Download South Africa has introduced a new labour dispensation. The

The impact of the LRA amendments on the South African labour market
South Africa has introduced a new labour dispensation. The legislature aimed at addressing certain concerns in the labour market, ease access to workforces for trade unions as well as regulate the temporary employment sector. The changes have a number of unintended, but avoidable consequences. These include job losses, an over restrictive environment and a negative impact on business feasibility. The amendments failed to take an opportunity to address fundamental issues in the labour market. Amongst these are the failure to address the issue of strike violence as well as the backtracking by government on the issue of extended labour court powers to address that violence. In a country where we are rated in the last quartile in terms of strike frequency, employer-­‐
employee relationship, violence in strikes, rigidity of labour market and hiring and firing practices, an environment conducive to legitimate business growth, employment and an increase in productivity was required to be created. Due to a number of factors, including political pressure from alliance partners an opportunity was missed. An environment which amplifies these weaknesses and leads to mass job losses has instead been created. This paper aims to unpack some of the more pertinent changes made to the Act and the consequences which are faced as a result. To unpack the issue, we divide the paper into some of the key themes that were negotiated at the NEDLAC process as well as other matters of interest. The themes were decided upon after the first draft of the Bills were released at the end of 2010. Business felt that the Bills were unconstitutional and as such suggested that the social partners at NEDLAC (Business, Labour, Government) rather not negotiate point for point on the Bills but should discuss the Bills in terms of themes. 1)A-­‐Typical employment : The most controversial aspect of the Labour Relations Act is the extra protection for temporary employment service (TES), fixed term and part time employees, that is introduced by new sections 198(A), (B), (C) and (D). S198(1)(b)(i) and s198(2)(b)(ii) -­‐ A 3 month additional protection for employees earning under the threshold is placed on temporary employment (labour broker) employment after which a placed employee is deemed to be an employee of the client and the labour broker for the purposes of the Labour Relations Act. The Act sets out the definition of temporary service as follows : 198A. (1) In this section, a ‘‘temporary service’’ means work for a client by an employee— (a) for a period not exceeding three months; (b) as a substitute for an employee of the client who is temporarily absent; or (c) in a category of work and for any period of time which is determined to be a temporary service by a collective agreement concluded in a bargaining council, a sectoral determination or a notice published by the Minister, in accordance with the provisions of subsections (6) to (8). Further, after the 3 months a deemed indefinite employment relationship with the client is introduced unless there is a justification under section 198(B), the fixed term contract provision : (b) not performing such temporary service for the client is— (i) deemed to be the employee of that client and the client is deemed to be the employer; and (ii) subject to the provisions of section 198B, employed on an indefinite basis by the client. It is our opinion that if an employee earning less than the threshold were not allowed to be employed by labour brokers for a period exceeding three months, this would be effectively a ban and therefore unconstitutional . Further if this was so there would be no need for a deeming provision. It is trite that in South African law an employee can have more than one employer. It must be assumed that the drafters were aware of this principle. See for example: Board of Executors Ltd v McCafferty [1997] 7 BLLR 835(LAC). If the drafters had intended the employee to cease being an employee of the TES and become an employee of the client only, the clause could easily have said so in simple and plain language. For example, if the intention was to automatically substitute the TES for the client, words similar to those used in section 197(2)(a) of the Act could have been used. To further support this, we refer the reader to the additional amendment : Section 198(4A): If the client of a temporary employment service is jointly and severally liable in terms of section 198(4) or is deemed to be the employer of an employee in terms of section 198A(3)(b)— (a) the employee may institute proceedings against either the temporary employment service and/or the client. This is the artificial deeming provision and practically how you’d give effect to this by creating joint and several liability in (a) above. As mentioned above “deeming” creates an artificial relationship to provide “extra” protection to this class of employee (under the LRA only). The employee is still paid by the TES and in effect there is a dual employment relationship. S198 (4F) provides that a temporary employment service (TES) employee must be treated on the whole not less favourably than an equivalent employee of the client (after 3months). It is our opinion that there are a number of options for differentiating temporary employment service employees to other permanent employees. In