On 21 September 2021, the Financial Services Tribunal (“Tribunal”) in Royal Bafokeng Platinum Limited & Others v Pension Funds Adjudicator & Others, considered what constitutes “misconduct” as contemplated in section 37D of the Pension Funds Act, 1956 (“PFA”) and in which instances a member’s benefit may be reduced. In this case, the holding over by dismissed employees in the employer’s residences was not found to be misconduct justifying withholding of benefits.
The employer sought to have the employees’ pension benefits withheld following an unprotected strike in which the employees had participated, resulting in the employer sustaining financial loss of R11 million. The employees had concluded written sale agreements of immovable property with the employer. However, after the unprotected strike, these employees were dismissed by the employer and were requested to vacate the premises where they were residing. Despite their dismissal, the employees continued occupation without complying with the terms of sale agreements. The employer claimed that this continued occupation constituted misconduct, dishonesty or unjustified enrichment. .
The Tribunal ruled that the term “misconduct” referred to in section 37D(1)(b)(ii) of the PFA has acquired a restrictive interpretation, such that the word “misconduct” must be interpreted to mean dishonest conduct or conduct that at the very least contains an element of dishonesty. Negligence or gross negligence on the part of an employee is not sufficient to illustrate dishonest misconduct for the purposes of section 37D(1)(b)(ii).
Consequently, employers who seek recourse against pension benefits for “misconduct” by the employee may only do so where the reason for the claim is attributable to an element of discreditable, untrustworthy conduct by the employee to his employer. In addition, such recourse is reserved for employers who show that they are victims of specific dishonourable workplace transgressions.
When a pension fund is faced with a request from a participating employer to withhold the benefits of an employee in terms of section 37D, the pension fund must be satisfied that there is an element of dishonest, discreditable and untrustworthy conduct by the employee in order to satisfy itself that the claim by the employer relates to “misconduct” which is alleged to have resulted in the employer suffering a loss.
The determination reiterates that trustees of a pension fund have a fiduciary duty towards the fund and its members and, in exercising their duties, they are required to scrutinise the reasons for withholding of claims and carefully balance the financial prejudice of its members against the employer’s claim.