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Deductions for damage or loss

Jan du Toit

 

The other day I stumbled across the Department of Labour’s (DoL) guide to deductions from employees’ remuneration with the following explanation:

 

“Deductions for Damage or Loss

Deductions for damage or loss caused by the worker may only be made if

  • the employer has followed a fair procedure and given the worker a chance to show why the deduction should not be made,
  • the worker agrees in writing, and
  • the total deduction is not more than 25% of the worker’s net pay.”

 

Based on the DoL’s interpretation of the Basic Conditions of Employment Act it seems as if employers are not allowed to make deductions form the remuneration of employees for damage or loss, unless the employee agreed in writing.

 

This is a very interesting interpretation of the Act since it would effectively mean that employers will almost never be in position to recover from employees remuneration damage suffered as a result of the employee’s negligence. Very few employees will agree to reimburse their employer for damage suffered, especially if the employee is in addition issued with a final written warning for the act of negligence.

 

Deductions forms the remuneration of employees are addressed in section 34 of the Basic Conditions of employment Act.

“Deductions and other acts concerning remunerations.-

(1) An employer may not make any deduction from an employee’s remuneration unless-

(a) subject to subsection (2), the employee in writing agrees to the deduction in respect of a debt specified in the agreement; or

(b) the deduction is required or permitted in terms of a law, collective agreement, court order or arbitration award.

(2) A deduction in terms of subsection (1) (a) may be made to reimburse an employer for loss or damage only if-

(a) the loss or damage occurred in the course of employment and was due to the fault of the employee;

(b) the employer has followed a fair procedure and has given the employee a

reasonable opportunity to show why the deductions should not be made;

(c) the total amount of the debt does not exceed the actual amount of the loss or

damage; and

(d) the total deductions from the employee’s remuneration in terms of this subsection do not exceed one-quarter of the employee’s remunerations in money.”

 

I have underlined certain words used in section 34 which I believe would assist us in establishing the correct interpretation of the Act.

 

34(1) “An employer may not make any deduction from an employee’s remuneration unless”

 

This means that a deduction in terms of section 34(1) may not be made unless the requirements set out in 34(1)(a) and (b) are met. A deduction from an employee’s remuneration would therefore only be possible if the employee agreed to such a deduction in writing or the deduction is allowed in terms of legislation, a court order or an arbitration award.

 

34(1) and 34(1)(a) states - “An employer may not make any deduction from an employee’s remuneration unless, subject to subsection (2), the employee in writing agrees to the deduction..”

 

In terms of subsection 2 an employer may deduct from an employee’s remuneration an amount equal to the damage suffered or a loss incurred as a result of the negligent or deliberate behaviour of an employee. There are however certain requirements that must be fulfilled before such a deduction may be made. Section 34(2) clearly states “..only if-“, meaning that all of the requirements of subsection 2 must be satisfied. This is amplified by the use of the word “and” at the end of 34(2)(c).The requirements of subsection 2 are:

  1. The loss or damage must have occurred in the course of employment.
  2. The loss or damage must have been as a result of the fault of the employee.
  3. The employer must follow a fair procedure and give the employee a reasonable opportunity to show why the deductions should not be made.
  4. The total amount of the debt may not exceed the actual amount of the loss or damage.
  5. The total deductions from the employee’s remuneration may not exceed one-quarter of the employee’s remunerations in money.

 

In terms of schedule 8 of the Labour Relations Act a fair procedure means that:

  • The employer should notify the employee of the allegations using a form and language that the employee can reasonably understand.
  • The employee should be allowed the opportunity to state a case in response to the allegations.
  • The employee should be entitled to a reasonable time to prepare the response (48 hours) and to the assistance of a trade union representative or fellow employee.

 

Must there be a written agreement in terms of section 34(2)?

Section 34(1)(a) states “subject to subsection (2), the employee in writing agrees to the deduction in respect of a debt specified in the agreement”. The DoL’s interpretation of this is that the two sections cross reference each other. In other words, in addition to the requirements of subsection 2 an agreement in writing must be obtained from the employee in terms of 34(1)(a). This would mean that an employer will not be able to deduct without the employee’s permission even if all the requirements of subsection 2 have been met.

 

My interpretation of “subject to subsection (2)” is that 34(2) is excluded from the requirements of 34(1)(a). Nowhere in subsection 2 does it require that after a fair procedure has been complied with, that an agreement in writing must in addition be obtained from the employee. If this was the case then there would have been a clause (e) in terms of which the employee must agree in writing.

 

A provision that the employee must agree to a deduction for damages, after (a) – (d) have been complied with, was omitted with reason. Subsection 2 gives employers the option to deduct from the remuneration of an employee without having to obtain permission from the employee, limited to damage or loss as result of the actions of the employee. Subsection 2 would serve no purpose whatsoever if, after an enquiry where guilt was established, the individual still refuses to give permission for the deduction to be made.

