A TIMELY AND WELCOME DECISION ON EMPLOYER LIABILITY FOR PENSION ARREARS UNDER SECTION 13 (1) LABOUR ACT [CHAPTER 28:01]
Case on Misheck Ugaro v African Banking Corporation SC 298 17 [REF – LC/H/681/16]
BY MUNYARADZI GWISAI1
The decision of the Supreme Court in the case of Misheck Ugaro vs African Banking Corporation SC–298 17 concerning employers’ liability for arrears accrued viz pension contributions for their ex-employees is an important decision for the benefit of one of the most vulnerable sections of workers: pensioners. The court affirmed in an order by consent the liability of employers under s 13 (1) of the Labour Act to pay arrears for pension contributions accrued during a former employee’s employment.
In doing so, the court also provided a timely clarification on a matter that has caused much suffering for former employees, as lower tribunals like National Employment Council Designated Agents and labour officers have been declining to hear disputes concerning pension arrears by employees. They declared that they lacked jurisdiction and argued that such disputes did not qualify as unfair labour practices under s 13 of the Labour Act and that the former employees had to sue the pension fund and not their former employers.
Consequently former employees were restricted to initiating action against pension funds in the civil courts. Court action is not only costly but involves cumbersome and sophisticated procedures requiring legal representation which is beyond the reach of most workers and pensioners. Even then, the obstacle that confronted litigants was that the Pension Fund would plead that it could not grant a full pension benefit because the employer had not remitted the necessary contributions.
This is exactly what happened in the instant case. Appellant was a former employee of Respondent who joined in 2002 and resigned on 31 December 2014. A dispute arose over, inter alia, his pension entitlements. Appellant argued that Respondent was in arrears with contributions for the period 2002 to 2009, resulting in undue prejudice to him. In terms of the contract of employment, Appellant was obliged to be a member of the employer-specified pension fund, the African Banking Corporation Zimbabwe Pension Fund. In terms of rule 5.1 of the Fund Rules the employer was obliged to effect deductions equivalent to 6% of the employee’s annual salary and make employer contributions to a total equivalent to 15% of the employee’s salary and remit such contributions to the Pension Fund on a monthly basis. The employer had failed to effect deductions or remit contributions and did so belatedly after the employee’s resignation. A dispute arose as to the pension benefits that the former employee was entitled to; details of which are not relevant for this article.
The employee referred the dispute to a labour officer in terms of s 93 (1) of the Labour Act alleging an unfair labour practice by his former employer. Conciliation failed and the dispute was referred to an arbitrator. The arbitrator ruled in favour of the employee holding that the employer was liable under the Labour Act to effect pension contributions arrears to the Pension Fund for the period in arrears.
The employer appealed to the Labour Court submitting that the award was a nullity because an arbitrator acting under the Labour Act lacked jurisdiction to hear the matter, as the dispute did not qualify as an unfair labour practice under section 13 (1) of the Labour Act. It was argued that the proper party to be sued was the Pension Fund, which was a separate legal entity, and the ex-employer merely an agent for the pension fund.
MUSARIRI J upheld the appeal and reversed the award on the basis of two grounds. First, that the arbitrator erred in holding the employer liable for pension claims, whereas the proper party to sue was the pension fund. He held:
The Fund being a legal entity, is itself answerable for pension claims made against it. Its Rules clearly say so. Thus the arbitrator
fell into grievous error when he held the appellant accountable instead of the Fund. In the normal course the employer acts as
the agent for the Fund. Certainly that is so during the currency of the employment contract. But once the contract is terminated
as in casu, the employee should deal directly with the Fund. As it turns out the appellant obtained an account from the Fund on
behalf of the respondent. If the respondent was dissatisfied therewith he ought to have confronted the Fund directly.”[page 2 of the Unreported Judgment].
The second reason was that a former employer was not liable under s 13 of the Labour Act because the section deals with the liability of the former employer concerning wages and benefits upon termination of the employment contract, but does not deal with the liability of a pension fund. He rejected the submission that a former employee had option to sue both the former employer and the Pension Fund. He held:
I pressed the respondent’s attorney to explain why they did not
deal with the Fund. He sought to argue that the employer and
the Fund have joint liability. In such scenario the employee can
opt to claim from either of the two. He referred to section 13 of
the Labour Act ... However, none of the six subsections was
cited. My reading of all of them indicates that they deal with
the employer’s liability concerning wages and benefits upon
termination of the employment contract. None deal with the
liability of a pension fund.” [page 2, Unreported Judgment].
Appellant appealed to the Supreme Court citing two grounds. First, that contrary to the judgment of the Labour Court, an ex-employee has the right to sue his ex-employer for failure to remit contributions to a pension fund in terms of s 13(1) of the Labour Act, as such failure amounted to an unfair labour practice. Secondly, that contrary to the Labour Court’s judgment, pensions arrears were elements of terminal benefits that an ex-employee could sue his ex-employer for under s 13 (1) of the Act. The Supreme Court upheld the appeal by consent ordering:
IT IS ORDERED BY CONSENT THAT:
1. The appeal be and is hereby allowed with each party bearing its own costs.
2. The judgment of the court a quo be and is hereby set aside.
3. The matter be and is hereby remitted to the Labour Court for it:
To determine the actual period during which the appellant was employed by the respondent and in respect of which the respondent was contractually obliged to remit pension contributions to the relevant Pension Fund.
To compute the exact amount of the contributions payable in respect of both employer’s and employee’s contributions, less the amounts already paid by the respondents for the period of actual employment determined in terms of paragraph (a) above.
The decision of the Supreme Court is significant and welcome for two major reasons: namely, in relation to the locus standi of former employees to sue their former employers for pension arrears under the Labour Act and secondly as a guide to the kind of terminal benefits covered under s 13 (1) of the Labour Act.
1. Munyaradzi Gwisai is a registered legal practitioner and lectures in Labour Law
and Labour Relations, Faculty of Law, University of Zimbabwe, and Briggs Zano
Working Peoples College.