When Does Interest Begin To Run In Respect of Retrospective Pay Ordered Against An Employer
Ever wondered as an employer involved in a dispute with an employee whether you are liable to pay interest on an arbitration award? And, as an employee ever wondered whether you are entitled to interest on an award granted in your favour by the CCMA or bargaining council? Simply put the answer to both questions is yes. The difficulty begins when you have to calculate the period over which the interest is payable.
In a recent case in the Labour Appeal Court against the Minister of Home Affairs and the Department of Home Affairs- Malatji vs Minister of Home Affairs and Department of Home Affairs- the Court was tasked to decide whether in a matter that is taken on review interest on the capital amount awarded by a bargaining council should be calculated from the date of the arbitration award or from the date of the review judgment of the Labour Court.
In the case under discussion which stemmed from Malatji’s (“the employee”) dismissal by the Minister for various charges, the Minister was ordered on 14 August 2006 to reinstate him retrospectively to his position and to pay him 12 months remuneration. Not surprisingly, the Minister and the Department of Home Affairs launched an application to review and set aside the award against them. The Minister’s application was partially successful in that on 2 April 2013 the Labour Court substituted the order with an order that the Minister and Department pay the employee an amount equal to his nine month’s salary. The amount was paid by the Minister on the 24th April 2014 with interest calculated from the date of the judgment of the Labour Court. The dispute arose once again between the parties when the employee demanded that the Minister and Department pay interest from the date of the award.
Now, In terms of the Labour Relations Act which is the Act that regulates labour relations in South Africa “if an arbitration award orders a party to pay a sum of money, the amount earns interest from the date of the award at the prescribed rate unless the award prescribes otherwise.” One person would argue that the confusion between Malatji and the Minister is understandable considering that the Labour Court did not specifically deal with the interest payable however another party can argue that since the Labour Relations Act is clear on the issue, it should be assumed that the employee is entitled to interest from date of the arbitration award until the date of payment by the Minister. It is not that simple and that is why we welcome a decision by the Labour Appeal Court clarifying a question which employees and employers are battling with.
On 15 August 2018 The Labour Appeal Court ruled that in these circumstances the employee is entitled to interest from the date of the judgment of the Labour Court and not from the date of the award of the bargaining council. To impose interest on the minister when its liability had not been established would be “mulcting” the Minister. Where a matter is under review it cannot be said that the quantum is ascertained or readily ascertainable because until the review is resolved, there is no obligation on the debtor to pay.