Dishonesty – Section 37D

In his preliminary determination the Adjudicator inter alia expounded on what is needed to satisfy the requirements of section 37D (b) (ii) as follows: 

1. Where a member has caused damage to an employer by reason of any theft, dishonesty, fraud or misconduct contemplated in section 37D(b)(ii), no deductions can be made from the benefits payable in terms of the rules unless there is a court judgment or a written admission of liability. These must be in respect of the compensation due as a result of the damage caused to the employer. 
2. The member’s written admission of liability must be clear and should specifically allow for deductions to be made in respect of a wrongdoing or delict committed by the member. Thus, an admission of a contractual liability, for example in respect of an ordinary loan granted to the member by the fund or the employer, is not sufficient. 
3. The judgment by “any court” must relate to either of the following

• • A civil judgment sounding in money, i.e. a judgment made consequent to a civil action and granted by the court at the end of a civil process; or
  • A compensatory order granted by a criminal court in terms of section 300 of the Criminal Procedure Act, specifically allowing compensation to the employer for loss suffered. The compensatory order is a separate or ancillary order that may be issued by the same criminal court that convicted the accused.

4. The reference to “any court” in section 37D (b) (ii) relates to courts that made awards of compensation. The Adjudicator held that in this case the criminal court had not made an award of compensation and thus no judgment had been obtained in respect of compensation for the damages caused to the employer as a result of the complainant’s theft. Therefore the criminal judgment obtained by the employer in this case did not meet the requirements of section 37D (b) (ii). 
5. As a result the fund was only entitled to deduct those amounts in respect of which the complainant had admitted liability in writing, and which had been stolen as at the date of the complainant’s retirement, i.e. only the 2 counts of theft committed whilst the complainant was a member of the fund were covered by the admission. 
6. With regard to the 2 counts of theft which were committed after the complainant’s retirement, the Adjudicator held that his written admission of these were not entirely in respect of “amounts due by a member to his employer on the date of his retirement” as required by section 37D. Therefore, the employer required a court judgment or a further written admission in respect of the 8 remaining counts of theft to meet the requirements of section 37D, in order to deduct the complainant’s full actuarial reserve. 
7. Regarding the balance of the amount owing to the employer which was not covered by the complainant’s admission, the Adjudicator noted that the employer was entitled to obtain judgment in a civil court, or review or appeal the decision of the magistrate not to grant a section 300 compensatory order.

Appanna v Kelvinator Group Services of SA Provident Fund (PFA/GA/475/99/LS) In this case the question for the Adjudicator’s determination was whether or not the fund could withhold the complainant’s withdrawal benefit pending the outcome of criminal proceedings against her. The Adjudicator held that the purpose of section 37D (b) (ii) is clearly to protect the employer’s right to recover any losses incurred as a result of an employee’s theft, dishonesty, fraud or misconduct. In order to give effect to this purpose, the provision for this deduction should be interpreted to implicitly include the right to withhold payment of the benefit pending the determination or acknowledgment of liability. Nonetheless, despite the implicit right granted by section 37D (b) (ii), the rules of the fund must permit the withholding of benefits pending determination of liability. The rule must, however, be qualified to:

1. Extend some protection to the member from suffering prejudice during the period the benefit is withheld;
2. Limit the right to withhold, to the value of the employer’s claim; and
3. Prevent the fund from withholding the benefit indefinitely.

Court proceedings invariably take a long time, and if the fund was not permitted to withhold the employee’s benefit in the interim, by the time legal proceedings were finalised, the employee might no longer be in a position to pay the employer’s claim. As a result the protection of the employer’s property against an employee’s misconduct would be rendered ineffective. The Adjudicator ordered the fund to amend its rules accordingly.