A TIMELY REMINDER FOR EX-EMPLOYERS ON REQUIREMENTS TO BE SATISFIED FOR WITHHOLDING EX-EMPLOYEES PENSION FUND BENEFITS

Introduction:

When employees are dismissed or abscond following suspected theft or misappropriation of funds, ex-employers often attempt to recover the lost funds from the ex-employee’s pension benefits. In such cases, time is of the essence, as ex-employees may try to withdraw their pension benefits quickly. To have a chance of recovering the lost monies, an ex-employer must promptly apply for an interdict. However, for an interdict application to succeed, there are stringent requirements that the applicant must meet.

In mid-August 2024, the Johannesburg High Court handed down a judgment against an ex-employer who sought to interdict an ex-employee from accessing her pension benefits. The facts of the case and the reasons for its failure are discussed below, serving as a timely reminder for ex-employers of the requirements needed to succeed in such applications.

Brief facts:

The ex-employer filed an application against the Municipal Gratuity Fund (registered under the Pension Funds Act) and an ex-employee. The relief sought was to prevent the Gratuity Fund from releasing the pension benefits to the ex-employee. The ex-employee had been dismissed following a disciplinary hearing where she was found guilty of, among other things, gross misconduct, fraudulent misrepresentation, and breach of trust. The ex-employee’s challenge to the dismissal is still pending before the relevant forum.

Requirements for interdict application: 

The court laid out the following trite requirements that the applicant must prove for an interdict:

1. A prima facie right;
2. A reasonable apprehension of irreparable and imminent harm to the right if the interdict is refused;
3. That the balance of convenience favours the granting of the interdict; and
4. That the applicant has no other legal remedy.

The first hurdle for the ex-employer was to prove prima facie (first impression) right to the ex-employee’s pension benefits, a hurdle at which the ex-employer failed. It relied on Section 37D of the Pension Funds Act, which allows for the withholding of an employee’s pension benefits pending potential liability to the ex-employer. Therefore, the ex-employer had to show, on a prima facie basis, that it had reasonable prospects of success in obtaining a decision in its favour against the ex-employee, entitling it to the pension benefits.

Based on the ex-employer’s affidavit, the court believed the applicant was relying on a claim for fraud and theft. However, the court did not find reasonable prospects of success for the ex-employer, as the affidavit did not establish grounds on which the two causes of action could be sustained. The court held that the applicant’s affidavit had not satisfactorily demonstrated grounds to be entitled to the ex-employee’s pension benefits. The applicant was essentially inviting the court to draw inferences where there were no primary facts upon which reasonable inferences about the misappropriation of funds by the ex-employee could be made.

The court, relying on established principles, explained how inferences (secondary facts) should be drawn and applied. In this case, such inferences could not be drawn. In summary, the applicant failed to provide sufficient evidence to establish a prima facie case linking the ex-employee to the misappropriation of funds. 

Key takeaways:

As mentioned earlier, these applications are gaining prominence. It is submitted that they serve a crucial purpose by protecting employers’ interests against the actions of untrustworthy employees. Therefore, it is essential for employers to understand what facts they need to present to the court to have a chance of recovering funds in such cases.

Firstly, there must be sufficient evidence of the ex-employee’s wrongdoing on which a prima facie case can be based. It is clear that mere speculation and baseless inferences will not support the employer’s case. Proper drafting of affidavits is key, as the applicant’s case “stands or falls on the strength of its affidavit.”

Additionally, the timing of the interdict application is important. In the present case, the application was brought while there were still pending internal processes. As a result, the interdict relief sought, which is supposed to be interim, effectively became final relief.

Written by:

Mtho Maphumulo

Senior Associate, Adams & Adams 

Insurance and Financial Sector Laws division