Employee deductions

Section 34 of the Basic Conditions of Employment Act, No 75 of 1997 (BCEA) regulates salary deductions that an employer can make. The general rule is that a written agreement is required from an employee before any salary deduction is made. However, sometimes you don’t need this.

Section 34(1)(b) of the BCEA allows an employer to make deductions from an employee’s remuneration if they are required, or allowed, to do so in terms of a:

  • Law,
  • Collective agreement,
  • Court order, or
  • Arbitration award.

Recently, the Labour Court had to determine if an employer could make a deduction against the salary of one of its former employees. This type of deduction is termed a ‘set-off’.

What is a set-off?

According to Christie’s The Law of Contract (4 ed), ‘set-off’ is a method in which contractual and other debts may be extinguished against one another. To apply ‘set-off’ you need to prove:

  • There is mutual indebtedness
  • Both parties’ debts must be liquidated and equal, and
  • Both debts are fully due and payable.

The BCEA addresses deductions in relation to damages

S34 (2) allows an employer to make deductions from an employee’s remuneration because of loss or damage. However, the employer must first comply with the following:

  • The damage must be have been caused by the employee,
  • The employee must be given a fair opportunity to make representations about why the salary deduction shouldn’t be made,
  • The total amount of the debt can’t exceed the loss or damage, and
  • The total deduction can’t exceed one-quarter of the employee’s monetary remuneration.

The BCEA also specifically deals with the recovery of any overpayment made to an employee.

The BCEA allows an employer to deduct any overpayment made to an employee.

In the case of Shenaaz Padayachee v Interpak Books (Pty) Ltd (case number D243-12):

  • The judge held that set-off is a common-law rule, which is seen as a ‘law’ for the purposes of s34(1). This means that no written agreement, for this deduction, was needed from the employee. In addition, there is no limit to the amount that could be deducted.

In this case, the court followed the recent decision of the Supreme Court of Appeal in Capricorn Beach Home Owners Association v Potgieter t/a Nilands and Another 2014 (1) SA 46 (SCA) which confirmed that ‘set-off’ is a recognised common-law principle and, as such, is a ‘law’.

In contrast, in Botha and British American Tobacco SA (Pty) Ltd (2008) 29 ILJ 1301 (CCMA):

  • The CCMA previously held that set-off is not ‘law’ – as contemplated in s34(1)(b) – and that an employee’s obligations can only be set off against an employee’s remuneration in terms of a written agreement.

In the Padayachee case, the employer held that the ‘fine’ it imposed on a former employee for damages suffered could be set-off against the employee’s remuneration without a written agreement. The employer set-off the amount of the ‘fine’ from the employee’s remuneration relying on the reference to ‘law’ in s34(1)(b).

However, the court held that the ‘fine’ fell squarely within the realm of a claim for damages and, as such, was not a liquidated amount. The employer was required to comply with the requirements of s34(1)(a) and 34(2).

The employer was therefore not entitled to rely on the principle of set-off as it couldn’t satisfy the legal requirements for set-off.

The court – in the recent judgment of Rank Sharp SA (Pty) Ltd v Kleinman (2012) 33 ILJ 2937 (LC) – held that:

  • The company couldn’t set-off a loan account against a settlement sum agreed on because it couldn’t be shown that one claim was due and payable.
  • The provisions for a deduction allowed in ‘law’ include the common law and set-off. This means these fall within a deduction that doesn’t require agreement in terms of s34(2) of the BCEA.

Accordingly, there may be scope for an employer to set-off an amount against an employee’s remuneration provided that the requirements for valid set-off described above are met.

By Faan Coetzee and Andrea Taylor