Red tape is harming business and the economy. Graphic: John McCann/M&G
The Pension Funds Adjudicator has blocked an employer’s attempt to receive an employee’s retirement benefit as a debt payment after she signed an acknowledgement of debt, allegedly under duress to avoid prosecution for fraud committed in the workplace.
Deputy pension funds adjudicator Naheem Essop set aside the decision by the Fundsatwork Umbrella Provident Fund to withhold the employee’s benefit of R359 826.12 and instead pay it to her employer, FPG Foods.
In terms of the Pension Funds Act, an employer can claim a deduction from a member’s benefit, if the member has acknowledged liability to the employer in writing. The liability must relate to theft, dishonesty, fraud or misconduct perpetrated by the worker.
According to the Pension Funds Adjudicator’s office, the employee was responsible for authorising payments to suppliers. She allegedly committed fraud by inflating invoices in return for bribes from suppliers.
The company conducted an investigation and, after the fraud was uncovered, the employee signed acknowledgments of debt authorising her employer to claim a deduction from her provident fund.
She signed the first acknowledgment of debt for R130 000 on 4 May last year, and a second one for R359 826.12 during a meeting on 13 June last year.
Her dispute with her employer centred around the validity of the second acknowledgment of debt and the circumstances that gave rise to it during the meeting, which she recorded.
She alleged that during the meeting her employer’s representative — sourced from an external security company — threatened her into signing away her entire provident fund.
She said the representative impersonated a police officer and told her he would handcuff her in front of everyone if she did not sign.
However, FPG Foods denied that its representative threatened her and submitted that she had voluntarily indicated that she wanted the matter to end and asked how to stop the legal proceedings.
It denied having any prior knowledge of the alleged tactics used by the representative and disassociated itself from the security company.
The employee admitted to receiving kickbacks amounting to R70 000 from the employer’s vendors and that she had borrowed R60 000 from the company. She disputed that she had received the R359 826.12.
FPG Foods said she had signed an acknowledgment of debt that would allow it to deduct R130 000 from her retirement savings benefit to recover its fraud losses.
Based on the fact that the extent of the fraud was significantly more than originally calculated, the employer arranged the meeting to decide how to recover the losses. At the time of the meeting, her provident fund value was R335 290.25.
The company claimed it had drafted the second acknowledgement of debt and explained it to her on more than one occasion during the meeting, adding that she had accepted that she defrauded it to the extent of R335 390.25 and was prepared to instruct her provident fund to pay the retirement savings benefit.
Essop said, after listening to the recording of the meeting, it was clear that there were “three sides to the story” and neither party had accurately described what happened during the meeting.
For example, there was neither a “hostage situation”, as alleged by the employee, nor were the exchanges during the meeting polite, as alleged by the employer.
“At the meeting on 13 June 2023, the complainant was threatened with criminal prosecution and it was indicated that the amount of R130 000 (presumably in relation to the first acknowledgment of debt) was not enough to make up for the loss suffered by the employer,” Essop said. “She was told that she has none of the money left that she had stolen but the employer’s representative informed her that he had a solution … It appears that she was then given a document to sign after which the employer undertook to get rid of the evidence and that she would be able to walk out and never hear from the employer again.
“She was told that, if she did not sign, then the employer would approach the SAPS] South African Police Service].
“The offer was made to the complainant by the employer to buy immunity from prosecution with the proceeds of her withdrawal benefit.”
FPG Foods has, however, denied any knowledge of this tactic.
Essop said the issue of whether the threat of criminal prosecution constitutes a form of duress has previously come before the courts.In Arend and Another v Astra Furnishers (Pty) Ltd [1974] AII SA 522 (C), the court held that “a contract induced by the threat of criminal prosecution is unenforceable on the ground of duress and, in certain instances, also on the ground that it involves the compounding of a crime and the stifling of a prosecution”.
“It is clear that the complainant did not sign the acknowledgement of debt out of her own free will,” Essop said. “She was induced to do so under the threat of criminal prosecution wherein it was made clear to her that if she did not sign, she would be put into handcuffs and taken to the commercial crimes unit. Further, that if she did sign, the employer would make everything go away.”
Essop found that the employee’s conduct was an offence under the Prevention and Combating of Corrupt Activities Act, which FPG Foods has denied.
He said from the employer’s submission, the company had only decided to report the matter to the police after the employee had a change of heart about the second acknowledgment of debt.
Essop said the employer clearly considered itself to be in a position to decide whether or not to report the matter, which contravened provisions of section 34 of the Act which places a “positive duty” on the employer to report the matter to the Directorate for Priority Crime Investigation (the Hawks).
He said the deal struck at the meeting on 13 June 2023 was unlawful and consequently contra bonos mores (against good morals) and the adjudicator could not uphold an unlawful agreement.
FPG Foods’s attorney Walid Brown told the Mail & Guardian this week that the company had complied fully with the Prevention and Combating of Corrupt Activities Act and it was its considered view that the adjudicator’s finding was “simply wrong”.
“He has misapplied the law and misunderstood the facts,” Brown said, adding that the quantum of the amount stolen was easily determinable and there had been “little, if any, genuine dispute about that”.
Brown said Essop had been provided with all documents to quantify the claims.
“This is the reason our client was successful when the matter was adjudicated upon by the pension fund, internally. The employee repeatedly acknowledged her liability and sufficient evidence on the quantum was presented,” he said.
Brown said FPG Foods had, however, elected not to appeal the decision at the high court in order not to waste any further time and resources on the matter. FPG Foods had “disassociated” itself from the external security company that it uses on an ad hoc basis and whose staff member had been present at the meetings, he added.
“While they were aware that they employ former members of the SAPS, they had no idea of the specific tactics that would be used. They report never having received such complaints before.
“The purpose of employing former officers of the law would be for the very purpose of upholding the law. To the extent that they did not, our client disassociates itself from [the security company].”
Regarding FPG Foods’ duty to report corrupt transactions, Brown said: “Our client takes this duty very seriously and this is evident from the fact that charges have indeed been laid against our employee and it was always our client’s intention to do so.
“The employee is currently facing criminal prosecution and our client has fully cooperated with the authorities. The suggestion by the adjudicator that this was not the case is rejected.”
He added: “The practice of obtaining an acknowledgement of debt from the employee is often used as a mitigation factor, in avoiding a prison sentence for the employee. As such, this is crucially to the benefit of the employee.”