A recent study conducted by market research specialists, Ipsos, has revealed that South Africa has a R50 billion stokvel sector, made up of more than 800,000 stokvel groups and 11 million members. Ipsos has described this as a "vast network of dynamic 'human banks' in the South African economy." Stokvels are, therefore, a well-established feature of South African society and play an important role as a social protection instrument.
A stokvel is a voluntary association where members agree to regularly contribute a certain amount of money to a shared fund. After a certain period of time, the accumulated monies in the fund are divided amongst the stokvel members. Stokvels come in various forms, each serving a different purpose. Typical examples include grocery stokvels, savings clubs, burial societies, etc.
Stokvels ordinarily comprise of individuals who have some type of relationship with each other. For example, stokvels are typically kinship-based or neighbourhood-based. Stokvels can also be comprised of members who are employed in the same workplace.
It is common for Stokvel members or third parties to borrow money from the Stokvel and interest is typically charged on the provided loans. This may potentially create problems within the employment context in circumstances where disputes may arise concerning the terms of the loan and/or the repayment thereof. For this reason, it is not unusual for an employer to prohibit the granting of loans in the workplace, whether on an individual basis or through a stokvel. However, the question arises: Can an employer dismiss an employee for participating in a money-lending scheme when there are no specific workplace rules in this regard?
In Kaweng v South African National Biodiversity Institute and Other, the Labour Court recently had to determine the fairness of the dismissal of an employee who was found guilty of engaging in an unlawful money-lending scheme at the workplace.
Factual background
The employer, the South African National Biodiversity Institute ("the Institute"), received a whistleblower report alleging that a "loan shark" was operating at its premises. In response, the Institute appointed Mazars to investigate the matter. Mazars' forensic report found that Mr Zola, an employee of the Institute, had been loaning money to employees at exorbitant interest rates of 50%. Following this, the Institute levelled disciplinary charges against Mr Zola, who was ultimately dismissed. During the course of the disciplinary hearing, Mr Zola implicated Mr Kaweng as being involved in the scheme as well.
The Institute, therefore, also charged Mr Kaweng with the following allegation of misconduct:
"It is alleged that on or about the year 2017 you participated in the unlawful money-lending scheme within the SANBI's premises for own benefit during official working hours..."
Mr Kaweng was found guilty and was dismissed. He referred an unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration ("CCMA"). During the arbitration proceedings, Mr Kaweng's primary defence was that he had been involved in a stokvel, and not an unlawful money-lending scheme. However, under cross-examination, he conceded that some people had borrowed money from the stokvel. In the arbitration award, the CCMA commissioner noted that in instances where a stokvel is used as a money-lending scheme, interest is charged on the loan. On this basis, the commissioner found that Mr Kaweng's version that he participated in a stokvel and not a money-lending scheme was highly improbable and not plausible.
Mr Kaweng also disputed the employer's version that his conduct was detrimental to its operations. As a result, the commissioner analysed the legal implications of Mr Kaweng's conduct. The commissioner noted the following in the arbitration award:
- The Department of Trade and Industry, on 11 May 2016, published a notice determining that the threshold for registering as a credit provider with the National Credit Regulator ("NCR") is nil (R0), for all applicable credit providers involved in lending money; and
- Only a loan which does not include interest, or a fee for late or deferred payment, will be exempt as it would not fall under the definition of a 'credit agreement' in the National Credit Act, 2005 ("NCA") and registration as a credit provider will not be required.
Based on the above, the commissioner concluded that Mr Kaweng was involved in an illegal money-lending scheme. The commissioner further found that the employer was able to show the detrimental effect the illegal money-lending scheme had on its operations. During the arbitration proceedings, it was undisputed that some employees who did not honour their repayments were threatened by certain members of the scheme.
Although there was no evidence that Mr Kaweng had personally threatened the borrowers, the CCMA commissioner accepted that members of the illegal money-lending scheme had, either collectively or individually, intimidated the borrowers who did not honour their repayments, and that Mr Kaweng was one of the founding members of the scheme. On this basis, Mr Kaweng was not successful in the arbitration proceedings. Aggrieved by the CCMA outcome, Mr Kaweng instituted review proceedings in the Labour Court.
Labour Court's decision
During the review proceedings, Mr Kaweng argued, inter alia, that section 8(2)(c) of the NCA provides that "a transaction between a stokvel and a member of the stokvel in accordance with the rules of that stokvel", does not constitute a credit agreement, with the result that the NCA does not apply thereto. As a result, Mr Kaweng argued that the stokvel was not operating illegally and that once he became aware that money was being lent out and interest was being charged, he resigned from the scheme.
The Labour Court noted that Mr Kaweng had testified that, after the members started the stokvel, they were joined by a woman who "changed the laws of the stokvel" and things became "very formal". The members of the stokvel started loaning money to, inter alia, employees and charged interest on the loans. He further testified that he knew that a money lending scheme had to be registered with the NCR. In this regard, Mr Kaweng's evidence was as follows: "[w]e were not registered ... that is a reason that made me quit the stokvel, because [of] that money lending;" and when he tried to quit, "they said no, you are already [in] so you will only quit in December when we share the money."
The Labour Court found that, based on Mr Kaweng's evidence, the financial scheme changed from a stokvel into a formal money-lending scheme in terms of which employees (and others) were granted loans and charged interest. The Labour Court also found that on Mr Kaweng's own version, the change required registration, which was not undertaken. Despite this, Mr Kaweng continued to participate in the scheme and presumably shared in the profits of the scheme. On this basis, the Labour Court concluded that section 8(2)(c) of the NCA, which formed the basis of Mr Kaweng's defence, found no application.
Notwithstanding the above, the Labour Court found that, even if the money-lending scheme was somehow not in breach of the NCA, the commissioner's decision to uphold Mr Kaweng's dismissal would, nevertheless, have been reasonable. This was because Mr Kawend had participated in the money-lending scheme at work with fellow employees apparently having been charged exorbitant interest rates. There was evidence of the scheme having caused disruptions in the workplace (even if this was caused by Mr Kaweng's partner, Mr Zola).
Comment
While stokvels constitute an important part of the informal social security sector, they also carry the potential risk of becoming unlawful money-lending schemes in cases where the stokvel lends out money to members and/or third parties and interest is charged thereon.
Stokvels which operate as money-lending schemes can lead to disruptions in the workplace if disputes regarding the repayment of loans arise between members of the stokvel, or between these members and other third parties who have been provided loans by the stokvel. In this regard, employees may potentially avoid the money lenders in the workplace when they have not been able to repay the loans.
Another risk is that employees could potentially be making secret profits (through the interest charged) at the expense of the employer during working hours. As a result, employees may devote more time and attention to running the money-lending business in the workplace, as opposed to devoting time to their employment duties.
Employers may, therefore, be able to justify, in at least certain circumstances, the formulation of rules regulating the operation of stokvels in the workplace. Employers may also put in place rules prohibiting the provision of loans altogether, whether based on an individual capacity or through stokvels. In addition, employees should be made aware of the fact that stokvels, which lend money and charge interest thereon, may be in contravention of the NCA.
*Reviewed by Peter le Roux, an Executive in ENS' Employment Department
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