When Your Employee’s Side Hustle Is a Conflict of Interest

In sectors built on trust and access to money (banking, SACCOs, microfinance, insurance) an employee’s private financial dealings are rarely just their own business. The Court of Appeal decision discussed shows how a seemingly personal side arrangement became grounds for lawful dismissal, and why the contractual language around it matters more than most institutions realise.

The Case, Briefly

In Consolidated Bank of Kenya Limited v Lydia Kaguri Makathimo, one strand of the bank’s case against its former Customer Service Officer concerned a private lending arrangement: she had personally advanced Kshs. 300,000 to an individual under a written agreement entitling her to repayment plus an additional Kshs. 102,000 in interest. Around the same period, a related customer’s account was debited Kshs. 20,000 without proper authorisation.

The bank’s position was that this lending activity put the employee in direct competition with the bank’s own business and breached her employment contract’s code of business conduct. The employee’s defence was that it was a personal favour between friends, done to help repair a vehicle, and that she was “not in any lending business.”

The Court of Appeal sided with the bank, finding that the documented lending-at-interest arrangement, combined with the unauthorised account debit, amounted to misconduct under Section 44 of the Employment Act (gross misconduct justifying summary dismissal) regardless of how the employee characterised her own intentions.

Why “It Was Just a Favour” Isn’t a Defence

The case is a useful illustration of a principle that matters intensely in financial services: a conflict of interest is assessed by what the conduct is, not by how the employee subjectively frames it. Lending money at interest is lending money at interest, whether the borrower is a stranger or “a friend in need.” Once that activity is prohibited under the terms of employment (as it was here, from the outset of her employment letter) the employee’s belief that she hadn’t really contravened bank policy carried no legal weight.

This matters especially where employment contracts and codes of business conduct explicitly restrict staff from engaging in activities that compete with, or exploit access gained through, their employment. Many such clauses exist precisely because financial-sector employees are uniquely positioned (through system access, customer relationships, and institutional trust) to run exactly this kind of parallel activity quietly, until it surfaces through a complaint or an audit.

The Practical Lesson for Financial Institutions

For banks, SACCOs, Microfinance institutions, and insurance intermediaries, this case reinforces a few operational points:

Contract language matters. The bank’s ability to act decisively rested partly on the fact that the prohibition against unauthorised lending and borrowing was written into the employee’s original letter of employment, not introduced after the fact.

Customer complaints are often the first signal. The lending arrangement only came to light because a customer complained about an unrelated unauthorised debit: a reminder that conflict-of-interest violations rarely announce themselves through internal channels first.

Documentation from the employee’s own hand is powerful evidence. The written loan agreement, and the employee’s own explanatory letters, did much of the evidentiary work in this case.

Institutions in trust-based sectors should treat codes of business conduct as living documents (regularly reinforced with staff) rather than boilerplate buried in an onboarding pack.

C.B. Mwongela & Co. Advocates advises financial institutions on staff codes of conduct, conflict-of-interest policy, and defending disciplinary decisions arising from breaches of trust.