the section below some of these areas are listed and are not limited so long as they are non-­‐discriminatory in terms of section 6 of the Employment Equity Act. Section 198D (2) stipulates that for the purposes of sections 198A (5), 198B(3) and 198C(3)(a), a justifiable reason includes that the different treatment is a result of the application of a system that takes into account— (a) seniority, experience or length of service; (b) merit; (c) the quality or quantity of work performed; or (d) any other criteria of a similar nature, and such reason is not prohibited by section 6(1) of the Employment Equity Act, 1998 (Act No. 55 of 1998). In summation then, the “deeming clause”, applies to situations where the employee is earning less than the threshold, currently set at R205 433.00 per annum, and where they are placed with the client for a period exceeding 3 months. In terms of the amendments the employee, in essence, gets extra protections in terms of the LRA(except genuine substitute employees). The temporary employment service provider may remain after three months. The extra protections include the extended joint and several liability which may result in the referral of both the client and the TES to the CCMA by an aggrieved employee as well as equal treatment unless there is a differential factor (incl seniority, length of service, merit, performance or any other non-­‐discriminatory criteria. Similar protections have found their way into fixed term contract and part-­‐time employees. Unintended, but known consequences Whilst a number of business representatives and economists warned that the impact of these and other provisions was that there would be inevitable job losses, this fact was denied by the Department of Labour until November 2012, when the Department’s representative admitted at the National Council of Provinces that there would be job losses as a result of the amendments, particularly the so called “deeming provision”, but that it would not be as significant as business was indicating. Further to this , the Department was adamant that jobs lost would be made up. Predictions made by business have proven to be accurate, as research conducted on job losses in the first few months of 2015 as a result of the regulation indicates that the industry has been severely affected by the changes. (Employment Effects in the Temporary Employment Services (TES) Sector: Post-­‐ Regulatory Amendment Effects Haroon Bhorat, Sibahle Magadla, and Francois Steenkamp.) The report above concludes as follows : “…the primary response by firms to the Amendment was negative, with approximately half of the temporary employees in the sample having their jobs either terminated or being retrenched. Only one in every four temporary employees were made permanent following the Amendment. A substantial number of temporary employees were unaffected. Negative effects were felt most strongly in Manufacturing, Finance, Real Estate and Business services, and Public and Social Services industries and the Gauteng and KwaZulu Natal Provinces. Positive employment effects were felt most strongly the Wholesale and Retail Trade, and Tourism industries and the Gauteng and Western Cape Provinces. Notably when comparing this data to the previous year -­‐ using the Quarterly Labour Force Survey data -­‐ our results confirm a sharp rise in job losses in the immediate aftermath of the regulatory amendment. The data provides early, short-­‐run evidence that the most common response amongst firms facing the regulatory change, has been to retrench workers or to prematurely terminate contracts of employment. As one examines the longer run effects of this law, the concern amongst policy makers must surely be the extent to which additional possible employment creation has been reduced given this regulatory intervention.” Not only a TES problem For years a number of businesses had a view that the amendments were a labour broker problem. The reality is that they pose a substantial challenge to the viability of businesses as well as to the maintenance of current employment level as well as job creation in the country. The Act attempts to regulate abusive practices of rolling over of contracts by providing further protections for contracts which are longer than 24 months in duration. Employees employed on such contracts will need to be paid one week severance for every year’s service after the completion of 24 months continuous employment. There is no need to engage in formal retrenchment processes as prescribed by s189. S200B(3) of the Act places a number of restrictions in relation to employees earning below the threshold Fixed term contracts in excess of 3 months. S200B(7) expands on this and requires fixed term contract employees employed for longer than 3 months to be treated equally to indefinite employees. There is no doubt that this could provide challenges to the flexibility of organisations and employers would be well advised to ensure that their rationale for use of a fixed term contract employee for longer than 3 months is justified, but also to ensure that where there is differential treatment, same is justifiable in terms of the Act Section 198(3) an attempts to regulate and provide strict guidelines for contract use by stipulating that an employer may engage an employee on a fixed term contract or successive fixed term contracts for longer than three months of employment only if— i)the nature of the work for which the employee