Employers can't sidestep employee fund contributions despite business transfer

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The application arose from contributions that were not paid on behalf of a deceased employee, which resulted in his beneficiary receiving only the fund credit, while the insured risk benefit was withheld.

Background

The deceased employee had long-standing service with a company that was later liquidated. Following liquidation, the business was effectively taken over and continued operations under a new entity. The deceased had entered into an employment contract with the new employer but passed away shortly thereafter.

When his wife claimed death benefits from the provident fund, the fund paid out only the deceased’s fund credit, declining to release the insured risk benefit on the basis that the contributions had not been remitted.

The Pension Funds Adjudicator found that the appropriate relief is that which places the deceased’s beneficiaries in the position they would have been in had the employer timeously paid all contributions due. On that basis, the employer was held responsible for the arrears and directed to pay the insured portion to the fund.

In its reconsideration application, the employer advanced two arguments. Firstly, it contended that the deceased had not yet completed his probation period and was therefore not entitled to contributions. Secondly, it submitted that liabilities from the previous employer remained with that entity and could not be transferred to the new employer.

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Tribunal’s reasoning

1. Probation does not exempt contribution obligations

The Tribunal held that probation does not alter the fundamental rights of an employee with respect to benefits such as provident fund contributions. While probation may affect performance assessments or dismissal processes, it does not justify withholding contributions.

The absence of a termination letter confirmed that the employment relationship continued, obliging the employer to pay provident fund contributions.

2. The Labour Relations Act and continuity of employment

The Tribunal further considered the transfer of business under Section 197 of the Labour Relations Act. It reiterated that when a business is transferred as a going concern, the new employer assumes both the rights and obligations of the old one. Evidence showed continuity in operations, employees, and management structures.

Accordingly, the acquiring employer was bound to honour obligations towards employees, including provident fund contributions.

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Outcome

The Tribunal dismissed the application for reconsideration, affirming that:

• Probation does not relieve an employer from the duty to remit contributions; and
• A transfer of business under Section 197 creates continuity of obligations, ensuring employees’ rights are preserved.

This decision reinforces two core principles of pension and labour law:

• Employer duties are non-negotiable: Regardless of probationary status or payroll disputes, employers must comply with fund rules. Failure to remit contributions not only undermines employee rights but also exposes employers to potential liability.
• Section 197 protects employees in business transfers: Employees cannot be left vulnerable when businesses change hands. Obligations follow the business, ensuring continuity of rights and social security protections.

At its heart, this decision reflects a deeper principle of fairness: that employees and their dependants should not suffer as a result of an employer’s administrative failures or structural changes in a business. It ensures that prejudice caused by non-payment is remedied, restoring dependants to the position they were entitled to enjoy.