Withholding of retirement benefits due to loss caused by misconduct.

The Basic Conditions of Employment Act (BCEA) regulates deductions against the benefits of the employee in accordance with provisions set out in Section 34 of the Act.

The BCEA specifically addresses deductions in respect of damages. Section 34(2) permits an employer to deduct from an employee’s remuneration for reasons related to loss or damage, provided the employer complies with the following prior to a deduction being made: 

• The damage must be caused by the fault of the employee.
• A fair procedure must be followed in that the employee is given a fair opportunity to make representations as to why the deduction should not be made.
• The total amount of the debt cannot exceed the loss or damage.
• The total deduction must not exceed one-quarter (25%) of the employee’s remuneration in money.

It is important to note that Section 34 applies to deductions made against the employee’s remuneration.  The purpose of this article is to explore whether the employer has a right of recourse to claim damages against an employee’s pension fund.

Section 37D(1)(b)(ii) of the Pension Funds Act (PFA) provides that a retirement fund may deduct any amount due by a member(employee) to their employer for any damage(s) caused to the employer by reason of theft, dishonesty, fraud or misconduct by the member and in respect of which the member has in writing admitted liability to the employer; or judgment has been obtained against the member. The PFA requires that either an acknowledgement of guilt or an order of judgment be made against the employee.

In operation, the employer need only satisfy the fund on prima facie evidence that there is an acknowledgement of debt or that the employer has obtained a cost order against the employee in a Civil Court order and has a bona fide case for interdicting and withholding a pension benefit in lieu of damages suffered by the employer. In the event of a written acknowledgement, where the employee disputes all or part of the acknowledgement, the fund must exercise its discretion in determining the extent of liability in accordance with Rule 12.4.5 of the fund. 

In Hansen & Genwest (Pty) Ltd v Corporate Selection Umbrella Retirement Fund No 2 and Others ZAGPJHC 2023, the rule in question provides that the fund may only accede to a request to withhold the amount to be recovered under Section 37D(1)(b)(ii)(bb) of the PFA, where the board of trustees is “of the opinion that the employer has a reasonable chance of succeeding in the proceedings instituted against the member” and the employer has “taken all reasonable steps” to advance its claim and is not responsible for any undue delays in the prosecution thereof. The interdicting of a fund would be sufficient whereby the employer shows a prima face case and where any facts in dispute pending adjudication would subsequently give rise to an order to withhold the extent of the pension benefit as determined by a competent Court.

The Courts have defined “misconduct” to include the damage caused to the employer, which must be by reason of theft, dishonesty, fraud or misconduct by the member. Mere negligent conduct does not permit a fund to be deducted from, as set out in Moodley v Local Transitional Council of Scottburgh Umzinto North and Another [2000] 9 BPLR 945(D).

It is important to note that the provisions of Section 34 of the BCEA do not apply in this circumstance and only apply to claims for damages against the remuneration of the employee; the provisions of Section 37D(1)(b)(ii) are regulated in accordance with the Pension Fund Act and would thus fall outside the scope of the CCMA.

Written by Wesley Lazarus, Dispute Resolution Official (CEO SA)