No love contracts lost: Why SMEs must prepare for conflicts of interest from office romances

When office romances go sour, there’s a huge potential for disruption to business.

As seen with the fallout from Channel Seven’s Amber Harrison and Tim Worner situation — or QBE’s chief executive John Neal, whose bonus was reduced by $550,000 — managing personal relationships at work is a high-stakes undertaking.

One solution suggested by Kate Jenkins prior to her appointment as Sex Discrimination Commissioner is the introduction of American style ‘love contracts’.

Under a love contract — which are more common in American workplaces — employees must notify the company of any intimate relationships with their colleagues and sign a contract.

Typically, the love contract will involve an acknowledgement the relationship is consensual; an explanation of what the couple will do in the event of a breakup; information for the couple about the company’s sexual harassment policies; and the consequences for a breach of the policy.

In some cases, a love contract can require the couple to sign a waiver that neither will sue for bullying or sexual harassment by their ex-partner.

The Australian experience

American style love contracts will almost certainly never be introduced in Australia.

Our corporate culture isn’t conducive to the level of control American employers have over their employees, nor is our legal system.

For example, under Australian law you can’t sign away a future right to bring a sexual harassment or bullying complaint.

There is also the perception that such policies often victimise and scapegoat women, who are usually in the more junior position in the company.

But one area where Australian business can intrude into personal relationships is to protect themselves from conflicts of interest.

A conflict of interest is the risk a person’s self-interest and their organisation’s interest may clash.

For example, if a supervisor forms a relationship with a colleague who they manage, how will performance reviews be handled if the junior colleague is under-performing?

To protect against this risk, many large companies have guidelines. QBE’s John Neal lost $550,000 not because of a relationship, but because he delayed notifying QBE of the conflict of interest in dating his assistant.

Australian courts and the Fair Work Commission have upheld an employer’s right to protect their company from conflicts of interest.

The Commission’s Senior Deputy President Jonathan Hamberger found in 2015 that “employers have a reasonable expectation that employees will disclose any potential conflicts of interest, so they can be appropriately managed”.

This is in relation to the rejection of an unfair dismissal claim brought by a bank manager who lied to his superiors about an affair with a member of his staff. The manager had a duty to report the conflict of interest but did not.

What this means for SMEs

So how can Australian businesses deal with conflicts of interest?

Unfortunately, most small and medium businesses don’t, and that’s a problem!

The consequences for SMEs of not preparing for conflicts of interest may mean the erosion of staff morale, the loss of reputation in the community, and the potential collapse of the company.

It’s that serious.

That’s why managers in SMEs need to draw up robust, trustworthy and well defined conflict of interest policies — including disclosure policies — to set out a road map for when the inevitable happens.

SMEs must ask themselves:

• Who will make decisions about performance management, discipline or bonuses if a manager begins a relationship with a subordinate?

• Who will change roles if a manager and subordinate break up and working together becomes impossible?

• Will the junior ex-partner in the relationship end up marginalised and frozen out of career progression?

• And will that treatment expose the company to a bullying claim, or an unfair dismissal claim, if the other half gives a bad performance review?

Companies, especially SMEs, must commit to keeping any disclosures by employees absolutely confidential and free of moral judgement. In a smaller workplace, water cooler talk by a manager can’t extend to casual mentions of colleagues dating.

A policy on confidentiality, with real consequences for breaches, is important to achieve full co-operation by employees. This is especially true in a relationship where one or both of the couple are in relationships with others! Two colleagues having an affair are unlikely to comply with such a policy.

This is a great challenge, but SMEs cannot afford to turn a blind eye.

A large company will survive a calamitous fall out if a workplace relationship goes sour. A small business may not.

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