South Africa: Western Cape High Court, Cape Town

Horn and Others v Cape Joint Retirement Fund and Another (18886/07) [2011] ZAWCHC 34 (1 March 2011)

This benefit will change if the Local Authority's redundancy/retrenchment policy changes in terms of any collective bargaining agreement.

7.1A(2) PAYMENT OF REDUNDANCY BENEFIT

The benefit payable in terms of this Rule will be paid to the member as a lump sum payment of the benefit, together with the interest at the prevailing rate, calculated from the date following the member's leaving service to the date of

payment, will be made as soon as possible, but not later

than 90(ninety) days after the date of the member's leaving service.

7.1 A(3) LOCAL AUTHORITY'S NOTIFICATION OF REASONS FOR

TERMINATION OF SERVICE

For the purpose of establishing the benefit to which the member is entitled in terms of this Rule, the trustees will be entitled to act without further enquiry or investigate on the particulars furnished to them by the Local Authority concerned, of the reason for the member's termination of service. The Local Authority indemnifies the fund against any claims instituted against the fund as a result of the trustees so acting.

7.2 PRESERVA TION BENEFIT

(1) A member may elect to preserve any part of his entitlement in terms of Rule 7.1 above that he does not take in cash.

(2) A member who preserves his benefit in terms of (1) above may elect to preserve such benefit:

(a) By transferring such amount to an approved retirement annuity fund of his choice or an approved preservation retirement fund in which the local authority has agree to participate: or

(b) by transferring such amount to an approved Retirement Fund which is operated for the benefit of Employees of the Local Authority with whom the withdrawing member is taking up employment.

13. The definitions in Rule 1-7 of the Rules, inter alia, provide that the following meanings have to be attributed to words or phrases used in the Rules:

13.1. "Approved Retirement Annuity Fund: A Fund approved as such by the SA Revenue Services and the Registrar",

13.2. "Employee: Any person

(a) who is in a permanent capacity or otherwise in the
service of a local authority which is associated with the
fund;

and

(b) who devotes his full time to the said service and shall
include a person employed in a part-time capacity".

13.3 "Local Authority:

(a) Any local government body including a district council as defined for such purposes; and in relation to an employee or a member, the local authority in whose service such employee or member is, provided that joining the Fund will occur on conditions set by the Trustees.

(b) Any other Local Government body or similar body constituted before 1995 and who is a participant of the Fund",

13.4 "Member: Any member for whose benefit the Fund has been
established to provide annuities or lump sum payments on
retirement or for dependants of such members upon the death
of such members, but does not include any member or former member who has received all the benefits which may be due to him/her from the fund";

13.5 "Member's Share in respect of each member: an amount determined in accordance with rule 2.2(1)";

13.6. "Prevailing Rate: The rate of interest as determined from time to time, by the Trustees in consultation with the Actuary";

13.7. "Service: service as an employee or otherwise of one or more local authorities depending upon the conditions of service applicable to such service".

[22] The second respondent did not deny the arguments by the applicants stating that the consequences of the section 197(2) transfer, were the following:

22.1. The contract of employment of the individual Applicants with LAMAF terminated on 31 December 2004.

22.2. The individual applicants became redundant within the operations and structures of LAMAF.

22.3 The staff numbers of LAMAF were reduced by those employees who were transferred by Discovery.

22.4 The posts of all employees transferred to Discovery, no longer existed within the structure of LAMAF and were thus abolished.

22.5. The employees transferred, including the individual applicants, were in effect, declared redundant by LAMAF. LAMAF was unable to accommodate them in alternative positions and it never offered to do so. Their posts ceased to exist.

22.6. The employees who were transferred lost their employment as a result of the curtailment of LAMAF's operations. The employees transferred, including the individual applicants, had accordingly been retrenched.

[23] The aforementioned are the very circumstances stipulated by Rule 7.1(A)(1) that would entitle employees to the Redundancy/Retrenchment Benefit set out in the Pension Fund Rules.

[24] The second respondent takes the view that the relief sought constitutes final relief of motion. Accordingly, the usual approach to disputes of fact in motion proceedings in the context of final relief is applicable: the matter can be decided only on the common cause facts and the version of the facts of the second respondent which are not untenable. See: Plascon-Evans v Van

Riebeeck Paints 1984 (3) SA 632 (A) at 634 E to 635 C; Zuma v National Director of Public Prosecutions 2009 (1) SA 1 (CC) at 19 J to 19 A.