 

Is it double jeopardy if the employee is issued with a final written warning and ordered to pay back the damages suffered by the employer?

It would be unfair to punish an employee twice for the very same offence (i.e. for the same incident). However, as a warning is not, in my view, a punishment it can be argued that a warning could fairly accompany another corrective measure. For example, where a driver is guilty of damaging the employer's vehicle it may be appropriate for the employer to give the driver a refresher driving course. He could, however, also warn him/her that, should he/she again damage employer property, stronger action will be taken.

 

The above mentioned was confirmed in Solidarity obo Mohammed / Air Traffic and Navigation Services Ltd (2011) 20 CCMA 7.22.2. A senior financial manager transferred R4m to an incorrect account and the company had to subsequently pay R7000 in interest charges as a result of this mistake. The manager was issued with a final written warning and ordered to pay the company R7000. The employee referred the matter to the CCMA claiming that the aforementioned constituted double jeopardy. the arbitrator disagreed, stating that the recovery of the money from the employee is not part of the sanction. It is a right to reclaim fruitless spending of other people’s money. The principle is that the applicant should be given the opportunity to comment on the deduction before it is made and the deduction can only be to the extent of the loss or damage suffered by the company.

 

Employers are advised to upfront agree with employees in their contracts of employment under which circumstances deductions may be made and the procedures that will be followed prior to making such a deduction. By doing this the DoL’s interpretation of section 34(2) will be irrelevant since the employee upfront agreed to the deduction after a fair procedure has been complied with.

 

Jan can assist employers with IR and HR related services and can be contacted for a consultation at [email protected] 

 

Is commission included in the calculation of minimum wage?

 

In terms of the National Minimum Wage Act 9 of 2018, an employer may not pay any employee less than the prescribed minimum wage for time worked. The aforementioned is unambiguous, but can an employer pay an employee a basic salary which is less than the minimum wage, or even no guaranteed basic salary, provided that the commission earned by the employee exceeds the minimum wage as prescribed by the Act? This is what had to be determined in Atlas Finance (Pty) Ltd v CCMA & 2 others, 2022 JR57/21.

 

2022/05

By Jan du Toit

 

During 2020, I assisted one of our longstanding clients with arbitration under Section 73A of the Basic Conditions of Employment Act 75 of 1997 (the BCEA). The dispute related to an alleged underpayment in terms of the National Minimum Wage Act 9 of 2018 (the NMWA). In terms of the NMWA, an employer may not pay any employee less than the prescribed minimum wage for time worked.

 

The nature of the employer’s business was that of microlending, with sales representatives employed and responsible for securing new business. During 2018, the employer by agreement amended the commission structure of most of its sales representatives employed throughout South Africa, except for those employed in Rustenburg. The employees in Rustenburg refused to accept amended employment conditions and threatened the employer with industrial action.

 

The changes to the remuneration structure of the sale representatives, which included the earning of commission, were deemed necessary to ensure compliance in anticipation of the announcement of an effective date for the commencement of the National Minimum Wage Act 9 of 2018.

 

Facing possible industrial action, the employer abandoned its attempt to amend the remuneration structure of the Rustenburg sales representatives. The employees withdrew their dispute lodged with the Commission for Conciliation, Mediation and Arbitration (the CCMA) at the time and continued to accept, as demanded, remuneration in terms of the originally agreed remuneration structure.

 

In terms of the originally agreed remuneration structure, which was applicable to the employees by choice, their basic remuneration was below the prescribed minimum wage for the 40.5 hours that they were required to work weekly. However, in addition to their basic remuneration, the employees also earned commission for work performed during their working hours. The commission was calculated as a percentage of the value of successful new business secured per month. The basic remuneration of the employees combined with the commission they earned by far exceeded the requirements of the NMWA. To ensure full compliance with the NMWA, the employer also committed to top up employees’ remuneration to be at least equal to the minimum wage if an employee failed to generate sufficient commission.

 

During the period of January 2019 to October 2020, after the NMWA became effective, the employees were paid remuneration consisting of their basic agreed salaries as well as commission. Their basic salaries combined with their commission exceeded the minimum wage prescribed by the NMWA for 40.5 hours of work per week. Despite the aforementioned, a dispute was lodged with the CCMA in terms of Section 73A of the BCEA. The employees were advised and assisted by Mr Isaac Mokgatle from Workers Against Regression, a registered trade union. Mr Mokgatle was of the view that the employees’ basic salaries had to be increased to be equal to the minimum wage for 40.5 hours of work per week. This was despite the fact that their basic salaries and commission combined by far exceeded the minimum wage for the time worked.

 

Currently, there is no uniform stipulation of which earning components should be included in the calculation of national minimum wages. The BCEA defines remuneration as “any payment in money or in kind, or both in money and in kind, made or owing to any person in return for that person working for any other person, including the State”. “Wages” is a component of remuneration paid to an employee “in respect of ordinary hours of work, or if they are shorter, the hours an employee ordinarily works in a day or week”.

