Wednesday, July 18, 2007

Employer-Employee relationship under the National Credit Act
By Bridget Sesele
The National Credit Act No. 34 of 2005 (the "Act") is now of full force and effect in its entirety. Much about the Act has been commented on, ie the application of the Act and the effect thereof to our credit laws. Of equal importance is a discussion on how the Act seeks to deal with the employer-employee relationship as most of the people in the world are involved in this type of relationship.
Three issues will be discussed in this article, namely how the Act impacts on employer-employee lending; employer’s salary advances to its employees; and employee’s assets in the company.
In order for one to determine any issue relating to the Act, we must have regard to the application of the Act, which is contained in section 4. The scope of the application of the Act is very broad in many respects in that it "applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within" South Africa. Although the Act has wide application, it contains certain exceptions. The exceptions relate to few arrangements in which the Act would not have application. These arrangements include a situation where the parties are not dealing at arm’s length. The exception which can be held to be applicable to the employer-employee relationship is that which is contained in section 4(2)(b)(vi) where it states that the parties are not dealing at arm’s length in any other arrangement:

"(aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or
(bb) that is of a type that has been held in law to be between parties who are not dealing at arm’s length".
In all the categories of credit agreements governed by the Act, the central aspect which must be present is credit. The credit provider must supply goods or services to a consumer and credit must be provided to such consumer.
Based on the wording contained in section 4(2)(b)(vi), one might argue that the employer-lending should fall within the ambit of this exception as the employer does not strive to obtain any benefit out of the lending transaction which might be concluded between the parties. However, having said that, there is room for debate that should any charge, interest or fee be charged by the employer in lending monies to the employee, such transaction will be considered as a credit agreement.
Our first issue therefore is not a clear cut one as it depends on how the transaction is structured to determine whether or not the lending of monies by the employer to an employee falls within the ambit of the Act.
The relationship of an employer-employee relationship does not seem to be envisaged by the Act wherein such relationship is currently dealt with in accordance with the Labour Relations Act, 1995 (the "LRA"). This type of relationship usually takes the form of an employment agreement between the parties. Bearing this in mind, one cannot therefore hold that the Act seeks to govern the relationship as the Act does not make any mention of an employment agreement.
Credit cannot therefore be present in the employer-employee relationship as the employee renders his or her services to the employer in return for remuneration. Credit does not therefore exist also because, even though remuneration is usually after a certain period of time, no charge, fee or interest is charged in that regard. Furthermore, the Act in no way seems to repeal or amend any provision contained in the LRA.
As a result of the above, it is therefore not the intention of the legislature to have the Act encroach into the provisions of the LRA and as such has no application to the employer-employee relationship. The answer therefore to our second issue should therefore be that the Act has no application to employer’s salary advances to its employees as this is merely a form of remuneration for the employee’s services rendered.
Section 47(3) of the Act stipulates that an individual is disqualified from registering as a credit provider should such person exercise general management or control of that person or association. Should a person therefore acquire some form of management or control in a company, where such company is registered as a credit provider, then that particular person will not be required to register. This section must be read together with sub-section (5) where it reiterates this position. Therefore, should an employee acquire some assets in a company where he or she exercise general management or control of that company, that employee will be disqualified from registering as a credit provider. However, should the company not be registered as a credit provider, one must engage in a determination of whether or not such company qualifies to register as a credit provider as well as if an employee is required to register as a credit provider in terms of the Act.