Horn v LA Health Medical Scheme

• Jurisdiction: South Africa
• Court: Constitutional Court
• Judge: Mogeong CJ and Cameron J, Froneman J, Khampepe J, Leeuw AJ and Madlanga J, Nkabinde J and Tshiqi AJ and Van der Westhuizen J and Zondo J
• Judgment Date: 14 May 2015
• Citation: 2015 JDR 0895 (CC)
• Hearing Date: 11 November 2014
• Docket Number: CCT 97/14

Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring):

Introduction

[1]

This is an appeal against a decision of the Supreme Court of Appeal [1] in terms of which the order granted by the Full Court of the Western Cape Division of the

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

High Court, Cape Town [2] (Full Court), upholding that of the High Court, per Erasmus J, [3] in favour of the appellants, was set aside. The key question we have been asked to determine is whether the appellants are entitled to an additional redundancy or retrenchment benefit specified under the Pension Fund Rules (Rules). Answering the key question involves the interpretation of rule 7.1A(1) of the Rules. [4] Also in question is whether the appellants' rights to be heard under section 34 of the

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

Constitution were violated and whether section 197 of the Labour Relations Act [5] (LRA) finds application in resolving the key question.

Parties

[2]

The first appellant, a former Senior Manager in the employ of the first respondent, LA Health Medical Scheme (LA Health), represented the other appellants who are also former employees of LA Health. LA Health is a medical scheme registered in terms of the Medical Aid Schemes Act [6] which provides medical aid to local authorities in the Western Cape, Northern Cape and Eastern Cape. [7] As a result of their employment with LA Health and its predecessor, the Local Authorities Medical Aid Fund (LAMAF), the appellants were members of the second respondent, the Cape Joint Retirement Fund [8] (Fund), until 31 December 2004. The Fund is a defined contribution fund registered in terms of section 4 of the Pension Funds Act. [9] It was established for the purpose of benefiting employees of local authorities.

Background

[3]

The appellants were former employees of LAMAF, which changed its name to LA Health with effect from 1 January 2005 when LA Health transferred the department in which the appellants were employed to Discovery Health (Pty) Ltd (Discovery). Before 1994, the Rules permitted employees who were not employed by a "local authority" within the meaning of the Income Tax Act [10] to become members of the Fund. Thus, although LAMAF was not a "local authority" under the

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

Income Tax Act, [11] its employees, including the appellants, were members of the Fund. The Rules were amended in 1994 to prohibit persons not employed by a "local authority" from becoming members. However the Commissioner of Inland Revenue accepted that all existing members of the Fund, despite not being employees of a local authority, could remain as members, and thus the appellants were permitted to continue with their membership of the Fund. [12]

[4]

With effect from 1 July 2000, the Rules were then amended further, and rule 9.7(4) was added. That rule relates to members who are transferred to a new employer or a local authority which is not associated with the Fund. [13] This further amendment provides the transferred member with an option to elect to transfer his or her member's share in the Fund to the new employer or to leave that share in the Fund as a deferred benefit and then be regarded as a deferred member of the Fund. This rule also lays down the benefits which the deferred members are entitled to receive. In addition a new sub-rule was added to the existing rule 7.2, to enable members to elect to become a "DEFERRED MEMBER" of the Fund.

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

[5]

On 31 May 2004, having caught wind of an impending transfer of their department to Discovery, the affected employees addressed a letter to LAMAF (LA Health). They maintained that a case could be made out for retrenchment. Consequently, they said there was a "possibility of the payment of a [redundancy or retrenchment] benefit in addition to the relevant employees' 'Member's share' as provided for in the Rules".

[6]

On 1 January 2005 LA Health transferred its administration division to Discovery in terms of section 197(2)(a) of the LRA. [14] Discovery has not been a party to these proceedings at any point. It is common cause that on being transferred to Discovery, the appellants fell within the language of rule 7.1A(1) of the Rules because their employment positions had been abolished. Further, the Rules provided that payment of the benefit over and above the member's interest (to which all members were entitled) was to be funded by the local authority, which in this case would be LA Health, and not the Fund. [15]

[7]

It is common cause that when the administration division was transferred to Discovery under section 197(2) the appellants, who had contributed to the Fund in accordance with the terms of their employment, reserved their rights to claim the redundancy or retrenchment benefit provided for in the Rules. [16] The Rules provided

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

that if a member's service is terminated owing to a reduction or reorganisation of staff or by the abolition of his or her post in order to effect improvements in efficiency or organisation or as a result of his or her post having been declared redundant or him or her having been retrenched, the member is entitled to a redundancy benefit. [17] As the employer at the relevant time, LA Health was bound by the Rules. [18]

[8]

LA Health and Discovery concluded a memorandum of understanding [19] (MOU) in terms of which the latter undertook to offer all employees of LA Health

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

affected by the administration agreement employment on terms and conditions not less favourable than those pertaining to their employment with LA Health. [20] In June 2004 the members of the Fund were informed of the following options available to them upon their transfer to Discovery, namely that—

(1)

their member's share in the Fund could be transferred to Discovery;

(2)

they could become deferred members of the Fund, thereby permitting them to preserve their benefit in the Fund until normal retirement age, without further contributions being made by the respective member or local authority; or

(3)

they could transfer their member's share to a preservation fund, which was considered the best option in the light of the applicable tax legislation.

[9]

Under this last option members had a once-off choice to withdraw a portion or 100% of their member's share. The majority of the appellants opted for the latter,

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

withdrawing their member's share after transfer to a preservation fund. [21] Those that did so withdrew their member's share after it was transferred to a preservation fund. They then continued employment with Discovery, from 1 January 2005.

High Court

[10]

The appellants instituted proceedings in the High Court against LA Health and the Fund, claiming payment of the additional redundancy or retrenchment benefit under rule 7.1A(1)(b). [22] This claim was based on the alleged obligation of LA Health to make payment to the Fund to finance the additional benefit payable to the individual appellants under rule 7.1A(1). The appellants said that the obligation arose "from the terms and conditions of their contracts of employment and because [LA Health] was an employer participating in or associated with the Pension Fund". They contended that in terms of the Rules and the conditions of employment of the individual appellants, the additional benefit, in so far as it exceeded each of the individual appellants' member's share in the Fund, had to be financed by LA Health.

[11]

The appellants' case thus rested on the interpretation of the Rules, in particular the introductory words of rule 7.1A(1). These read: "The member's conditions of

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Nkabinde J (Cameron J, Froneman J, Khampepe J, Madlanga J, Tshiqi AJ and Van der Westhuizen J concurring)

service provide for an additional redundancy / retrenchment benefit to be paid by the Local Authority." [23] The parties proffered different interpretations.

[12]

Basing their claim under rule 7.1A(1) and the terms and conditions of their contracts of employment with LA Health, [24] the appellants claimed that—

"[a] concomitant of employees' compulsory membership of the Pension Fund and the participation of [LA Health] with the Pension Fund was that [the employer] had bound [itself] towards [its] employees who were members of the Pension Fund to perform the obligations stipulated for participating local authorities in the rules of the Pension Fund as they existed and were amended from time to time".

[13]

The appellants claimed further that the obligations LA Health was bound to perform were those that "arose as necessary incidents of LAMAF [/ LA Health] participating in and associating [itself] with the [Fund]".

[14]

In its response to the appellants' contention that they were entitled to the additional redundancy or retrenchment benefit, LA Health asserted that it was not a local authority. It contended that the plain meaning of rule 7.1A(1) is that whether an additional redundancy or retrenchment benefit may be paid depends upon the conditions of service applicable to the employment. It said that nowhere in the conditions of service is...