THE EMPLOYEE BENEFIT CONSEQUENCES OF CROSS-BORDER SECONDMENTS
When considering a cross-border secondment both the employer and the employee need to carefully consider the legal consequences of the secondment arrangement, in particular the laws that will govern the arrangement and which forum will have jurisdiction to adjudicate disputes that may arise as a result of the arrangement. Moreover, the parties need to consider the impact the secondment will have on the seconded employee’s eligibility to continue participating in any group risk insurance policies, retirement funds and medical aid schemes to which she or he may belong by virtue of their employment. Parties should not only obtain advice on immigration laws, employment laws and tax law consequences but also consult with their fund managers and administrators about the impact the employee’s absence from the country may have on his or her participation in a medical aid scheme, retirement fund and voluntary or compulsory insured benefit, for example, funeral schemes.
Employees who are outside their home country for extended periods may find themselves in the unfortunate position of losing certain benefits or insurance cover. Some policies and funds do not provide cover to people that have been outside the country for a prescribed period. Certain statutory cover such as protection under the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA) may also lapse if the employee is outside the country for longer than the prescribed time period. For example, section 60 of COIDA provides that: “if an employee or a dependant of an employee to whom a pension is payable in terms of COIDA is resident outside the Republic or is absent from the Republic for a period or periods totalling more than six months, the Director-General may award a lump sum as determined by him in lieu of such pension, and upon payment of such lump sum the right to the pension shall expire”.
Before the Director-General exercises this power, the employee or dependant must be notified accordingly. The employee or dependent may make representations to the Director-General as to why their right to the pension should not be terminated, but ultimately the Director-General will exercise a discretion.
With regard to private schemes and employer sponsored schemes, whether or not an employee remains eligible to participate in and benefit from a scheme is largely determined by the rules of each scheme.
In terms of Section 29 of the Medical Schemes Act, 1998, continued membership of a medical aid scheme is provided for in the rules of the scheme. The rules of one of the large medical aid schemes in South Africa provide that when a member works overseas for an extended period (up to a maximum of five years) the member can downgrade to a benefit option for the lowest income band, but upon their return to South Africa the member can upgrade to any benefit option, provided they do so within three months of their return. This medical scheme gives the employee the option of remaining a member during the period of secondment. However, it should be noted that the rules of medical schemes vary . For instance, the rules of another leading medical schemeprovide for the retention of scheme membership in the event of an employee being stationed abroad on instruction from the employer. Accordingly, whether or not an employee will remain a member of a medical aid scheme will depend entirely on the rules of the applicable scheme.
In terms of Section 13 of the Pension Funds Act,1956 (PFA), the rules of a pension fund are binding on its members, shareholders, officers and any person who claims under the rules. Accordingly unless otherwise stated by the PFA, the rules of the applicable retirement fund will determine whether or not membership is retained during the period of secondment. The general rules of one of the largest multi-employer retirement funds in South Africa give members the following three options when going on secondment:
The fund deems the secondment a termination of employment. In this instance, the employee’s membership in the fund will terminate and the employee will be entitled to her or his withdrawal benefits; or
The employee and employer elect to continue paying contributions towards fund expenses and the costs of continuing risk cover. Such risk cover will remain in place for as long as the provisions of the insurance policy allow for this; or
The employee and the employer continue to contribute to the fund at normal contribution levels and all cover in terms of the rules of the fund will remain in place for the duration of the secondment.
Although the third option is ideal for employees who want to ensure continuity of benefits, it is not provided by most funds. Accordingly, it would be prudent for the employee and the employer to consult the fund’s administrators in order to ensure that the employee will not lose his or her membership in the fund whilst on secondment, and if that is the case, for the employer to consider proposing an amendment to the fund rules, or consider changing funds depending on how relevant the issue is for the day-today business of the employer.
In relation to insurance, some insurers provide cover for a prescribed period while the insured person is abroad. For example, the policy schedule of a leading insurer provides that in the event of a secondment to an “approved African country”, the policy will remain valid for 90 days. This cover could be extended on request by the policyholder at which point the insurer could impose additional terms and conditions. Whether the insurance cover remains in place will depend on the terms set out in the policy schedule. Accordingly, it would be critical to discuss a proposed secondment with the insurer to determine whether such cover could be extended for the duration of the secondment.
Because of potential disputes between contracting parties, they need to be certain about which forum would be appropriate to adjudicate disputes that may arise. This can be done using their contractual arrangement by setting out which law or legal system will govern the secondment arrangement. South African courts have dealt with various disputes arising from cross-border secondments. The courts have affirmed the common law principle that parties to international contracts are free to agree, expressly or tacitly, on the specific legal system to govern their contracts. However, the Labour Court in Abel Hermanus Kleinhans v Parmalat SA (Proprietary) Limited (Parmalat case) held that in the absence of such an agreement it is open to the Court to assign the proper law to the contract and the jurisdiction.
In the Parmalat case, a South African national employed by Parmalat SA entered into a three-year secondment arrangement with Parmalat Mozambique. Within a year, Parmalat Mozambique decided to terminate the employee’s contract. The employee instituted action against Parmalat Mozambique in Mozambique and also instituted action against Parmalat SA in South Africa for an unlawful breach of an employment contract. In determining the employee’s dispute, the Labour Court in South Africa had to, inter alia, consider whether it had jurisdiction to deal with the alleged unlawful breach of the contract in circumstances where the services were rendered in Mozambique. The Labour Court held, inter alia, that an enquiry needed to be conducted to determine which law and jurisdiction has the most real connection with the contract.
The Labour Court held that the factors supporting a finding that the proper law of the contract and the choice of jurisdiction was South Africa were the following: the contract had been concluded and cancelled in South Africa; the parties to the contract were both South Africans; the letter of termination confirmed that the employee’s secondment (not employment with Parmalat Mozambique) had been terminated. In the circumstances, the Labour Court held that South Africa was the appropriate forum and its law had the most real connection to the dispute.
In Astral Operation Ltd v Parry (2008) 29 ILJ 2668 (LAC), the Labour Appeal Court (LAC) held that the issue of the proper law applicable to the contract and the issue of jurisdiction were distinct. It therefore did not follow that because, for example, South African law had been chosen as the proper law, then South African courts had the jurisdiction to adjudicate a dispute arising from such a contract. The LAC held that parties are able to choose the proper law they want to apply to their contract and this law could be applied by a court in a foreign jurisdiction to adjudicate a dispute. In this case, because the employee had performed the work in Malawi, the South African court declined to entertain the dispute on the basis that the employee’s place of work was the determining factor, in these circumstances it did not have jurisdiction to adjudicate the dispute.
It is clear from the above that one needs to take a holistic approach to cross-border secondment. It is also advisable to obtain professional advice from organisations with experience in cross-border secondments before entering into such arrangements.