Section 76 of the Companies Act No. 71 of 2008, the (“Act”), provides for a partially codified system of directors’ duties. In terms of this section, a director must always carry out his fiduciary duties of having to act in good faith and in the best interests of the company.
It is therefore commonplace that directors are obliged to act in the best interests of the company, and not for themselves or for other third parties.
The question however arises whether mere employees, as opposed to directors, also owe a fiduciary duty (an implied fiduciary duty) of good faith to your employer. Despite the fact that section 76 of the Act only makes provision for the imposition of such a duty on directors, the answer is that employees are indeed also obligated to act in good faith toward their employer.
Although the Labour Relations Act No. 66 of 1995 imposes few obligations on employees, it is still common cause that every employee carries out his employer’s lawful and reasonable instructions and complies with his fiduciary duties towards his employer by behaving honestly and truthfully.
In the case of Pillay v Rennies Distribution Services 2007 (2) BALR 174, the employee was accused of signing a maintenance agreement without the requisite authority. He claimed that he did not know what he was signing and that he therefore signed it by mistake. He was consequently dismissed. It was found that he had lied about his signing of the maintenance agreement, and that in telling this lie, he had breached his fiduciary duty of good faith to his employer by not acting in an honest manner.
The Supreme Court of Appeal held in Ganes v Telecom Namibia 2004 (3) SA 615, that in the absence of an agreement to the contrary, a manager owed his employer a duty of good faith.
In Phillips v Fieldstone Africa Proprietary Limited and Another 2004 (1) All SA 150, the liability of an employee to account to his employer for secret profits made by the employee out of an opportunity arising during the course of his employment was examined. The court upheld the principles as set out in Robinson v Randfontein Estates Gold Mining Co Limited 1921 AD 168, which confirmed that where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or to place himself in a position where his interests conflict with his fiduciary duty.
In the Phillips case, the employees had acquired shares for himself, rather than on behalf of his employer. The court held that he was in a position of trust and that as a result, was required to place his employer’s interests above his own whenever a real possibility of conflict arose. Consequently, it was held that the employee must be deemed to have acquired the shares for the benefit of his employer.
In Volvo (Southern Africa) Proprietary Limited v Yssel 2009 (7) SA 531, the court held that positions of trust that give rise to fiduciary duties are not in essence derived from a contract. An employee in a position of trust cannot allow his personal interests, (in this instance, securing a commission from his labour broker) to conflict with his employer’s interests. It was found that the employee was obliged to pay over to his employer the secret commission that he had been receiving over the years.
It is trite that directors owe their company a fiduciary duty, which obliges them to act toward the company with the utmost good faith. However, as identified in the above precedents, this strict legal duty is not restricted to directors. An implied fiduciary duty therefore extends to all employees who are in a position of trust in relation to the company, regardless of whether they are directors or not or whether their contract of service is an employment contract or a contract of service.