An employer who discovers appointments to positions within the organisation are based on family favouritism may want to deal with this situation by dismissing the employees. Anecdotal evidence suggests nepotism can cause animosity in a workplace particularly where an appointment is a well-paid position within the company. A common reaction may also be to change the company’s recruitment policy to prevent the future hiring of a relative or spouse of a current employee. 
 
Q. Our company recently appointed a new CEO who has questioned the merits of a number of senior managers who have a family relationship with the previous CEO. This includes immediate family members as well as an in-law. Discrete enquiries amongst staff have revealed a common view that the appointments were based on family connection, not merit. I have been advised by the new CEO to dismiss each employee suspected of being employed on this basis and to change the company’s recruitment policy to prevent this situation from re-occurring. I am concerned about dismissing these employees as it may be viewed as discriminatory.  
 
Can the company dismiss these employees on the grounds of gaining benefit from a family connection with the ex-CEO and would a company policy that prohibits hiring people who are related to current employees be legal? 
 
A.  Dismissing an employee on the grounds they were employed due to family favouritism would not be a valid reason for dismissal. Discrimination law and general protections provisions under the Fair Work Act would offer protection on the basis of ‘marital status’ if an employee was dismissed because they are a spouse or de facto partner of a current or ex-employee. 

The employer should not be concentrating on how these employees got the job but how they are currently performing in their respective job. If an employee’s performance is unsatisfactory the procedural fairness principles under unfair dismissal law will need to be applied by the employer. This involves warnings regarding performance and an opportunity for the employee to respond. Continued poor performance, with related warnings, would provide a defence for the employer in any subsequent claim before the Fair Work Commission regarding unfair dismissal. 

The employees should be subject to the normal performance review as applies to all other employees. 

Rather than prohibiting the employment of relatives altogether, employers should consider policies that require:

  • disclosure of family relationships during recruitment processes;

  • conflict-of-interest declarations;

  • independent recruitment and promotion panels;

  • employees to remove themselves from hiring decisions involving relatives;

  • restrictions on direct reporting relationships between close family members; and

  • ongoing management of conflicts of interest.

These measures help reduce the risk of actual or perceived favouritism while allowing recruitment decisions to be made on merit.

 

Bottom line 

An employer should be cautious about dismissing employees simply because they may have obtained their position through family connections. The key question is whether there is a current and legitimate employment-related reason for taking action, such as poor performance, misconduct, dishonesty or an unmanaged conflict of interest. 

Similarly, while employers may implement policies to manage nepotism and conflicts of interest, blanket bans on employing relatives should be carefully drafted and consistently applied to minimise discrimination and general protections risks.