Employers applying emolument attachment orders to employees’ salaries should be wary of this being perceived as a form of debt bondage. If so, it could fall foul of European Commission proposals on forced labour.
Recent proposals regarding the international markets of the European Union (EU), combined with a domestic focus on environmental, social and governance (ESG) principles, give rise to a novel query: do garnishee orders against certain classes of employees amount to a form of debt bondage? Are goods produced by such employees in danger of being characterised as the product of forced labour (and banned from the EU as a result)?
A garnishee order (more commonly known as an emolument attachment order (EAO) is a court order permitting a creditor to be paid directly a portion of the debtor's salary to settle a proven debt. The debtor’s employer is compelled, by order of the Court, to deduct a stipulated amount from the debtor’s employment income and pay it directly to the creditor.
Whether this amounts to a form of forced labour or debt bondage falls to be considered now for two reasons. First, the European Commission's recent proposals targeting goods produced by forced labour include debt bondage as a potential indicator of such goods, which could pertain to certain EAOs. Second, the social pillar of ESG principles requires employers to engage with their workforce. Where there are EAOs, it may indicate that the support, education and upskilling of individuals require revisiting.
Addressing the former aspect, on 14 September 2022, the European Commission introduced the "Proposal for a regulation of the European Parliament of the Council on prohibiting products made with forced labour on the Union market" for consideration. Broadly, the Proposal (if adopted) would allow the EU to target, identify and prohibit all products made using forced labour. This prohibition would apply to any product (including all of its components) to be consumed within the EU, regardless of whether it was imported or domestically produced. The Proposal would apply to South African imports into the EU (directly or within the supply chain of goods being provided in the EU).
It is important that South African businesses exporting goods or playing a role in cross-border supply chains are aware of the breadth of the concept of forced labour. The International Labour Organisation (ILO) has developed indicators of forced labour which include restrictions on movement, withholding wages and debt bondage. The ILO says "Debt bondage – or bonded labour – reflects an imbalance in power between the worker-debtor and the employer-creditor. It has the effect of binding the worker to the employer for an unspecified period of time, anything from a single season, to years, or even successive generations. It bears no resemblance to taking a “normal” loan from a bank or other independent lender, for repayment on mutually agreed and acceptable terms."
In a South African context, although this definition may not appear relevant, a case could be made for indirect or disguised debt bondage. South Africa has a notoriously high unemployment rate and many employees live from pay-cheque to pay-cheque, are uneducated and/or illiterate (financially and generally) and support multiple dependants. Many also have limited skill sets and few alternative employment opportunities. Credit is the lifeblood for many of them. Given these factors, employees can easily become trapped in a debt cycle where they are, effectively, indefinitely tied to a job in order to pay off debts and are receiving a reduced salary because part of it is being used to satisfy one or more EAOs.
Although it may not be the creditor who is forcing work or receiving the product produced by the employee's labour, there may be a sufficient causal nexus to argue that the product is the result of debt bondage, particularly given the unfortunate socio-economic realities described above. In short, given a lack of alternatives, an employee becomes beholden to his / her employer to continue working, almost regardless of salary, working conditions or room for growth, given the need to be paid a salary and meet debts and EAOs.
Compounding this, in recent years the courts have been flooded with cases highlighting the abuse of the EAO process. Vulnerable employees were taken advantage of and left with little or no income to support themselves and their dependents, and the process by which EAOs were granted was often unlawful and not subject to judicial oversight. This abuse culminated in the University of Stellenbosch Legal Aid Clinic1 case, where the Constitutional Court stressed that a court will only grant an EAO if the court (not a mere clerk) is satisfied that such an order will be just and equitable in all the circumstances and the amount is appropriate.
This case is the lodestone establishing the foundations upon which EAOs are lawfully to be secured going forward. There have also been many developments under South Africa's democratic dispensation to govern the credit market, specifically considering the means and education of many debtors. The National Credit Act guards against reckless credit being extended and requires explanations of indebtedness; interest has been capped to prevent it exceeding the principal amount;2 specific consumer protection legislation has been enacted, etc.
Although it could be argued that employees subject to EAOs are akin to indentured labour, we believe, that such a comparison would not withstand scrutiny. Rather, provided that all the judicial and statutory protections have been followed and an EAO was properly granted and lawfully executed, any product produced by employees subject to such EAOs should not be characterised as the product of forced labour or debt bondage.
These legal protections, however, do not mean that employers can wash their hands of the issue. The social component of ESG principles covers an entity's relationship with, among others, its labour force. Social engagement requires meaningful interaction with key stakeholders, including an entity's workforce, so as to promote employee well-being and establish a sustainable employment relationship. The application of sound ESG principles in this regard would, symbiotically, benefit both the employer (by reducing risks posed by an unhappy, indigent, or unmotivated workforce) and the employees.
The social issues mentioned above which lead to debt traps and the need for EAOs can be addressed by employers. For example, training on financial literacy and wealth management could be offered; employees could be informed of their legal rights when taking out a loan or being subject to EAO proceedings; in-house legal support could be provided, if possible; individuals could be groomed to fill better-paying positions within the company; benefits could be offered to employees and dependants, if feasible, to reduce reliance on credit, etc.
Ultimately, although EAOs may not indicate forced labour, they can be indicative of other social ills, which can pose a risk to a company's reputation and bottom line. These risks can be identified and mitigated by applying sound ESG principles.
