May employers make deductions to an employee’s remuneration?


Shenaaz Padayachee // Interpak Books (Pty) Ltd 2014 (LC)

Employers are often faced with instances where an employee’s actions have resulted in the employer incurring loss or damage. Instances where the employee is genuinely to blame, employers may wish to recover these losses or damages from the relevant employee. What right of recourse would the employer have in this regard? Can the employer simply deduct the money from the employee’s remuneration or is there a statutory process which must be followed? These aspects are dealt with in Shenaaz Padayachee // Interpak Books (Pty) Ltd 2014 (LC)

Ms. Padayachee, employed by Interpack, tendered her resignation on 22 September 2011. She was asked to leave immediately and not work her notice, which she did. She was informed she would be paid her October 2011 salary with her leave on 25 October 2011. 

On 25 October 2011 Ms. Padayachee was called to attend a disciplinary hearing scheduled for 27 October 2011 which related to allegations of insubordination and gross negligence. Ms. Padeyachee omitted to attend the hearing alleging Interpak had no authority to discipline her. On 15 November 2011 Interpak informed her that (i) she had been found guilty of the allegations; (ii) the sanction to be imposed was a ‘fine’ of R180 000.00 and (iii) she was entitled to be paid an amount of R86 046.59 for her October 2011 salary and accrued annual leave. 

Interpak further informed Ms. Padeyachee that the amount of R86 046.59 would be offset against the ‘fine’ in terms of section 34(1)(b) of the Basic Conditions of Employment Act 75 of 1997 (as amended)(“BCEA”). She approached the Labour Court (“LC”) seeking an order declaring that Interpak is not entitled to deduct the sum of R86 046.59 and that this amount be paid to her together with interest thereon. 

At the time of hearing the application, it was common cause that 31 October 2011 was her last day of employment with Interpak. In addition, it was determined that the ‘fine’ was as a result of a loss/damage Interpak alleges it suffered/incurred. The chairperson determined the quantum of the loss/damage through the disciplinary hearing. 

Ms. Padeyachee contended that, in terms of section 34(1)(a) read with section 34(2), Interpak is not entitled to make the deduction as (i) she did not agree to the deduction and (ii) the deduction exceeded 25% of her remuneration. Furthermore, she opposed the amount being a liquid amount as it was a claim for damages which had not been determined by a court or through agreement between the parties. 

Interpak contended that (i) section 34(1)(a) and 34(2) had no application in the case as Interpak relied on section 34(1)(b) and therefore offset the debt; (ii) the phrase ‘in law’ contemplates a rule of common law and that the offset constitutes a rule of common law; and (iii) the requirements for setoff had been met. 

The LC evaluated the submissions of both parties, and after applying established principles of interpretation to the legislature’s intentions on the relevant sections, it held as follows:

  1. The LC accepted that while Interpak’s contention that the offset constitutes a rule of the common law and that rule of common law is a ‘law’ as contemplated in section 34(1)(b) is accepted it rejected its argument argument that in the in the absence of an agreement with the employee, an employer may rely on section 34(1)(b) and ignore section 34(1)(a) and 34(2) to make a deduction from an employee’s remuneration in respect of damages or loss caused by the employee;
  2. Any inquiry into section 34 should commence by identifying the nature and purpose of the deduction and then ascertain whether the section requires the employers to regulate such deductions in a particular manner;
  3. Section 34 specifically regulates a type of deduction where an employer seeks to make a deduction from an employee’s remuneration in respect of a damage or loss allegedly caused by an employee. Section 34 (2) confers a right to the employer to make deductions but stipulates that this right cannot be validly obtained unless the prescribed formalities in section 34(1)(a) and 34(2) are complied with by the employer;
  4. The prescribed formalities include a fair internal hearing to determine liability and a written agreement by the employee to reimburse the employer for the loss or damages. It also requires the damages to be liquidated through the process of a hearing which culminates in an agreement to a specified amount with the purpose being to protect employees against arbitrary conduct by employers;
  5. The construction and interpretation of section 34 by Interpak would render sections 34(1)(a) and 34(2) aimless. Interpak is therefore not entitled to rely merely on section 34(1)(b) to make the deduction from Ms. Padeyachee’s remuneration to offset a loss or damage; and
  6. Interpak was ordered to pay Ms. Padeyachee the amount of R86 046.59 with interest. 

In essence we can take the following important points away from this judgment –

  • The whole of section 34 must be complied with when considering a deduction from an employee’s remuneration;
  • An employer must quantify the loss or damages through a fair process, i.e. a hearing or provide the employee with an opportunity to explain why the deduction should not be made. Thereafter, if an agreement is reached on the quantum, the deductions must be agreed to in writing and should not exceed 25% of the employees monthly remuneration;
  • In the event the employee does not agree to the deduction, after a fair process has been followed, the employer could approach the Labour (on the basis of an employment contract which sets out an agreement to deductions)  or Civil Court on the basis of section 77 of the BCEA to claim the loss or damages from the relevant employee.  

Candace Bachmann – Associate Attorney

Justine Del Monte & Associates Incorporated