Essence

Unilateral salary deductions: Declared that s 38(2)(b)(i) of the Public Service Act 103 of 1994 is unconstitutional.

Judgment

Psa obo Ubogu v Head of the Department of Health, Gauteng, Head of the Department of Health, Gauteng v Psa obo Ubogu (CCT6/17, CCT14/17, CCT6/17) [2017] ZACC 45 (7 December 2017).  Declared s38(2)(b)(i) of the Public Service Act 103 of 1994 unconstitutional and disallowed the Minister’s appeal. The interim interdict in para 2 of the labour court’s order of 29 September 2016 (per Steenkamp J) stands.  Effectively upheld judgment and order of Tlhotlhalemaje J dated 30 December 2016.

Judges

Nkabinde ADCJ (Cameron J, Froneman J, Khampepe J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J concurring and Jafta J dissenting)

Significance

Summary

[Constitutional declaration of invalidity] — [section 38(2)(b)(ii) of Public Service Act] — [Labour Court jurisdiction] — [unilateral deductions of salary by state employer] — [conflation of constitutional remedies] — [unlawful limitation of section 34 of the Constitution]

Court summary

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

“At 10h00 on 7 December 2017 the Constitutional Court handed down judgment in two consolidated applications, one for confirmation of a declaration of constitutional invalidity made by the Labour Court of South Africa, Johannesburg (Labour Court) in respect of section 38(2)(b)(i) of the Public Service Act 103 of 1994 (Act), and the other for leave to appeal against that order.

Ms Ubogu previously held the position of Clinical Manager: Allied, and was transferred in 2010 from the Chief Executive Office at the Tshwane District Hospital to Charlotte Maxeke Academic Hospital in Johannesburg. Thereafter, from July 2010 until July 2015, she received the remuneration at the rate applicable to the post of Clinical Manager: Medical. This was a distinct position from Clinical Manager: Allied and attracted a higher remuneration. In 2015, the state informed Ms Ubogu that she had erroneously received the higher salary and thus owed R794 014.33. It proceeded to make deductions from her salary. The Public Servants Association of South Africa (PSA) sought interim relief in the Labour Court on her behalf on the basis that it was unlawful for the state to unilaterally make salary deductions in order to recover alleged overpayments.

The issue was whether, on a proper construction, section 38(2)(b)(i) of the Act entitles the state to deduct from an employee’s salary in respect of incorrect payment without due process or the employee’s knowledge or an agreement between the parties. PSA contended that part of the state’s putative claim had prescribed, that the deductions were ultra vires the Act and that the impugned provision was unconstitutional. PSA further contended that the state should be directed to institute legal proceedings against Ms Ubogu so as to allow her to challenge the allegations of overpayment. In its opposition, the Head of the Department of Health and MEC for Health contended that Ms Ubogu could not claim benefits consonant with a position of Clinical Manager: Medical and that she did not challenge the basis of the deduction.

The Labour Court held that the deductions violated the spirit, purport and objects of the Bill of Rights and amounted to untrammelled self-help. Interpreting section 38(2)(b)(i) in the light of sections 23(1), 25(1) and 34 of the Constitution, the Labour Court granted a mixed remedy that included a declaration that the impugned provision is “unconstitutional as presently formulated”.

The PSA applied to the Constitutional Court for confirmation of the declaration. This application was opposed on the grounds, amongst others, that the Labour Court’s true finding was that section 38(2)(b)(i) is capable of an interpretation consistent with the Constitution and that, in the alternative, none of the grounds for constitutional invalidity have been established. With respect to remedy, it was argued that, if the order of invalidity is confirmed, the Constitutional Court ought to suspend that order to enable Parliament to remedy the defect. An appeal against the order of the Labour Court was also filed on the grounds that action taken under section 38(2)(b)(i) is not dispositive of any dispute and merely permits deductions by way of set-off at common law.

In the first judgment, Nkabinde ADCJ (Cameron J, Froneman J, Khampepe J, Madlanga J, Mhlantla J, Mojapelo AJ, Pretorius AJ and Zondo J concurring) first considered that – on a purposive and contextual reading of sections 23(1), 34, 167 and 172 of the Constitution; sections 151, 157 and 158 of the Labour Relations Act 66 of 1995 (LRA); and section 15 of the Superior Courts Act 10 of 2013 – the Labour Court has jurisdiction to declare the impugned provision constitutionally invalid. She went on to find that the mixed order made by the Labour Court in substance amounted to a declaration of constitutional invalidity and that the proceedings were thus properly before the Constitutional Court.

