

• Contracts of employment between the participating bank and the individual employee should include consent by the employee to the REDS process and that existing employees should be advised thereof.

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The Labour Court stated that the establishment of an appropriate reference database is no stranger to South African law, which recognises that a variety of fiduciary and professional fields may properly incorporate regulatory mechanisms in the form of a database or in the form of a role of practitioners in good standing, in order to promote suitable standards of ethics and competence.

In the matter before the Labour Court the employee had been employed in the banking sector since 1989. In May 2007, he took up the position of senior management in Credit Risk with the Bank. As from March 2009, queries were directed to him by internal investigators of the Bank concerning his relationship with certain clients. On 03 July 2009 he was handed a letter of suspension in which it was alleged that he was involved in "undisclosed conflicts of interest". The letter recorded that he remains subject to the Bank's disciplinary procedure and that the suspension did not imply that his services had been terminated. On 24 August 2009 the Employee resigned his employment with the Bank.

On 03 September 2009 the Bank communicated to the employee that, for its part, it would be proceeding with a disciplinary hearing. The application to the Labour Court arose because the Bank had made it clear that it intended to proceed with the disciplinary hearing irrespective of whether or not the employee attended on the enquiry. In turn, the employee sought to interdict the enquiry from taking place even in his absence.

The employee considered that he had resigned and that he was therefore no longer an employee and hence could not be dismissed and that an essential REDS requirement can consequently not be addressed, being that employees can be entered on the register only if they have been dismissed for a dishonesty related offence.

Although the Labour Court did not decide the point, the Court remarked "... it might be thought a little startling if the underlying purpose of such database- bearing as it does an important public interest ingredient - could be stultified in a particular instance through no more than a resignation."

Te Labour Court then considered whether it had jurisdiction to interdict a post termination hearing and prohibit the entry of the employee's name on the REDS database. The Court gave consideration to the anomaly that on the one hand the employee is insistent that he ceased to be an employee on the date of his resignation and that the employment relationship between him and his employer correspondently terminated on the same day.

On the other hand the employee approached the Labour Court as an employment law forum for relief and not the High Court. The Court found that it did not have jurisdiction to deal with a post-termination hearing in circumstances where the employee himself contended that such hearing should not take place precisely because an employment relationship was no longer in existence. The employee's Counsel contended that the Labour Court could deal with the matter since it involved the 'dying embers' of the employment relationship. The Court remarked, "Picturesque though that image may be, it does not add much by way of forensic precision."

The Court concluded that the employee's departure point for his approach to the Labour Court was that the employment relationship between him and the Bank as his employer was at an end. The Court found that in the result the employee found himself without a jurisdictional niche in the Labour Relations Act and without any recourse to the Basic Conditions of Employment Act. Accordingly, the Court ruled that it did not have jurisdiction over the employee and dismissed the application with costs.

The Banking Industry may take some comfort in the fact that the Labour Court acknowledged the REDS system as a legitimate integrity management system for recruitment and selection checks and as a screening resource. In particular, the Labour Court concluded the system is there to combat dishonesty in the banking environment by doing so not only offers some protection to banks but also 'significantly buttresses the interest that the public has in trustworthy banking services'.

The decision of the Labour Court also provides some comfort that former employees in the banking industry are unlikely to have recourse in the Labour Court against their employers for implementing the REDS system.

Written by: Tim Mills, Director, Employment, Cliffe Dekker Hofmeyr