is engaged is of a limited or definite duration; or ii)the employer can demonstrate any other justifiable reason for fixing the term of the contract. (4)Without limiting the generality of subsection (3), the conclusion of a fixed term contract will be justified if the employee— is replacing another employee who is temporarily absent from work; is engaged on account of a temporary increase in the volume of work which is not expected to endure beyond 12 months; is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter a job or profession; is employed to work exclusively on a specific project that has a limited or defined duration; is a non-­‐citizen who has been granted a work permit for a defined period; is engaged to perform seasonal work; is employed for the purpose of an official public works scheme or similar public job creation scheme; is employed in a position which is funded by an external source for a limited period; or has reached the normal or agreed retirement age applicable in the employer’s business. And Part-­‐timers? Part time employees earning under the earnings threshold and after 3 months of employment are to be treated equally to full time employees. Similar protections to the abovementioned categories are applicable. There is no doubt that this has posed a major challenge to such flexibile industries as hospitality and more particularly retail. It has become abundantly clear that the problem has been addressed by a number, particularly in the latter industry through the process of outsourcing entire categories of workers, functions or distribution centres. Implementation problems In the headlines recently were 2 particular awards which, although expected at the CCMA/Bargaining Council level, are further complicating the industrial relations environment. The Assign Services matter(ie the test case) On 29 June 2015, the CCMA handed down the award in respect of the consequence of section 198A(3)(b) of the LRA (the deeming clause). The issue was whether or not the consequence of deeming was exclusive employment by the client or dual employment (i.e. both the client and the TES being employers) for purposes of the Labour Relations Act(LRA) In summary, the CCMA has interpreted the clause to mean that the client becomes the sole employer of placed workers for the purposes of the LRA. It is apparent that rather than focus on the argument presented during the hearing (with both parties being represented by senior counsel) the arbitrator seems to have relied on the CCMA training. We are of the view that, with respect to the arbitrator, the ruling is wrong. Quite apart from the ruling being wrong, we are advised that the arbitrator’s award is, with respect to him, largely unhelpful. He has not grappled with the arguments presented to him. For example, the arbitrator fails to deal with the practical examples of deeming resulting in the TES no longer being the employer. This includes rights acquired against the TES such as stop order facilities. The arbitrator has failed to deal with the fact that, on his finding, TES’s could simply stop paying over union dues (because these are rights that flow from the LRA). In response to the argument that, if the TES was meant to fall out of the picture, the Legislature would have said so (along the lines that it did in respect of section 197 – transfer as a going concern) the arbitrator dismisses this argument by saying if the Legislature had wanted dual employment it could have said so. The arbitrator’s comment overlooks two critical issues. The first is that our law readily accepts dual employment. Secondly it is a rule of interpretation is that a statute will not be lightly interpreted to change the common law (i.e. if the statute intends something different to common law, it should state that in clear and unequivocal terms). The arbitrator then compares the deeming clause to “adoption” in South African law. He argues that adoption results in the former parent falling out the picture. While this is so, this is because section 242 of the Children’s Act expressly records that the biological parent loses parental rights. Accordingly, it follows that the arbitrator’s adoption example, if anything, supports the dual employment argument – because the LRA does not expressly state that the TES falls away (as the Children’s Act states in respect of the biological parent). Perhaps the best example of the arbitrator relying on thetraining rather than argument presented to him, is his reference to the memorandum of objects (which accompanied the various drafts of the Amendment Bill) recording that once deeming takes place, the employees “are deemed for the purpose of the LRA to be employees of the client and not the TES”. While this appears persuasive, it is wrong. The later versions of the memorandum of objects removed those words. There is a reason for removing those words. The reason being that it did not reflect the intention of the Legislature. We have extracted relevant clauses out of the second arbitration that might be of interest to highlight certain key areas of the awards: Refilwe Esau Mphirime vs Value Logistics Ltd / BDM Staffing (Pty) Ltd Ad paragraph 44 Nothing in the wording of the amendments suggests that a transfer akin to section 197 of the LRA occurs. I also do not interpret the deeming provision to mean that the triangular relationship between the TES and the client dissolves and that the commercial relationship comes to an end, in