Nkabinde ADCJ then held that section 38(2)(b)(i) does not pass constitutional muster as it permits unfettered self-help in violation of the legality principle in section 1(c) of the Constitution. She further held that this undermines the judicial process as protected under section 34 of the Constitution. The impugned provision was not only unfair, but also promoted strict liability on an employee for overpayments irrespective of whether the employee could afford to pay the arbitrarily determined instalments or was afforded an opportunity for legal redress before the deductions. She held that, in any event, none of the respondents suggested that the present limitation on the section 34 right was justifiable in an open and democratic society based on human dignity, equality, and freedom.

Nkabinde ADCJ also held that the impugned provision was not comparable to the common law right of set-off. She held, because the alleged debt was not fully due as it had not been determined pursuant to the application of law in a fair hearing before a court, common law set-off could not be invoked to defeat employees’ ongoing claims relating to their salaries.

Nkabinde ADCJ accordingly declared the impugned provision to be inconsistent with the Constitution and invalid and reformulated the Labour Court’s order to give Ms Ubogu an effective remedy to obviate self-help and the arbitrary deductions from her salary. The interim interdict against deductions from Ms Ubogu’s account, with effect from 29 September 2016, was to continue and the matter was remitted to the Labour Court for resolution of the disputes around the correctness of the recovery of amounts allegedly overpaid to Ms Ubogu. The Minister of Public Service and Administration was ordered to pay the applicant’s costs.

Jafta J dissented on the basis that the Labour Court lacked jurisdiction to make a declaration of constitutional invalidity in this case. He held that under section 157(2) of the LRA the Labour Court shares constitutional jurisdiction with the High Court, but that section 157(1) seeks to exclude the High Court’s jurisdiction in respect of certain matters. He held that, in the light of both the hierarchy of courts and section 169(1) of the Constitution, there is no constitutional provision that may be read as conferring the requisite jurisdiction upon the Labour Court”.

Quotations from judgment

“[53] The Labour Court, per Tlhotlhalemaje J, analysed the rule of law principle and its components, including principles of legality and self-help[39] as was discussed in Chief Lesapo.[40] It discussed and examined the principles of legality and considered whether deductions made in terms of section 38(2)(b)(i) amounted to untrammeled self-help, as prohibited by the principle of legality in terms of section 1(c) of the Constitution.[41] It held that an employer cannot make deductions from an employee’s salary to set-off past overpayments without the employee’s prior agreement or a court order. It held further that the impugned provisions sanctions self-help and distinguished between employees in the service of the state and those who are not, in that, in respect of the former it does not require consent or legal proceedings in the recovery process. The Court held that the deductions violated the spirit, purport and objects of the Bill of Rights and amounted to untrammeled self-help.[42][54] The Labour Court also examined the interpretative provision of the Constitution in terms of which courts are enjoined to interpret legislation to “promote the spirt, purport and objects of the Bill of Rights.”[43] It confirmed the provisional order by issuing a confusing order, declaring the impugned provision “unconstitutional as presently formulated, and accordingly falls to be interpreted in a manner which conforms with the provisions of the Constitution . . . [in] sections 23(1), 25(1) and 34.” The Court read words into the provision.[44][55] By so doing, the Labour Court conflated the interpretative principles with those of legality. This conflation is illustrated by certain portions of the Labour Court judgment where it said that on its proper construction, the impugned provision allows untrammeled self-help on the part of the state in recovering public funds and that it cannot be countenanced.[45] But then the Court, as shown above, fashioned a mixed-up order declaring the impugned provision unconstitutional and fashioned an interpretative remedy of reading-in to cure the defect.

[56] In National Coalition, this Court explicitly distinguished the remedies of reading-in and reading-down.[46] It said that reading-in is a constitutional remedy granted by a court after declaring an impugned provision unconstitutional and invalid with a view to adding words to the statutory provision in question to remedy the defect in it. This method of controlling the impact of invalidity must be distinguished from the interpretative method of reading-down.

