Monday, February 18, 2019

Disclosure of Confidential Information by Employees

Following a previous article on the provisions applicable to termination of employees found guilty of misuse of confidential information acquired during their employment, this article will focus on the provisions applicable to the employer’s confidential information under the Omani Labour Law, the Civil Code and the Penal Code.

Article 27 of the Labour Law, which lists the employee’s main obligations, states under item (4) that the employee is obliged to keep the secrets of its work.  Furthermore, Article 40(5) permits the employer to dismiss the worker with immediate effect and without payment of end of service benefits (if applicable) if the employee discloses any confidential information in relation to the employer’s business.

In summary, the Labour Law is clear in stating that, subject to the statutory disciplinary procedures and timelines, actual disclosure by an employee of its employer’s confidential information is a legitimate reason for immediate termination of an employment contract.

The same concept is re-stated in the Oman Civil Code under Article 657 which lists the main obligations of employees, including the obligation to “keep the industrial or trade secrets of the employer, including after the termination of the contract, as required by the agreement or by custom.”  Interestingly, the access to trade secrets and the obligation of confidentiality are linked to the possibility to validly enter into a non-competition agreement.  Article 661 provides that, if the work of the employee is such as to permit him to have access to work secrets or to make acquaintance with the customers of the business, the parties (employer and employee) may agree that, after termination, it would not be permissible for the employee to compete with the employer directly or to enter into an employment relationship with a business which competes with the employer, provided that such agreement is valid unless it is limited in time, place and type of work to the extent as may be necessary to protect the lawful interests of the employer.

Finally, Article 671 specifically provides that no claims arising out of a contract of employment shall be heard after the expiration of one year from the date of the termination of the contract except for the actions pertinent to disclosing trade secrets.

In addition to the serious consequences of any such disclosure under the Labour Law and the applicable provisions of the Civil Code, Oman’s Public Prosecution, in the framework of its awareness building programme, has recently issued a note of precautionary advice addressed to the general public.  Public Prosecution underlines that breach of confidentiality in respect of work secrets and confidential information is a punishable offence under the Omani Penal Code if the person committing it is a public official.

Book 2, Chapter 3 of the Penal Code deals with a number of criminal offences that may be committed by public officials in the context of their duties.  Article 201 provides that “any person who discloses job secrets shall be punished with imprisonment for a period of not less than three months and a fine of RO 1,000.”  The employee’s retirement and the termination of the employment contract do not preclude the application of this Article.

Similar provisions are found in many jurisdictions but the definition of “Public Official” under the Penal Code is rather wide as it includes, in addition to persons holding a government office and “persons assigned to carry out specific work by a competent public authority,” employees of wholly owned government companies or of companies with government participation in excess of 40%.

Considering the large percentage of government employees among the Omani population and the structure of the local economy, where government investment is a rather common feature in a large number of major corporations, this definition applies to an arguably far larger number of employees than in most other jurisdictions.  Further, employees of government-owned or -participated companies are considered private sector employees and, as such, subject to the Labour Law, leaving open the issue of the interaction between the relevant provisions set out in the pieces of legislation considered.


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Monday, February 11, 2019

Indirect Loss under Omani Law

Common law meaning

The concept of indirect loss developed in common law jurisdictions such as England.  The common law approach generally permits recovery of two broad categories of loss caused by a breach of contract:  first, losses that are the natural consequence of the breach (for example, the direct cost of repairing or replacing damaged property); and, secondly, losses which are not a natural consequence of the breach but which were foreseeable by the parties (for example, lost profits, if both parties knew that damaged property would leave the innocent party unable to perform its obligations under other contracts).

Indirect losses are generally viewed in common law jurisdictions as the types of loss that fall into the second of these categories.  In those jurisdictions, clauses excluding indirect losses will not exclude losses arising directly and naturally from a breach of contract.

Treatment under Omani law

Whilst the Civil Transactions Law (Royal Decree 29/13) (the “Civil Code”) does allow for the recovery of indirect losses in certain circumstances, such provisions of the law are yet to be tested before the Omani courts.  In a civil jurisdiction such as Oman, the distinction between losses occurring as a natural, direct consequence of a breach and those that are foreseeable but not arising in the natural course of events does not sit comfortably with the courts, partly because the concept of foreseeability is not a relevant consideration.

Indirect or consequential damages are not, then, excluded as a matter of law but the terms have limited applicability in Oman.  First, there must be a nexus between loss suffered and damages claimed.  Secondly, there must be a degree of foreseeability, i.e., damage must not be too remote.

Common practice

In spite of the attitude of the Omani courts to the concept of indirect loss, clauses excluding indirect losses are commonly seen in Omani law-governed contracts.  Given the lack of a clear concept of indirect loss in Oman, these clauses can be ineffective unless they clearly identify the heads of loss that are meant to be excluded.

For example, there is a risk that the Omani courts would consider loss of profit to be a direct loss that is not excluded by a generally worded indirect loss exclusion clause.  If the parties do not want to be liable for loss of profit, this should be specifically mentioned.

In summary, terms such as direct, indirect and consequential, which are not legally recognised terms in Omani law, are likely to be a source of contention in the event of a dispute.  It is preferable to draft contractual provisions that state explicitly the exact heads of claim that are intended to be excluded.

