The Devil’s in the detail – a Breach of Contract may lead to your Employer laying a claim against your Retirement Fund

“Whatever you are, be a good one.” – Abraham Lincoln

Article by Michael Buitendag (Senior Labour Advisor)

Introduction

Most employment relationships are governed by an employment contract. Usually, specific conditions of employment, such as salary, place of work, hours of work etc. are the first elements consulted and agreed upon, before signing the contract of employment, however, not always. Some prospective employees often fail to read the finer detail.

In a recent article, issues relating to Restraint of Trade and the enforceability thereof were discussed in detail. Restraint of trade clauses are quite prominent with companies becoming more competitive by the day, having to make the necessary contractual provisions to protect their interests.

The consequences of breach of contractual provisions can be detrimental to both employer and employee, leading to lengthy legal battles and a claim for monetary damages by the employer against the employee.

The question arises: May your employer recover monies against your retirement fund to recover damages as a result of breach of contract?

And the simple answer is yes!

The Pension Funds Act 24 of 1965 and Rules

The Pension Funds Act (PFA) makes provision for recourse by an employer who suffered financial damages due to the breach of contract or any other wilful or negligent act on the part of the employee.

Section 37(D)(1)(b) of the PFA provides that “(ii) – compensation (Including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb) in respect of any damage caused to the employer by reason for any theft, fraud, or misconduct by the member, and in respect of which – (aa) the member has in writing admitted to the employer; (bb) judgment has been obtained against the member in any Court, including a Magistrate’s Court, from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund , and pay such amount to the employer concerned”.

Therefore, it is clear that an employer may pursue legal recourse against an errant employee. Moreover, Rule 9.5(2)(b) of the PFA, makes further provision that a benefit may be retained if the employer instituted legal or criminal proceedings against an employee or beneficiary. The employer bears the onus to prove that they have sufficient merit and reasonable prospects of succeeding with their claim.

The High Court Decision in favour of the Employer

In Jacobs v Telkom and Others (17342/2021) [2022] ZAGPPHC 551; (2022) 43 ILJ 1902 (GP), Jacobs brought an application to the High Court, applying for an order forcing his previous employer to release his retirement fund monies, after same was held back due to breach of contract. It was alleged that during the years 2006 – 2016 the employee sold some of the company’s systems and data to its competitors and as a result, the employer suffered tremendous financial damages. The employer proceeded with legal action and issued summons against the employee for an amount exceeding R200 Million and in addition, countered the first application, interdicting the retirement fund from releasing the monies to the employee. The High Court dismissed the employee’s application; ruling in favour of the employer, confirming the interdict, prohibiting the fund from releasing the funds, until the breach of contract (civil matter) between the parties is resolved.

It clear that the employer had successfully proven, on a balance of probabilities, that it had a clear prima facie right to the Retirement Fund monies. Had the monies been released by the fund to the employee, the court recognized that the employer would have been limited in obtaining immediate relief to the damages they sustained as a result of the employee’s actions.

Conclusion

The courts paint a clear picture, highlighting that the interest of justice will prevail in the event a party breaches its contractual obligations. Whether an employee breached a restraint of trade clause or committed a breach of contract in any other way or form, the employer has recourse.

Make sure you read and understand your employment contract before you sign, as certain contracts may make provision for survival clauses which may remain in effect after the termination of employment. A breach of contract may hinder your accessibility to your retirement fund, which at the end the day, may fall within the hands of your employer. 

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