In-depth

Background

An employee of Umgeni Water, SN, was hired as part of its graduate programme in 2008. Umgeni Water required participants in the program to hold a degree in engineering. SN attached a BSc degree certificate in Chemical Engineering from the University of KwaZulu Natal to his application.
 
Eight years after commencing employment with Umgeni Water, the legitimacy of his degree came into question after he applied for a position as a process technician. His previously submitted BSc. degree was sent to the University of KwaZulu Natal for verification. The university indicated that it had no record of the submitted degree. Umgeni Water confronted SN about the legitimacy of his degree, which ended in his resignation. 

Umgeni Water then instituted action against him to seek repayment of all amounts it had paid to him during the course of his employment. It argued that the employment contract was void from the outset, as it was induced by fraud.

Court's view on the matter

The court considered whether SN had graduated from the University of KwaZulu Natal with a BSc degree in Chemical Engineering, and should the degree be fraudulent, whether the employment contract was void from the outset, which may warrant repayment of all amounts paid in terms of the agreement to SN. 
 
The court held that it was evident that the degree presented by SN was invalid. Turning to the question of whether it invalidated the employment contract, the court asserted that no person should be allowed to retain an advantage gained fraudulently. The court confirmed that a transaction induced by fraud is voidable where the party seeking to set it aside entered into the transaction willingly and knowingly, with the intention to bring about the legal consequences entailed therein. It held that the employment contract between the parties was voidable in the instance of Umgeni Water. The employer could thus seek to invalidate the agreement and reclaim all the amounts paid to SN.

The claim for the return of the amounts paid

With respect to the claim of restitution, the court found that once a contract induced by fraud has been terminated, the innocent party has a claim for repayment of the paid amounts. The mere fact that the claimant cannot restore the employee's labor provided to it over the years should not deprive a claimant from their primary remedy - rescinding the agreement and claiming back that with which they had parted. The court held that SN led no evidence to show that Umgeni Water received value for the service he rendered. A defendant may bring a claim for undue enrichment in appropriate circumstances. 
 
The court found in favor of Umgeni Water and ordered that SN repay ZAR 2 203 565.04 received during his tenure. The court further found that Umgeni Water was entitled to execute the judgment and claim from SN’s pension fund, joined in the matter on the basis of the Pension Fund Act, which entitles persons to execute against the pension benefits of a indebted employee.

Key takeaways

• This decision confirms the available mechanisms that employers could use to recoup income lost due to the fraudulent activities of an employee, within the confines of their employment relationship. As stated by the court, section 37D (1)(b) of the Pension Fund Act makes it possible for employers to recoup such amounts lost from the fraudulent/dishonest employee's pension fund after receiving a court order to that effect. 
• In 2019, well after SN was employed (in 2008), the National Qualifications Framework Amendment Act, 12 of 2019 (Qualifications Act) was enacted. The Qualifications Act makes it a criminal offense for individuals to misrepresent their qualifications and prescribes that such a misrepresentation is punishable by a fine or a period of imprisonment not exceeding five years, or both. Further, employers are obliged to verify qualifications with the national learners' records database before applicants are hired. If applicants are not registered, employers are required to inform the South African Qualifications Authority (SAQA) and request a verification process. SAQA is required to inform the enquirer and the holder of the qualification or part qualification of its findings, which, if challenged, may be referred for review. 
• Verification also offers employers reasonable protection against financial losses and liability that may be caused by unqualified hires. Therefore, it is vital that employers conduct the obligatory verification process under the Qualifications Act before hiring applicants. This case highlights the value of pre-employment checks. Best practice would be to delay concluding employment contracts until all such checks have been finalized, or to ensure any offer of employment is subject to the successful completion of outstanding verifications. Employers can take comfort from the fact that, for employees hired before the Qualifications Act took effect, they have legal recourse to recover salaries paid where this was induced by fraud. 
• Employers should also consider their obligation to report fraud in terms of the Prevention and Combatting of Corrupt Activities Act, and place the State in a position to take criminal steps against applicants and employees who commit fraud in the workplace.