the absence of wording that would suggest that the triangular relationship comes to an end or that a transfer takes place, such a consequence cannot be assumed. Ad paragraph 47 What happens to the commercial relationship between the TES and the client after the shift in liability will ultimately have to be negotiated between the relevant parties in terms of their business agreement. What is however clear from the recent case law is that if the terms of the new agreement infringes upon the rights of employees, it will not be binding and the courts will reject such argument. Ad paragraph 48 The legislator acknowledges the unique triangular relationship between the TES, the client and the employee in section 198 of the LRA. Nothing in the amendments however suggests that a transfer of the employee has taken place or that the triangular relationship acknowledged by section 198 dissolves. Ad paragraph 52 Therefore the deeming provision in terms of section 198A(b)(i) of the LRA will be triggered and Value Logistics Ltd is deemed to be the employer of Mr RE Mphirime for purposes of the LRA. Subsequently BDM Staffing (Pty) Ltd has no right or obligation to defend this matter. What seems to be clear from the above extracts are: 1. The triangular relationship in both cases has been upheld even after 3 months 2. That if you have legitimate fixed term contract there will be no dismissal and therefore no labour relations consequences of significance 3. Both cases acknowledge the commercial contract between the TES and the clients 4. That the legislation does not suggest a transfer takes place after three months Review papers have been urgently filed in respect of the Assign matter and an approach made to fast track the hearing of the matter. This is critically important as the impact on jobs in South Africa has acutely been felt as illustrated in the research conducted by Prof Haroon Bhorat(ibid). In the interim, no doubt, it will be a challenging time with the CCMA already receiving a bombardment of referrals in terms of s198. 2) Dispute Resolution Access denied? S145 has been amended with the intent to limit frivolous review by employers who review matters to allow the matter to die at Labour Court due to an employee’s lack of funding and other factors. The Act has been amended to provide that 24 months security is required to be paid by an employer pending the review of a matter where reinstatement has been awarded. Where compensation has been granted, an amount equal to such compensation would need to be paid. Especially for small business, this is a huge additional cost and in there is no question that it has raised question marks on the constitutionality of the provision as a number of employers may find the deposit too onerous to proceed with the review. This is challengeable as it does infringe on the constitutional right of access to courts, aggravated even more by the fact that the same hurdle is not placed before employees or trade unions. Operational requirements ignored? S187 implements a restriction on retrenchments for operational requirements by expanding the grounds for automatically unfair dismissals. Amendment to Section 187 (1)(c) (c)[to compel the] a refusal by employees to accept a demand in respect of any matter of mutual interest between them and their employer [and employee];” This has far reaching implications on cases like Fry’s Metal in changing conditions of employment and the ability to retrench in order to change conditions of employment. You will remember that due to a change in shift system that was required, the union refused to have its members agree to same after lengthy consultation. The company then notified all staff (a copy of said notice can be found in the Labour Court judgment) that the change is an operational requirement and if they were not to confirm their adherence to same then they would be retrenched. This judgement has been the subject of much controversy and has always been a scenario approached with great caution and often warned against by counsel. The amendments to this sectioncreate a situation where this type of change(if not agreed to by the union/employees) may make this a matter of a mutual interest dispute and possibly the subject of industrial action. No doubt, this has caused great concern amongst employers, particularly those that are very reliant on shift systems which are often client/product driven. A delay in applying the tourniquet Whilst there is a perception that retrenchments are an “easy out” often pursued by employers, mostly this is not the truth. As emotional a process as it is for employees, the same is applicable to employers. It is not an easy road and often the hope of a turnaround delays the start of the process. S189A has been amended and more onerous provisions have been implemented in relation to large scale retrenchments. No party, in a large scale retrenchment, may unreasonably refuse an extension beyond the 60 day period. 