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Monday, February 4, 2019

Conflicts of Interest in the Public Sector

The recognition and resolution of conflict of interest situations is vital to good corporate governance and maintaining confidence in public and private institutions. In the GCC, there are expectations that governments should deliver higher standards in the civil service, public institutions and in government-owned or -controlled corporations which are prevalent in Oman. Conflicts of interest should be a regular and important consideration of individuals who occupy a positon of trust. If conflicts of interest are not recognised and managed at the outset they have the ability to undermine the integrity of a company and its decisions.

Essentially, a conflict of interest is any situation where there is a risk that a private interest (political, business or commercial, etc.) of a director, manager, officer, agent or other representative interferes with the legitimate interest of the entity for which that individual works. In the public sector, a conflict arises when a public official has private capacity interests which could improperly influence the performance of their official duties and responsibilities. In the private sector, conflicts of interest have been identified as a major cause behind corporate governance shortcomings.

Conflicts of interest often lead to fraud and other corrupt practices which violate existing regulations. The Sultanate of Oman has, pursuant to Sultani Decree 112/2011, implemented the Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (as amended) (the “Anti Corruption Law”) with which government officials must comply. A government official is defined by the Anti Corruption Law as any person holding a government position or working for the government, whether on a permanent or temporary basis and whether they are paid or not. The provisions of the Anti Corruption Law are also applicable to members of the Oman Council, the representatives of the government in companies, and employees of companies in which the government has a 40% shareholding of the company. Pursuant to the Anti Corruption Law, a government official for example:

  • Is prohibited from acting as an intermediary, an agent or a sponsor of any company or establishment whose activities are connected with the entity in which he works; and
  • Must not (and his minor children must not) have a share in any company, establishment or business for profit which is directly connected with the entity in which he works. 

Further, it is not permissible for ministers’ council, ministries, public authorities and institutions and other administrative units that derive power from the state and that are supervised by the government official to deal with any company or establishment in which it has a direct or indirect interest.

The International Chamber of Commerce (“ICC”) Guidelines on Conflicts of Interest in Enterprises identifies three types of conflicts as detailed below:

1. An actual conflict of interest, which is a current situation in which an employee or associate of the company faces a real and existing conflict of interest. Some examples are:

  • Hiring or supervising a relative. 
  • Serving on the board of a company while serving on the board of a competitor company. 
  • Purchasing goods or services from a supplier directly or directly owned by a relative. 
  • Close personal relationships influencing the decisions in a bidding process. 
  • Using assets of the company for private benefit. 
  • Trading in securities for personal benefit using non-public information. 


2. A potential conflict of interest, which does not exist yet but may occur, regarding an employee or officer of a company. Some examples are:

  • X is a board member of companies A and B which are not business related. This may develop into a conflict of interest if the two companies do business together. 
  • X is a former public official of the Capital Markets Authority of Oman (“CMA”). This could create a conflict of interest if the company becomes subject to an investigation by the CMA. 
  • X is the sibling of the CEO of the IT supplier of the company. This could become a conflict of interest if X were to become responsible for the company’s procurement process and was part of the decision-making process. 
  • X is in a position to influence a business decision of a third party where he has direct or indirect influence of a relative to the benefit of the company. 

3. A perceived conflict of interest, which is a situation where a director, officer, manager, employee, agent or representative of a company appears to have a conflict of interest, even if this is not true. For example:

  • X is a senior director at company A and accepts a board membership at company B with which company A does a lot of business. If X is appointed with the full support and approval of the board of company A this merely creates the appearance of a conflict. 
  • Company A hires a new employee who has the same name as the CEO, but they are not relatives. 

The Organisation for Economic Co-Operation and Development (“OECD”) Tool Kit on Managing Conflicts of Interest [1]  has identified a number of commonly repeated ‘at risk’ conflicts of interest areas which directors and managers should make themselves aware of, including:

  • Inside Information – is there a policy and administrative procedure in place for ensuring that inside information obtained in confidence is kept secure and is not misused by directors or staff of the company? Is the policy being enforced? 
  • Ancillary Employment – does the company have a published policy and procedure for approval of additional/ancillary employment? 
  • Contracts – does the company ensure that any employee who is involved in the preparation, negotiation, management and enforcement of a contract involving the company has notified the company of any private interest in relation to the contract? 
  • Gifts or other Benefits – does the company policy deal with conflicts of interest arising from traditional and new forms of gifts or benefits? 
  • Nepotism – it is the practice of giving favours to relatives and close friends, often by hiring them? 
  • Self Dealing – is there a situation in which someone in a position of responsibility in a company has outside conflicting interests and acts in their own interest rather than that of the company? 

To the extent that a company has not already implemented a policy to deal with the conduct of its employees, we recommend that all Omani government-owned companies (LLCs or SAOGs) put in place a specific policy to treat conflicts of interest between individual directors and the company. The policy should identify processes for dealing with actual, potential and perceived conflicts of interest, such as misappropriation of assets, related transactions, insider trading and more. It should be reviewed and signed by each director when appointed as a director and be reviewed and updated regularly.

Although a conflict of interest is not corruption on its own, it does hold the potential for a breach of trust and fraudulent behaviour to follow. Conflicts of interest must therefore be promptly identified and managed. Left unresolved, a conflict of interest can result in unlawful actions and lead to unhealthy mistrust and suspicion of both private and public companies.

Endnotes
[1]Managing Conflicts of Interest in the Public Sector – A Tool Kit, ISBN 92-64-01822, OECD, 2015

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