 

The specification of “ordinary hours” is important because it excludes, for example, productivity or overtime pay. In South Africa, wages are calculated based on the ordinary hours of work, which ensures that workers receive premium payments for work done outside of ordinary hours.

 

Internationally, regarding productivity and performance pay, there is no standard definition of the components of a National Minimum Wage (NMW), however, if one has regards to international standards, productivity and performance pay are considered supplemental forms of remuneration. They specifically include commission work, piecework and tipped work. Commission work refers to any system under which an employee receives supplemental pay based on the value or volume of sales.

 

At arbitration, Mr Mokgatle submitted that commission earned by an employee cannot be considered for the purpose of determining whether such individual is paid less, equal to or more than the prescribed NMW. It was further submitted that the employees were paid a basic salary less than the NMW, and that despite them earning a basic salary combined with commission for work done during normal working hours, such commission must, in terms of the definition of “wage” and as per Sections 4(4) to 4(7) of the NMWA, be excluded for the purposes of the dispute before the Commission.

 

I submitted on behalf of the employer that commission earned for work done during an employee’s normal working hours cannot be excluded for the purposes of determining whether an employee is paid less than, equal to or more than the NMW. The employees earned in excess of the prescribed NMW and Section 5(1) of the NMWA does not list commission as an exclusion for the purposes of calculating an employee’s wage. Furthermore, Section 5(3) of the NMWA also provides for the payment of an employee on a basis other than the number of hours worked, provided that such employee is not paid less than the NMW.

 

By virtue of his submissions at arbitration, Mr Mokgatle effectively introduced a mutual interest dispute pertaining to an increase in remuneration under the guise of a dispute related to the NMWA.

 

Commissioner Rakale from the CCMA in Rustenburg held that the employer was in contravention of the NMWA. He, furthermore, ordered that an amount in excess of one million rand be paid to the employees as backpay in addition to a fine as provided for in the BCEA.

 

We approached the Labour Court on review and submitted that Commissioner Rakale:

 

  1. committed a material error of law by excluding commission earned by the third respondents (the employees) in determining whether the applicant (the employer) complied with the NMWA.

 

  1. misdirected himself to such an extent that the outcome of the arbitration amounts to a gross irregularity, in that his conclusion was not objectively correct, and that a reasonable arbitrator would not have reached the same conclusion considering the evidence available at the hearing of the matter.

 

  1. misdirected himself by relying solely on the definition of “wage” as found in the NMWA, and by failing to properly consider the provisions of Sections 5(1) and 5(3) of the NMWA.

 

  1. misdirected himself by finding that the employer did not pay the employees according to the hours they worked, which is in stark contradiction to Section 5(3) of the NMWA.

 

  1. misdirected himself by failing to consider that employees whose basic salaries and commission payments were not sufficient to ensure compliance with the NMWA, were, as provided for in Section 5(3) of the Act, topped up to ensure compliance.

 

  1. misdirected himself by including in the calculation of the amounts underpaid the months of April, May and June 2020, during which the third respondents did not work due the lockdown imposed at the time.

 

  1. misdirected himself by applying an unknown calculation method in determining the value of alleged underpayments, resulting in amounts awarded that are inconsistent with the evidence placed before him by both the third respondents as well as the applicant.

 

  1. exceeded his powers by ordering the applicant to increase the agreed basic salaries of the third respondents.

 

Acting Judge Deane agreed and held that commission is not a discretionary payment, which is not related to an employee’s hours of work, but forms a part of the employee’s wages and that the intention was not to exclude commission from the NMW. However, commission workers must still be paid at least the NMW. Workers do not have to be paid the minimum wage for each hour worked, but they must be paid the minimum wage, on average, for the time worked in a pay reference period.

 

It was, furthermore, held that the Commissioner misdirected himself by failing to take into account the evidence placed before him showing that the employees were paid in excess of the NMW. He further misdirected himself by failing to consider that the employer acknowledged that employees whose basic salaries and commission payments were not sufficient to ensure compliance with the NMWA, were, as required per Section 5(3) of the NMWA, topped up to ensure compliance.

 

The Commissioner’s decision to exclude commission earned by the employees in determining whether the applicant indeed complied with the NMWA was not a reasonable decision and constituted a material error of law. The Commissioner misdirected himself to such an extent that the outcome of the arbitration award amounted to a gross irregularity. It was ordered that the employer was not in breach of the NMWA by virtue of including commission earned in calculating the minimum wages of employees.

 

Jan du Toit is a director at Labour Guide and can be contacted at [email protected].

 

This article does not constitute legal advice. For an informed opinion and/or assistance with a labour-related matter, you are encouraged to arrange a formal consultation with the author.

 

 

 

 

 

 

 

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