3) Collective Bargaining Much has been written about the state of collective bargaining in South Africa. Whilst this topic is one that deserves much deeper discussion, we cannot do so in this article. Suffice to say that we have a distinctly pressurised system which is currently having its efficiency and viability challenged. It is a system on its knees. The amendments have been, as openly admitted by the Department of Labour at both the public consultation and parliamentary processes, designed to ease access to workplace for trade unions. The Department’s hope is that the amendments will allow a system which eases the situation for employees and their representatives. S21 is amended to allow this easier access to previously majority trade union rights under s21 on trade union official, leave and access to information. This sadly conflicts with the spirit and intent of the principle of a majority union. As an example if an organisation has 1000 employees a union might get majority trade union rights with say 400 members. Not like 501 in the past. This provision is supported in S55(o) of Basic Conditions of Employment which provides for the Employment Conditions Commission to set thresholds in a sector for organisational rights of access and subscriptions in a sector, regardless of the agreement in the workplace. There is some concern that this particular provision might undermine the Labour Relations Act. Who holds the purse strings? In an attempt to raise the wages of employees there has been amendment of S55(1)(4)(b) of the Basic Conditions of Employment Act. This section now stipulates that sectoral determinations may provide for minimum increases on actual rates of pay. This will result in much higher wage costs where employees are paid above the minimum prescribed rate. The challenges that arises as a result of this change is that this will often lead to companies paying at the minimum rate and if staff are already hired above the minimum rate, then a consultation process in terms of 189 may be entered whereby operationally the employer cannot afford to give the increase on the above-­‐norm rate and as an alternative to dismissal the employer may offer the minimum wage. Whilst not advocating or commenting in any way on the above, there is no doubt that this is potentially an unintended consequence of the change. Surely strike violence was addressed? No real legislative provisions were introduced by Government that restrain strike violence adequately. Originally, Government’s own proposal to NEDLAC was a compulsory strike ballot. The Portfolio Committee removed this provision. Unrestrained strike violence will be a continued deterrent to employment and direct foreign investment. We need to ensure that we move away from the current situation if we are to have the labour market an enticing one to business. S69(6)(a) extends the picketing provisions by allowing picketing rules to apply to third parties who are not employers. This can be seen to nullify the great Labour Court decision in the Growthpoint matter where s36 of the constitution was clearly set out and the appropriate balancing between the rights of striking workers as well as businesses in the La Lucia mall completed. The amendment though may now allow Commissioners to allow for strikes in malls and force mall owners to participate in consultations which have nothing to do with them. 4 ) Compliance and enforcement S69 of the Basic Conditions of Employment Act provides for the removal of compulsory undertakings and removal of employers’ right to object and engage upon compliance orders. Added to this is the Inspectors now have a discretion in terms of enforcement. This discretion in enforcement also finds its way into the Employment Equity Act where there is a possibility of fines of 2% of a company’s turnover at first offence and a removal of the mandatory assessment factors. Sadly this system has been tried in other jurisdictions and has often opened the way for bribery and corruption. How much more of a risk do we not find ourselves in, where our system has underpaid, under resourced and in 84% of the inspectors cases, undereducated individuals who are charged with ensuring compliance with the various Acts. Schedule 2, table 1 of BCEA. Increases the fines for administrative non-­‐compliance by 200% 5)Others of interest Intervention in strikes : This has led to much unhappiness within the labour movement, but it appears that the intention here is to intervene only in matters where it is in the public interest to do so. One would be interested to see how the tightrope between public interest and political allegiance will be straddled by the Department, Award an order of court: To avoid a situation where an award in favour of an employee is received and the employee is not in a position to enforce as he/she needs to apply to the Labour Court to make it an order of court, the amendments have brought in the concept of an award having the same authority as an order of court. This allows for ease of enforcement. In theory this seems to be a positive step. Representation at CCMA – goodbye consultants: Whilst it has always been the case that consultants cannot represent at the CCMA, this principle is now etched into law. Conclusion These amendments provide a number of challenges, both to businesses as well as to job retention and creation. Already there have been large scale job losses in our country as evidenced by Prof Bhorat’s research referred to earlier in this paper. Creating a more rigid process which does not favour a conducive business environment, we run the risk that there will be very little left of our labour market to protect when the dust settles. One hopes that successful businesses, being resilient will succeed no matter the environment, however the amendments provide a big challenge to sustainable business in our country in recent memory. Jonathan Goldberg and Grant Wilkinson CEO and Executive at Global Business Solutions