[25] The second respondents accordingly argue that¹

25.1 The applicants fail to deal with the factual matter on the papers relating to the terms of employment.

25.2 The applicants accepted the position offered by Discovery from 1 January 2005. Although the first applicant takes issue with the notion that their terms of employment with Discovery were less favourable than with LAMAF because Discovery never subsidised medical scheme membership, their respective remuneration packages were substantial. First applicant's total package was R479 877,00 with a performance-based incentive payment. All such remuneration compares extremely favourably with (if it does not in fact exceed) that received from LAMAF as recorded by them in their claim forms

25.3 As the first applicant's founding affidavit discloses, all the applicants received substantial amounts pursuant to their election to withdraw their member's share from the retirement fund. Horn himself received R1 668 454.51. the third applicant R1 338 494,03 whilst the lowest received was by the third applicant of R196 965,82. De Koker on behalf of the second respondent explains that these payments, and the election available to the applicants to exercise the relevant options, arose from an amendment to the first respondent's rules relating to members who were transferred to a new employer which was not associated with the pension fund the very eventuality which arose with the transfer of the applicants to Discovery.

25.4. Regarding the applicants' continued employment by Discovery, they are somewhat coy with the facts. In the founding affidavit of the first applicant it stated that "arising from the facts that are set out below, the individual applicants are not all presently employed by Discovery", apparently only the fifth and sixth applicants remaining. Contrary to his introductory remarks no facts appeared in his affidavit which alluded further to this situation, and this was pointed out in the answering affidavit. The first applicant in reply simply fails to elaborate.

25.5. It is therefore a "non issue" that the transfer brought about a termination of applicants employment with first respondent.

25.6. The applicants failed to deal with the factual issue whereby they were employed by the second respondent and in terms of the conditions of service, it did not provide for an "additional redundancy or retrenchment benefit to be paid by the second respondent.

25.7. The definition of the word "service" in the Rules, which means "service as an employee or otherwise of one or more local authorities depending upon the conditions or service applicable to such service", read with the "stipulation" in Rule 7.1 A(1) namely that the "Members Conditions of Service provide for an additional redundancy/retrenchment benefit to be paid by the LOCAL AUTHORITY" has the effect that the Rule 7.1A(1) did not impose as a condition of service an additional redundancy or retrenchment benefit on second respondent, irrespective of the Conditions of Service.

25.8. No obligation was imposed upon second respondent by the Conditions of Service; therefore applicants are not entitled to any redundancy/retrenchment benefit provided for in the Rules.

[26] The issue, to be decided, in my view is simply whether the individual applicants are, in terms of the Pension Fund Rules, entitled to receive the benefits stipulated in Rule 7.1A(1) of the Pension Fund Rules. The conditions of service only became relevant insofar as it makes it compulsory for the employee to belong to the first respondent. The rules then bind both the employer and the employee.

[27] In the present application the applicants submitted the implementation of that decision on 1 January 2005, inter alia by transferring the employees who worked in LAMAF's administration department to Discovery, emcompassed that:

1. After the transfer of the administration department, LAMAF no longer needed the department and. accordingly, reduced its staff by the number of employees employed. The reduction was effected by the transfer to Discovery with effect from 1 January 2005. The transfer occurred in terms of Section 197(2) of the LRA and it terminated the employees' service with LAMAF. Accordingly, the termination of the employees' service was owing to a reduction of staff.

2. LAMAF reorganised its staff as a result of the transfer of the administration department. The staff structure of LAMAF before the transfer of the administration department after the transfer would not be the same. The reorganisation was effected by the transfer of all employees in the administration department to Discovery with effect from 1 January 2005. The transfer occurred in terms of Section 197 of the Labour Relations Act and it terminated the employees' service with LAMAF. Accordingly, the termination of the transferred employees' service was owing to a reorganization of staff.

3. Because of the transfer of the administration department, LAMAF no longer had a need for the department. The employees function would cease when the transfer to Discovery took place. The employees' service accordingly terminated owing to an abolition of their posts.

27.4 LAMAF was going to transfer the administration department with effect from 1 January 2005. Transfer took place and accordingly, the employees who had been employed in LAMAF's administration department had become redundant within the framework of LAMAF's organisation.

No alternative employment was offered to the employees by LAMAF. The employees were transferred to Discovery and their service with LAMAF terminated. Accordingly, their posts were effectively declared redundant by LAMAF with effect from 1 January 2005 and as a result thereof their service was terminated. A formal "declaration" of redundancy was not required.

[28] It was submitted by the applicant that the ratio decidendi of the judgment of the Supreme Court of Appeal in Telkom SA Limited and Others v Blom and Others 2005 (5) SA 532 (SCA); 2003 24 IFJ 1475 (SCA) applies with equal force to the principal issue in this matter, specifically, whether the individual applicants are entitled to receive the additional benefit that they claim.

[29] In the aforementioned case certain pension and gratuity benefits were payable in terms of the Telkom pension fund if the employee's service were "terminated by the employer as a result of the abolition of his post or a reorganisation of the employer's activities". The facts of this matter are similar to the present matter where a division had been transferred to the purchaser in terms of Section 197 of the LRA, as it read at the time, prior to its amendment in 2002.

