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The right to work and debarment in the financial market

- Robert Vivian

It is troubling in a constitutional democracy that laws exist allowing people to be deprived of their livelihoods without any inquiry at all.

Who in their right mind would believe there is a law on our statute books which is interpreted and applied in such a way that it makes it possible for an employer to deprive an employee, without the due process of law and without any proper inquiry, indeed any inquiry at all, of their livelihood nationwide and without any demonstrable knowledge of the legal requirements?

Once the employee is debarred in this way from working, the only means left for them to regain employment is to approach the courts at enormous personal cost and risk.

Such a system has no place on the statute book. It is outrageous and should evoke a great sense of injustice and anger within any normal person. How did this situation become possible?

The withdrawal, with immediate effect, of the guideline on the determination of reappointment of debarred representatives (July 13 2011) announced by the Financial Services Board (FSB), the regulator, on October 20 2017, has highlighted the existence of this questionable system. This withdrawal has made the way a debarred person can become un-barred even more unclear.

The Financial Advisory and Intermediary Services (FAIS) Act, which contains inter alia the debarment system, is testimony that the impossible can become possible. The impossible is that someone without the slightest idea about law or fundamental legal principles, was let loose to draft a piece of legislation that, even more inconceivable, got past industry consultative bodies, law advisers, parliamentary committees, and Parliament itself, and now, is tolerated by the judiciary. For this piece of legislation to even exist in a constitutional democracy is troubling, to say the least.

The right to work is part of the fundamental principle of liberty.

Anyone must be able to sell his or her services. If not, that person is doomed, by force, to starvation. For this reason, society has always been disturbed when someone comes along and attempts to stop people from working. One need only think of the concern that exists, and has for centuries, with issues such as restraints of trade, closed shop agreements, national minimum wages, job reservation which was practiced in the apartheid era, the exclusion of Jews in Nazi Germany from the economy and so on.

These measures are all a cause of great concern because they impinge on the fundamental right to work and on liberty.

In the late 1800s, people began to lobby for laws to keep others out of their professions, to deny outsiders the right to work, crying "public interest". Many suspected, though, that this exclusion was driven by self-interest, private interest and not public interest. The medical profession began to lobby for licensing and registration of doctors, dentists, nurses, pharmacists and so on. Other professions, such as lawyers, followed suit. Then came the Great Depression when barbers, beauticians, undertakers, chiropractors and so on joined the stampede for registration and licensing to keep others out and thereby to protect themselves, always crying "public interest".

These, at least, had a system. Pressure to exclude others from their guild came from the "professions", not the government. To join a guild usually required years of education, training, experience and joining a professional society which had its rules of conduct. Once in, it was difficult to expel a member. This is not surprising since the expelled member would be deprived of the right to work. The member to be expelled had to be accused of a breach of the professional code, and then subject to an impartial disciplinary action following due process. But, always, in the end, with recourse to an independent judiciary, well-schooled in the understanding that "no man shall be deprived of his right to life, liberty or property without the due process of law". So, admission to a guild and expulsion from a guild for misconduct is something well-known and very strictly controlled as countless court cases testify.

And now, along comes FAIS; the most amateurish, unconstitutional piece of legislation imaginable. It requires many ordinary, everyday employees in the financial industry to be registered, and soon, if left to go its way, will include everybody.

There is no guild, no professional body, no meaningful qualifications, no years of specialised experience, no professional code of conduct, no impartial disciplinary committee. By law virtually everyone holding some position, even a salesman, must be registered with their employer. If any unfortunate soul falls foul of their employer, that employer can arbitrarily, without inquiry, deregister the employee by indicating that he is not fit and proper and thereby debar the employee. According to a recent Supreme Court of Appeal decision, at that point, the employee cannot work in the financial industry anywhere in the entire country. The employer advises the FSB, the regulator, of the debarment. The FSB puts the name of the employee on its website and that is the end of any hope for that employee of getting employment in the industry until the debarment is lifted.

This process beats restraints of trade hands down. If the employer wants to stop an employee from competing – just debar the employee. It beats the closed shop agreement. If the union does not want non-members working in the industry – just get the employer to debar the employee.

More recently, the judiciary has become complicit in this outrageous system.

In case you think I am joking, read the judgement of Odinfin (Pty) Ltd v Reynecke (906/2016) ZASCA 115, 21 which was handed down in September 2017. To do his job, Reynecke, a salesman, had to be registered, in terms of FAIS, with his employer. In August 2010, he obtained employment with Odinfin. Three years later, in April 2013, while still employed with Odinfin, he secured an offer of employment with Nedbank. He was faced with a problem when Nedbank wanted to put him through an induction process. To attend the induction process, he told Odinfin that he was on the road selling policies. Odinfin worked out he was seeking alternative employment and had misrepresented the truth about what he was doing. So Odinfin commenced disciplinary proceedings against him. Reynecke tendered his resignation with immediate effect.

Odinfin pointed out that he had to serve four weeks’ notice and that they intended to hold the disciplinary proceedings within that four-week period. Reynecke was expected to attend. He did not. The disciplinary process continued in absentia and found him guilty. He was fired with immediate effect. Odinfin then updated its register, removing Reynecke’s name and branding him as a person who is not fit and proper. Odinfin notified the FSB which, without any inquiry of its own, entered Reynecke’s name on its register as a person who is not fit and proper.

Nedbank checked the FSB register, found Reynecke branded as not fit and proper and withdrew its offer of employment. Country-wide, Reynecke became unemployable.

At this point the judiciary entered the fray. Reynecke approached the High Court for relief. Even though Odinfin opposed the application, without providing any reasons, the High Court, not surprisingly, set aside the debarment and Nedbank employed him.

Unemployed and unemployable country-wide for nine months, Reynecke returned to court in 2014 and sued Odinfin for his lost income. In the High Court he won his case and Odinfin was ordered to pay him the nine-months salary. However, in September this year, the Supreme Court of Appeal overturned (rightly in my view, with respect) this ruling, with costs being awarded against Reynecke.

The court expressed no unease whatsoever with this legislatively created, absurd system of debarment. In fact, in an earlier case, the Supreme Court of Appeal ruled that the moment the employer debars the employee, the employee is debarred nation-wide with no need to wait for the FSB to get involved.

This amateurish debarment process violates the most basic principles embodied in the rule of law and constitutionalism. What is clear is that modern legislation poses a great threat to freedom and liberty. Careless legislation makes it possible for all institutional safeguards to fail and prove ineffective in protecting our fundamental liberty such as the right to work.

To summarise, this debarment process exists because legislative drafting, industry consultative bodies, parliamentary committees, Parliament itself and now the courts, all institutions designed to ensure that fundamental rights, what the Americans call unalienable rights, are protected, failed. This is but one example of many.

This article first appeared online on Robert Vivian is Professor of Finance and Insurance at the University of the Witwatersrand. The