[57] As Jafta J cautioned in Garvas, “holding parties to pleadings is not pedantry.”[47] The vague pleadings here resulted in the Labour Court conflating the interpretative process with the one of declaring the impugned provision to be inconsistent with the Constitution and thus invalid. The Court then confused the remedy generally referred to as reading-down – an interpretive tool – with reading in; a more invasive remedy invoked after a provision has been found constitutionally invalid.[48][58] Despite the inaccuracy and conflation, the Labour Court did, in substance, declare section 38(2)(b)(i) unconstitutional. The order was competent and the confirmation proceedings are thus properly before this Court. The question then arises whether the declaration of invalidity should be confirmed. And, if it should, what will be an appropriate remedy?

Should the declaration of invalidity be confirmed?

[59] The Labour Court is, in terms of section 172(2)(a) of the Constitution,[49] a Court of similar status as a High Court.[50] It may thus make an order of constitutional invalidity of an Act of Parliament, which has no force unless it is confirmed by this Court in terms of section 167(5) of the Constitution.[51] The Labour Court held that “in line with Chief Lesapo . . . section 38(2)(b)(i) allows untrammeled self-help by the state and can thus not be countenanced in a constitutional democracy.”[52][60] Section 38 of the Act bears repeating in relevant parts:

“Wrongly granted remuneration

(1) (a) If an incorrect salary, salary level, salary scale or reward is awarded to an employee, the relevant executive authority shall correct it with effect from the date on which it commenced.

(b) Paragraph (a) shall apply notwithstanding the fact that the employee concerned was unaware that an error had been made in the case where the correction amounts to a reduction of his or her salary.

(2) If an employee contemplated in subsection (1) has in respect of his or her salary, including any portion of any allowance or other remuneration of any other benefit calculated on his or her basic salary or salary scale or awarded to him or her by reason of his or her basic salary—

. . .

(b) been overpaid or received any such other benefit not due to him or her—

(i) an amount equal to the amount of the overpayment shall be recovered from him or her by way of the deduction from his or her salary of such instalments as the relevant accounting officer may determine if he or she is in the service of the State, or, if he or she is not so in service, by way of deduction from any moneys owing to him or her by the State, or by way of legal proceedings, or partly in the former manner and partly in the latter manner.”

[61] The foundational values of the Constitution include the supremacy of the Constitution and the rule of law.[53] This supremacy connotes that “law or conduct inconsistent with [the Constitution] is invalid, and the obligations imposed by it must be fulfilled.”[54][62] In any event, to the extent that it is necessary to deal with the limitation of the right to have judicial redress as self-help denotes, section 34 of the Constitution guarantees everyone the right “to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court”. This section not only guarantees everyone the right to have access to courts but also “constitutes public policy” and thus “represents those [legal convictions and] values that are held most dear by the society.”[55] As this Court has repeatedly said before, the right to a fair public hearing requires “procedures . . . which, in any particular situation or set of circumstances, are right and just and fair”.[56] Notably, none of the respondents has suggested that the limitation of the right to have judicial redress is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom.

[63] Regarding the principle of fair procedure, this Court remarked in De Lange—

“[a]t heart, fair procedure is designed to prevent arbitrariness in the outcome of the decision. The time-honoured principles that no-one shall be the judge in his or her own matter – and that the other side should be heard [audi alteram partem] – aim toward eliminating the proscribed arbitrariness in a way that gives content to the rule of law. They reach deep down into the adjudicating process, attempting to remove bias and ignorance from it. . . . Everyone has the right to state his or her own case, not because his or her version is right, and must be accepted, but because, in evaluating the cogency of any argument, the arbiter, still a fallible human being, must be informed about the points of view of both parties in order to stand any real chance of coming up with an objectively justifiable conclusion that is anything more than chance. Absent these central and core notions, any procedure that touches in an enduring and far-reaching manner on a vital human interest . . . points in the direction of a violation”. [57][64] Although section 38(2)(b)(i) is a statutory mechanism to ensure recovery of monies wrongly paid to an employee out of the state coffers, the provision gives the state free rein to deduct whatever amounts of money allegedly wrongly paid to an employee[58] without recourse to a court of law. The alleged indebtedness here is R675 092.56. The state determined, arbitrarily, the amount of the monthly instalments so as to avoid what it believed was the necessity for Treasury approval of an instalment plan over 12 months. Given that the alleged indebtedness was R675 092.56, the monthly deduction was in the sum of about R56 257.72 from Ms Ubogu’s gross salary of R62 581.42. It meant that, even at the rate of her downgraded gross salary of R40 584.85, Ms Ubogu could not afford to pay the alleged debt.