[30] The court held that the contractual relationship between the appellant and its erstwhile employees was terminated due to the transfer in terms of section 197 of the LRA, therefore the provisions of the rules in the pension fund when contractual relationships were terminated applied.

[31] The Court held further that the appellant wanted to rearrange its affairs and the transfer was a way of ensuring that no activities would be carried out in this division in the future, but rather have it contracted out to the new employer. The employees employment ceased to exist in the appellants organization as the transfer had terminated the employment, it lead to the abolition of the posts of the employees.

[32] In the matter of Independent Municipal & Allied Trade Union & Others v Cape Joint Retirement Fund & Others (2008) 29 ILJ 1687 (C), the court had to determine, "whether individual applicants, in terms of the pension fund rules

(were) entitled to receive benefits stipulated in Rule 7.1 A(1) of the Pension Fund Rules". These are similar facts to the matter at hand.

[33] In this matter the individual applicants were employed by the municipality until 30 June 2001. The municipality performed road maintenance functions referred to as provincial roads in a geographical area that was eventually known as the Bophirima Region of the department for many years. Maintenance functions were carried out in terms of an agency agreement that was originally concluded with the Roads Department of the Provincial Administration of the Cape Province and later with third respondent. The department decided to terminate the existing agency agreement in 2000, which termination finally took effect on 1 July 2001.

[34] Pursuant to the termination, the municipality's obligations ceased and the staff who had been employed became "redundant". On 5 July 2001 the individual applicants entered the employ of the department which had taken over the road maintenance operations.

[35] All the applicants were members of first respondent, the Cape Joint Retirement Fund. The rules of the fund provided that if a member's service was terminated owing to a reduction in or reorganisation of staff, or to the abolition of his post, or in order to effect improvements in efficiency or organisation or as a result of his post having been declared redundant or his having been retrenched, such a member was entitled to an additional benefit from the pension fund.

[36] The applicants contended that the employment of the individual applicants with the municipality terminated in circumstance contemplated in the rules but they did not receive any additional benefit as was so provided. They applied to court in order to secure payment of the additional benefits to which the individual applicants contended they were entitled and to obtain payment by the department to the fund of sums as were payable in terms of the rules thereof.

[37] Davis j, at 1694 J of the judgment, held as follows: "The obligation of the municipality to make payment to the fund of such moneys as might be necessary to fund the additional benefit contemplated in terms of Rule 7.1 arose from the terms and conditions of the contract of employment and because the municipality as a local authority participated in or associated with the fund. The municipality did not dispute the averment of applicants that 'the obligation is in the nature of the stipulation in favour of third party. The municipality has to effect payment to the pension fund and because the pension fund is situate in Cape Town payment has to be made in Cape Town'."

[38] In holding that the applicants did not remain in service, the learned Judge stated as follows on page 1695 of his judgment: "The definition of employee in the rules make plain that the employees had been employed by a local authority. Provincial authorities cannot be equated with a local authority. Provincial and local government are separately demarcated in the South African constitutional scheme, (s 40 of the Republic of South Africa Constitution Act 108 of 1996)). Furthermore, the Public Service Act of 1994 sets out the nature of public service employees in central and provincial government as distinct from those in local government, (s 8 of the Public Service Act). For this reason, the argument that there was no termination of service as defined is unsustainable. The individual applicants became employees of provincial government upon transfer of the roads maintenance department and therefore fell outside the definition of employee as contemplated in the rules. They did not remain in the service as defined."

[39] Davis J held that the Telkom matter was applicable to the dispute in that matter and, in considering the issue in dispute stated as follows on 1696 of the judgment: "The crisp issue for determination in this case is whether the applicants' service was terminated 'owing to a reduction in or reorganization of staff or to the abolition of posts or in order to effect improvements in efficiency or organisation or as a result of having been declared redundant or having been retrenched' from the services of the municipality. In Telkom, the Supreme Court of Appeal held that, when the new employer took over the concern including the employees in terms of an application of s 197(2) of the LRA, the contractual relationship between the old employer and each employee was brought to an end. The old employer fell out of the picture so that whetever contractual relationship might have previously existed between that employer and his or her employees, that contract had now been extinguished. (Telkom para 10).

It is this principle which is of application in this case. The contractual relationship between the municipality and the individual applicants was brought to an end in circumstances which are described in rule 7.1A(1), that is either redundancy or retrenchment, triggered off by the termination of the agency agreement on 1 July 2001".

[40] Having regard to the Telkom and Independent Municipal & Allied Trade Union cases {supra) I have no difficulty in finding that the transfer of the individual applicant's service with LAMAF with effect from 1 January 2005₍ has the effect that the individual applicants became entitled to the benefits specified in the Rules. Consequently the applicants will be entitled to the relief sought.

Order:

[41] An order is granted in terms of the Notice of Motion as quoted in par 1 above.

[42] The second respondent is ordered to pay the applicants' legal costs, including the costs of two counsel.

ERASMUS, J