EMPLOYMENT LAW: The National Credit Act and loans to employees

It often happens, during the course of an employment relationship, that loans are made by an employer to an employee – often to assist the employee with the performance of his duties. The question arises whether the National Credit Act (“NCA”), which regulates most loan agreements, applies to such loans made in the context of an employment relationship.

Interestingly, this question does not seem to have been authoritatively dealt with by our courts. The NCA makes no specific mention of employment relationships, whereas the Basic Conditions of Employment Act actually specifically deals with deductions from employees’ remuneration in respect of debts. This would seem to indicate that loans to employees are regulated under labour law and not by the NCA.

A further argument against the application of the NCA can be found in its exclusion provisions, which provide that the Act does not apply to transactions where “…each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction…” This would surely be the case where an employer provides a loan to an employee on easy terms. Such a transaction would not be concluded at arm’s length but rather be infused by the context of the particular employment relationship, which is already well regulated. However, until this is finally decided, it is probably advisable for employers to tread lightly and follow a compliance-based approach that meets the criteria of both labour legislation and the NCA.