[65] The effect of the provision is to impose strict liability on an employee. The deductions may be made without the employee concerned making representations about her liability and even her ability to pay the instalments. The impugned provision also impermissibly allows an accounting officer unrestrained power to determine, unilaterally, the instalments without an agreement with an employee in terms of which the overpayment may be liquidated.

[66] Section 38(2)(b)(i) undermines a deeper principle underlying our democratic order. The deductions in terms of that provision constitute an unfettered self-help − the taking of the law by the state into its own hands and enabling it to become the judge in its own cause, in violation of section 1(c) of the Constitution. Self-help, as this Court held in Chief Lesapo, “is inimical to a society in which the rule of law prevails, as envisaged in section 1(c) of our Constitution.”[59] Although there may be circumstances when good reasons exist − justifying self-help[60] − this is however not a case of that kind.

[67] By aiding self-help, the impugned provision allows the state to undermine judicial process − which requires disputes be resolved by law as envisaged in section 34 of the Constitution. This provision does not only guarantee access to courts but also safeguards the right to have a dispute resolved by the application of law in a fair hearing before an independent and impartial tribunal or forum.[61] It is not insignificant that section 31 of the Act envisages recovery of money, in the case of unauthorised remuneration, “by way of legal proceedings”.[62] The Minister of Public Service argues that Ms Ubogu’s section 34 right was not violated because that protection applies only to disputes that are capable of resolution by application of law. This contention is flawed. The Minister does not explain why the existing dispute was not capable of resolution by the application of law in a fair public hearing before a court. The mechanism through section 38(2)(b)(i), as currently formulated, is clearly unfair. It promotes self-help and imposes strict liability on an employee in respect of overpayment irrespective of whether the employee can afford the arbitrarily determined instalments and was afforded an opportunity for legal redress.

[68] On those bases, section 38(2)(b)(i) does not pass constitutional muster. However, because of the conflation of the constitutional remedies by the Labour Court, the declaration of invalidity as currently fashioned cannot be confirmed. It needs to be reformulated. Accordingly, in the view I take of the matter, it is not necessary to determine whether the impugned provision limits the rights in sections 9(1), 23(1) and 25(1) of the Constitution and whether the limitation of these rights is reasonable and justifiable in terms of section 36 of the Constitution.

Do deductions under section 38(2)(b)(i) regulate the right of set-off?

[69] Before I deal with the remedy, it is necessary to address the question whether the section 38(2)(b)(i) deductions regulate set-off. The appellants submit that section 38(2)(b)(i) regulates the right of set-off, which is not self-help, arbitrary or unfair. The underlying premise to the argument that common law set-off does not amount to a form of self-help, is not correct.

[70] The doctrine of set-off is recognised under the common law. The Appellate Division, as the Supreme Court of Appeal was then known, pointed out in Schierhout that:

“When two parties are mutually indebted to each other, both debts being liquidated and fully due, then the doctrine of compensation comes into operation. The one debt extinguishes the other pro tanto [only to the extent of the debt] as effectually as if payment had been made”.[63][71] In Harris, Rosenow J remarked that the “origin of the principle appears rather to have been a common-sense method of self-help”.[64] In my view, the mechanisms in the impugned provision are not comparable to set-off under the common law. The doctrine of set-off does not operate ex lege (as a matter of law). Besides, there are no mutual debts. Here, the deductions in terms of section 38(2)(b)(i) are made from an employee’s salary. The dispute regarding whether the translation of her position as Clinical Manager: Medical affected her starting package on the new position remains unresolved. Therefore, the parties cannot be said to be mutually indebted to each other. It is arguable that the alleged debt can, in the circumstance, be said to be fully due.

[72] The doctrine cannot be invoked to defeat the employee’s claim in relation to her salary. Particularly, where a dispute surrounding the translation of her position that, allegedly, did not affect her starting package, had not been resolved by the application of law in a fair hearing before a court. At the risk of repetition, the mechanism in the impugned provision constitutes self-help. As the Labour Appeal Court correctly observed in Western Cape Education Department, the state has an obligation to exercise its power under section 38(2)(b)(i) reasonably and with regard to procedural fairness.[65] Indeed, the notions of fairness and justice inform public policy − which takes into account the necessity to do simple justice between individuals.[66] The contention that a deduction under section 38(2)(b)(i) regulates the right of set-off is, in the circumstance, flawed. However, this should not be understood to suggest that there can never be instances in which the doctrine of set off, especially where there are mutual debts in existence, may be invoked.