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A recent decision by the Financial Services Tribunal (“Tribunal”) has revisited an old but recurring question under the Pension Funds Act (“the Act”): can an employer rely on Section 37D(1)(b)(ii)(bb) to recover losses from an employee's pension benefit where the employee's conduct was grossly negligent, but not dishonest?
The case arose from an incident at a logistics company where an employee, operating a forklift, caused damage to company property valued at R95 418.38. A disciplinary hearing found him guilty of gross negligence and dereliction of duty, leading to his dismissal. The employer subsequently obtained a default judgment for the loss and sought to have the amount deducted from the employee's withdrawal benefit.
The Pension Fund declined, citing that the “misconduct” contemplated in Section 37D requires an element of dishonesty. The matter went before the Pension Funds Adjudicator, who upheld the Fund's stance, and finally reached the Financial Services Tribunal (“the Tribunal”) on reconsideration.
Interpreting ‘misconduct' in context
At the heart of the dispute was a question of statutory interpretation. Section 37A of the Act protects pension benefits from attachment, save for limited exceptions in Section 37D, comprising “theft, dishonesty, fraud or misconduct.”
The employer argued that this list should be read disjunctively, allowing “misconduct” to stand on its own as a separate basis for deduction. To insist that it too must contain an element of dishonesty, the argument went, was to render the wording redundant.
The Tribunal was not persuaded. It held that such an interpretation would stretch the exception far beyond what the legislature intended. Pension benefits enjoy a high degree of protection, and any inroad into that protection must be read narrowly. To treat negligence, or even gross negligence, as “misconduct” for purposes of Section 37D would, in the Tribunal's view, erode that safeguard and expose employees' retirement savings to claims that have nothing to do with dishonourable conduct.
In an effort to sustain its case, the employer advanced a fall-back argument that the employee's denial of responsibility in the face of clear video evidence amounted to dishonesty. The Tribunal rejected this submission, noting that no supporting authority was cited and finding the contention to be without merit. Accordingly, the matter proceeded on the basis that there was no dishonesty, only misconduct.
Having dispelled the argument that dishonesty was present, the Tribunal reaffirmed that its interpretation of Section 37D aligns with earlier court decisions. It noted that those decisions have consistently treated dishonesty as an indispensable element of the statutory exception, drawing a deliberate distinction between ordinary misconduct and conduct tainted by deceit. In line with that reasoning, the Tribunal confirmed that deductions may only be made where financial loss arises from dishonest wrongdoing, and found no basis to depart from that settled approach.
Is obtaining judgment sufficient?
The employer's reliance on a default judgment also failed to move the Tribunal. The Tribunal reasoned that a judgment may satisfy the procedural requirement for a deduction, namely that a court order exists. However, it cannot create the substantive element of dishonesty that the statute demands. In other words, one can have a valid judgment without having the kind of misconduct that Section 37D contemplates.
Conclusion
The Tribunal's reasoning is a quiet reminder that Section 37D does not exist to indemnify employers against every workplace mishap. It exists to allow recovery where the employee's conduct betrays the fiduciary or trust-based nature of employment – theft, fraud, deceit, or something akin to it. Outside of those parameters, the protection in Section 37A holds firm.
The outcome may feel unsympathetic to employers, particularly where the loss is real and the employee's negligence severe. Yet the policy rationale is clear. Retirement benefits are insulated from ordinary employment risks, and the exception carved out by Section 37D must remain just that – an exception.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
