The new pension case South African workers and businesses should know about

If an employee causes an employer damage through dishonesty, theft, fraud or misconduct, the South African Pension Funds Act provides that the employer can, in certain circumstances, recover losses from the benefits payable to that employee when the employee ceases to be a member of the fund or retires.

However, this will only apply if the employee has admitted liability in writing to the employer or if a judgment has been given against the employee in any court, said legal firm ENSAfrica.

“An employer could, however, encounter problems if the employee has not admitted guilt and demands payment of their benefit in circumstances where the employer has yet to obtain a judgment against the employee. In this situation, the courts have held that, in appropriate circumstances, the trustees of the fund may withhold the payment of the benefit, or a part thereof, pending the employer obtaining a court order.

“In the past, the Pension Funds Adjudicator has been hesitant to sanction the withholding of retirement benefits from employees in the absence of a court order being obtained by the employer against the employee, unless extremely compelling reasons to do so existed.”

High court case 

In the recent High Court case of Jacobs v Telkom, the employee launched an application requesting that his retirement benefits be paid to him after resigning from his employer, Telkom.

Telkom opposed this application and instituted a counter-application in terms of which it sought an order against the retirement fund interdicting it from paying the relevant funds to the employee, pending the finalisation of a civil action that it was pursuing against the employee.

The High Court referred to the Pension Funds Act, as well as the rules of the relevant fund which allows the fund to retain benefits where legal proceedings have been instituted, or where criminal charges have been laid against an employee, until the matter has been determined by a competent court of law. This provision was subject to there being a prima facie case and a reason to believe that the employer has a reasonable chance of success.

“The employee based his claim that he be paid his pension monies on the fact that the delay in finalising the action that the employer was taking against him was unreasonable. However, the court found that the delay was caused by various factors and could not be solely attributed to the conduct (or lack thereof) by the employer. It also emphasised the duty of the employee to not contribute to any delay,” ENSAfrica said.

“The court considered the employee’s contention that he required the money to meet his existing financial obligations, but found that, if the employee was paid the pension monies, he would (on his own version) use the money for these obligations and thus leave Telkom with no recourse. Any judgment that Telkom secured against the employee would therefore be of no value.”

The High Court granted the interim interdict to Telkom. This confirmed the possibility of an employer successfully, and at least temporarily, precluding a pension fund from paying benefits in terms of a pension fund rule to an employee upon the termination of their employment, notwithstanding that the requirements of section 37D of the Pension Funds Act have not been met.

“This is because section 37D allows a deduction to be made, but requires an admission of liability on the part of the employee, or a judgment to be made against the employee. In the event that pension amounts become payable before any litigation is finalised, there must be some recourse for an employer to ensure that the payment of any amounts are withheld until the finalisation of such litigation,” ENSAfrica.

“In short, this judgment has confirmed that money held by pension funds to be paid to employees upon their termination of employment is not untouchable. This should serve as a warning to employees in this regard as well as a reminder to employers of the possible recourse they have against employees for monetary claims.”

  • Commentary by Samantha Bonato and Peter le Roux of ENSAfrica. 

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