Authors: Ginen Moodley (Director at Moodley Attorneys Inc) and Ezekiel Dikio (Associate at Moodley Attorneys Inc)
Employee misconduct, particularly in the form of theft, fraud, and negligence, can have far-reaching legal and financial consequences for businesses. Employers must carefully navigate the legal landscape when dealing with such transgressions, ensuring that appropriate disciplinary procedures are followed while simultaneously safeguarding their commercial interests. This article explores the legal framework governing employee misconduct in South Africa, outlining the disciplinary processes, civil claims, and potential criminal liability that may arise.
Employee misconduct encompasses a wide range of behaviour that contravenes workplace policies and legal standards. Instances of serious misconduct may include theft, fraud, gross negligence, or breaches of fiduciary duties. Such infractions not only undermine trust within an organisation but can also lead to significant financial losses and reputational harm. In cases where employees fail to exercise due care in fulfilling their responsibilities, or where their actions deliberately compromise the business, employers must act decisively to mitigate potential damage.
South African employment law, primarily governed by the Labour Relations Act 66 of 1995 (LRA), sets out clear guidelines on how employers should address misconduct in the workplace. Dismissals must be both procedurally and substantively fair, failing which an employer may find themselves facing legal challenges before the Commission for Conciliation, Mediation and Arbitration (CCMA) or the Labour Court. Item 7 of the Code of Good Practice regarding Dismissal as per Schedule 8 of the LRA highlights that when determining whether a dismissal for misconduct is unfair, it is essential to consider whether the employee contravened a workplace rule or standard relevant to their conduct. If a rule or standard was breached, the validity and reasonableness of the rule must be assessed, along with whether the employee was aware or could reasonably have been expected to be aware of it. Additionally, it must be established whether the rule has been consistently applied by the employer and whether dismissal was an appropriate sanction for the contravention. These considerations, as outlined, ensure that dismissals for misconduct are both substantively and procedurally fair.
Before dismissing an employee, an employer must conduct a thorough investigation into the alleged misconduct to establish whether there is sufficient evidence to support disciplinary action. The employee must be given an opportunity to respond to the allegations in a formal disciplinary hearing, ensuring that their right to fair process is upheld. The severity of the sanction imposed must be proportionate to the nature of the misconduct, with dismissal generally being reserved for serious offences such as theft, fraud, or gross negligence. Employees also have the right to challenge their dismissal should they believe it to be unfair, further underscoring the importance of employers adhering to due process. This is in line with Item 4(1) of the Code of Good Practice for Schedule 8 of the LRA which provides the guideline for fair procedure in cases of dismissal for misconduct and it states: “Normally, the employer should conduct an investigation to determine whether there are grounds for dismissal. This does not need to be a formal enquiry. The employer should notify the employee of the allegations using a form and language that the employee can reasonably understand. The employee should be allowed the opportunity to state a case in response to the allegations. The employee should be entitled to a reasonable time to prepare the response and to the assistance of a trade union representative or fellow employee. After the enquiry, the employer should communicate the decision taken, and preferably furnish the employee with written notification of that decision.”
Where an employee’s misconduct results in financial or reputational damage, employers may have legal recourse beyond disciplinary action. In addition to terminating employment, businesses may initiate civil claims to recover losses suffered due to an employee’s wrongful conduct. Employers have the right to pursue civil claims against employees for financial losses resulting from misconduct, particularly in cases of fraud, negligence, or breach of contract. This principle was reaffirmed in Umgeni Water v Naidoo and Another (11489/2017P) [2022] ZAKZPHC 80, where the court addressed whether an employer could recover damages from the pension benefits of a former employee who had secured employment using fraudulent qualifications. The court ruled in favour of the employer, confirming that damages may be claimed for losses incurred due to an employee’s fraudulent misrepresentation. In practical terms, Section 37D(1)(b) of the Pension Funds Act permits deductions from an employee’s pension or provident fund benefits to compensate an employer for damages arising from theft, dishonesty, fraud, or misconduct.
A breach of contract may occur when an employee violates the terms of their employment agreement, such as by misappropriating confidential business information or failing to perform their duties with due diligence. In such cases, the employer may seek damages through civil litigation for the breach. Furthermore, if an employee’s actions cause financial harm to the company, the employer may institute a delictual claim. This type of claim is based on the wrongful act that caused the harm, and the employer may seek compensation for the resulting losses. In cases involving theft or fraud, businesses may also pursue criminal charges in addition to seeking restitution through civil courts to recover misappropriated funds or assets.
Certain types of employee misconduct may not only constitute grounds for dismissal but may also give rise to criminal liability. Theft, fraud, and corruption are serious offences under South African law, and employers have the right to initiate criminal proceedings against employees who engage in unlawful conduct.
In cases of theft or fraud, employees may be charged under the Criminal Procedure Act 51 of 1977, which could result in fines or imprisonment upon conviction. Similarly, if an employee’s misconduct involves misrepresentation or bribery, they may be prosecuted under the Prevention and Combating of Corrupt Activities Act 12 of 2004. Even instances of gross negligence could, in certain circumstances, result in criminal liability if they cause significant harm to the business or third parties. Employers must therefore assess whether pursuing criminal charges is necessary in addition to disciplinary and civil remedies.
Moodley’s Attorneys recently advised on a case involving an employee who had engaged in workplace theft, leading to both disciplinary and legal consequences. Following an internal investigation, the employer initiated a disciplinary hearing, which ultimately resulted in the employee’s dismissal. However, given the financial losses suffered by the company, the employer also pursued a civil claim to recover the stolen funds. In addition, criminal charges were laid, leading to prosecution under the relevant provisions of South African law.
This case underscores the multifaceted legal approach businesses must take when dealing with employee misconduct. Employers must be prepared to navigate not only internal disciplinary procedures but also potential civil and criminal legal action to ensure justice is served and financial losses are minimised.
To mitigate the risks associated with employee misconduct, businesses should proactively implement measures to protect themselves. A well-drafted code of conduct, outlining acceptable workplace behaviour and disciplinary consequences, serves as a vital reference point for both employers and employees. Regular internal audits and financial oversight can help detect irregularities at an early stage, while strong contractual protections—such as confidentiality agreements and ethical obligations—can serve as additional safeguards against misconduct.
Furthermore, ongoing ethics and compliance training can help foster a culture of integrity within the workplace, reducing the likelihood of employees engaging in dishonest or negligent behaviour. Employers must also ensure that disciplinary processes are legally sound, as failure to adhere to proper procedures can lead to wrongful dismissal claims, exacerbating legal and financial risks.
Employee misconduct presents a serious challenge for businesses, requiring a strategic and legally compliant response. Employers must balance the need for swift disciplinary action with adherence to due process, while also considering civil and criminal remedies where appropriate. By understanding their legal rights and obligations, businesses can take proactive steps to prevent workplace misconduct and respond effectively when it arises. Legal professionals play a crucial role in guiding businesses through these complexities, ensuring that appropriate action is taken to protect corporate interests and uphold legal compliance.
About the authors
Ginen Moodley (Director) and Ezekiel Dikio (Associate) are legal professionals at Moodley Attorneys Inc, a South African law firm specialising in Business Advisory, Commercial Transactions, Dispute Resolution, and Estate Planning.
