As we all know, the primary purpose of a retirement fund is to provide retirement benefits to its members and death benefits to their dependents. It is for this very reason that retirement benefits are strictly protected.
However, Section 37D(1)(b) of the Act enables a fund to deduct compensation due to an employer in respect damage caused by the member to the employer by reason of theft, dishonesty, fraud or misconduct and in respect of which:
- the member has admitted liability in writing, or
- a judgment has been granted against the member, including a compensation order granted in terms of section 300 of the Criminal Procedure Act, 1977.
It is clear from the wording of this section that, in order for a deduction to be lawful, there must either be a written admission of liability by the member to the employer or a judgment obtained against the member by the employer – both of which must relate to damages caused to the employer through a member’s theft, dishonesty, fraud or misconduct.
The requirement of theft, dishonesty, fraud or misconduct
Section 37D(1)(b) is not a catch all provision – this section does not allow the fund to deduct any kind of damage caused to an employer by a member. The damages caused must relate to the member’s theft, dishonesty, fraud or misconduct. If it does not, it will not be a permissible deduction.
Master parts (Pty) Ltd v Auto Workers Provident Fund and another [2025] 4 BPLR 65 (PFA)
n this matter the Adjudicator had to answer the question whether an omission by an employee constituted “dishonesty” for purposes of section 37D(1)(b).
In short, Lindelwa was employed by the complainant from May 2021 to June 2024. Lindelwa went on maternity leave in January 2024 and was due back at work in May 2024. In terms of the company’s leave policy, her maternity leave period was unpaid, and she was informed of this fact. Nevertheless, due to a payroll system error, she received her full salary during her maternity leave period. At no point during this period did she inform her employer of this error. Lindelwa absconded by not returning to work from her maternity leave. Discovering the error, the complainant offered her an opportunity to continue her employment so that she could then reimburse it with a reasonable amount per month until the full, unduly received salary was paid back, which offer she refused.
The complainant opened a criminal case and obtained an acknowledgement of debt (AOD) from Lindelwa, authorising the deduction. The AOD referred to the erroneous overpayment of her salary during her maternity leave but she did not acknowledge that she had a responsibility to report the error.
When the complainant submitted the claim to the fund, the fund refused to make payment of the damages stating that the claim did not meet the requirements as set out in section 37D(1)(b), specifically that her failure to inform the complainant of the payroll error did not amount to theft, fraud, misconduct or dishonesty as required in terms of the Act. The complainant argued extensively that Lindelwa’s failure to notify it of the error while being aware that she was not supposed to receive a salary while on unpaid maternity leave constituted dishonesty and theft. Nevertheless, the fund stood firmly behind their interpretation, prompting the employer to lodge a complaint with the Adjudicator requesting the Adjudicator to order the fund to accept Lindelwa’s AOD and order it to deduct the amount due from her withdrawal benefit and pay it over to it.
Considering the facts, the Adjudicator agreed with the complainant that, at the time the payment was made, Lindelwa was aware that she was not entitled to a salary, as her employment contract specifically stated that maternity leave was unpaid. She owed a fiduciary duty towards the complainant, which she failed to fulfil. In that regard, her conduct was dishonest. The Adjudicator also agreed with the submission by the complainant that there was a duty to speak on the part of Lindelwa and that her failure to do so constituted dishonesty.
Finding that her conduct was dishonest in terms of section 37D(1)(b), the Adjudicator held that the complainant was well within its rights to claim a deduction from Lindelwa’s withdrawal benefit and ordered that the fund be held liable for the amount due to the complainant.
Conclusion
As we can see, section 37D(1)(b) is not always as straightforward as it seems. It entails a careful scrutiny of the type of damage caused to the employer by the member.
It is also important to remember that trustees owe a duty of good faith to its members. As such, when presented with a request from an employer to withhold or deduct compensation from a benefit due to a member, the trustees must balance the competing interest of both the member and the employer in question.
