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  • Mihaela Cracea

Conflict of interests in the Romanian private sector. A very important, but disregarded topic.

Updated: Nov 13, 2023

To management: have you recently asked yourself whether any of the members of your staff could be in a position of conflict of interests?

If this is a topic that was already approached by your company and, as a result, rules in this regard have been implemented within the organisation, this is a great thing! The company’s compliance team may now concentrate their efforts on reminding such rules to the staff from time to time and on being sure that they are properly observed.

If not, maybe this is the right time for a close introspection into the organization to see whether:

- the concept of conflict of interests has ever been brought to the staff’s knowledge,

- it has been understood well, whether

- there are comprehensive guidelines in place to allow staff members to find answers should their actions ever come in conflict with the company’s interests, and whether

- the active avoidance of situations raising conflict of interests is on your staff members’ agenda.

Why do you need to be prepared and take a cautious stance? At least for three reasons:

1. to protect your company’s business,

2. to protect your company’s image and

3. to avoid breaching any contractual obligations you might have with your clients.

In case you are wondering, the answer is no, your company, a business acting in the private sector, is not so well protected by the applicable Romanian law. Hence the need for your company to create its own internal rules in this regard. In their absence, proving a breach of the loyalty obligation based on some conflicts of interest would be quite challenging for you.

While Romanian legislation concerning the public sector is quite generous in regulating conflict of interests of those holding a public office, in the private sector employers may rely on a single provision of the Labour Code (article 39 para. 2 letter d) which indicates that “employees have the obligation of loyalty to the employer in the course of performing their duties”. Nothing else!

What does this “loyalty obligation” mean though? We are quite sceptical that the immediate reaction of an employee reading about this obligation in their labour agreement (a standard provision) would be to think about situations concerning conflict of interests.

In the absence of clear guidelines, relying on the staff members’ due care and capacity to correctly assess a potential conflicting circumstance might not lead to the desired outcome. This would not necessarily be a result of bad baith, but merely a consequence of knowledge and awareness in this regard.

What is “conflict of interests” though?

“Conflict of interests” refers to a situation where an employee, acting in the performance of their duties within the company, takes actions or decisions that are favourable to them, personally, and that are less favourable (or even harmful) for the company, as employer.

To avoid being in a situation of conflict of interests when performing their duties, employees should avoid any circumstances in which their decisions would be influenced by their own personal interests.

Is “personal interest” related only to employees?

The concept also covers conflicting interests relating to the employee’s spouse and close relatives (such as children, parents). This means that, in the context of their work, employees should not act in favour of their close ones, but solely in the company’s favour.

What limits should be set for employees when they are mandated to bind the company in contractual relationships with third parties (e.g. services providers) and what rules should they observe to avoid drawing a personal gain for them or for their family members?

The answers to such questions depend on the company’s activity and industry field, as well as on the nature of the job positions in the organizational chart. Generally, employees should not be allowed to bind the company in acquiring services or products which, directly or indirectly, benefit themselves or their spouses/relatives. Otherwise, such actions may be found in conflict with the company’s interests and result in the – bluntly said – exploitation of the company’s interests for personal gains.

Clear rules, periodical declarations of conflict of interest and the prior approval of the management for any decision that might give rise to a case of conflict of interests are absolutely necessary for a good protection of any business.

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