SAFEGUARDING JOBS,
PROTECTING THE VULNERABLE

A DA Discussion Document on Proposed Labour Laws

JANUARY 2011

Executive Summary

Statistics South Africa's Quarterly Labour Force survey for the third quarter of 2010 records the fact that one in four South Africans (25.3%) are presently unemployed, using government's official definition. Including discouraged job seekers, the figure rises to one in three (33.1%). This amounts to 6.4 million South Africans who are unable to find work, support their families, and build towards their hopes and aspirations.

Any measures that affect the labour market therefore need to be carefully contemplated. Measures that can assist in building an environment conducive to greater job creation, such as a national wage subsidies programme, need to be urgently considered. Likewise, measures that may exacerbate the unemployment crisis need to be avoided at all costs. The Democratic Alliance strongly supports measures that safeguard the rights of employees; exploitative labour practices have no place in our democracy. We believe, however, that legitimate calls for fair labour laws have been hijacked by a self-serving interest group, which is now using claims of exploitation as a ruse to boost its own membership numbers.

We believe, in short, that the four labour bills that were gazetted over the holiday period are designed partly to address legitimate problems, and partly to appease Cosatu, and boost the number of unionised workers. To the extent that they do the latter, we believe they are misguided, and do not serve the interests of the majority of South Africans.

The DA certainly has no objection in principle to employees being unionised, nor do we object in principle to an interest group acting to defend its own interests. The problem is with the cabinet, and the Department of Labour, who are acceding to Cosatu's demands with little regard to those who stand to lose jobs, or indeed to the plight of South Africa's unemployed - who will find it harder than ever to find work, should these measures be promul-gated. As the Department of Labour's own impact assessment has demonstrated, the cost of creating relatively few new perm-anent (and therefore potentially unionised) posts will be the destruction of hundreds of thousands, and quite possibly millions, of jobs in the South African economy. The equation is simple: we can either have a few more permanent jobs, and a lot more unemployment, or we can have many more temporary jobs, and a lot less unemployment. Cosatu would prefer the former option, because it provides them the opportunity to boost their membership numbers. But the vast majority of South Africans would prefer lower unemploy-ment. This, ultimately, is why we believe these proposed measures are wrong-headed, and need to be reconsidered.

It is easy for the sorts of figures bandied about in this document to appear hyperbolic. We need to be absolutely clear in this regard. When we talk about millions of jobs, we mean millions. The impact assessment commissioned on this matter by the Department of Labour says that the jobs of 2.13 million South Africans classified as fixed-term, temporary or seasonal workers, will be placed in jeopardy by these legislative measures. Not all will lose their jobs - some temporary workers might successfully be rehired in a permanent capacity. The majority, however, in all probability will be made redundant, with the impact assessment going as far as to conclude that the end result would be "serious destabilising effects in the labour market" - a quite unprecedented level of condemn-ation for a government-commissioned report.

The DA believes that creating a vibrant, growing economy must be at the heart of efforts to address unemployment and alleviate poverty in South Africa. This is essentially the standard by which these proposed amendments must be judged. Simply put, will they help to create quality jobs, and enhance skills development? Will they help to alleviate poverty? The DA's answer to these questions, based on the studies available to us, and our careful assessment of the provisions set out in these legislative proposals, is an emphatic ‘no'.

The four bills that have been announced by the Zuma administration need to be halted in their tracks, until the array of problematic provisions contained therein are removed. Broad consultation needs to take place, and we urge members of the public, stakeholders and all affected parties to submit their comments on the proposed bills by the deadline of 17 February

Introduction

On 17 December 2010, four new pieces of labour legislation were published in the Government Gazette.

The four bills are:

•·         The Labour Relations Amendment Bill

•·         The Basic Conditions of Employment Amendment Bill

•·         The Employment Equity Amendment Bill

•·         The Employment Services Bill

This paper will explore the technical implications of these amendments in greater detail and will evaluate problems emanating from these amendments. Where appropriate, we will propose alternative solutions to the problems these bills attempt to address.

We begin in Section I by reviewing the implications for the labour market of these proposed pieces of legislation. We look at the key provisions of each bill in turn, and then assess their likely effects.

In Section II, we examine these effects in greater detail, particularly in the context of their impact on employment in South Africa, and on our broader economy, and we offer our own solutions to certain legitimate problems with the existing legislative framework.

Finally, we conclude and provide a summary of our position, as well as contact details for the Department of Labour, which is presently taking public submissions on this proposed legislation.

I. Implications for the Labour Market

i) Basic Conditions of Employment Amendment Bill

Each of the four proposed bills contains legislative changes that will impact significantly on how the labour market functions. The Basic Conditions of Employment Amendment Bill's most problematic proposals include the following:

•·         A clause that requires employers to give equal employee benefits for both temporary and permanently employed workers, thereby greatly increasing the cost of hiring temporary employees.

•·         A clause that effectively prohibits temporary employment services, sub-contracting and contract work. This will fundamentally alter the way employers go about hiring new employees. Many people who are currently employed through sub-contracting schemes or on a contract basis will lose their jobs because of this, as employers will not be able to afford permanently employing all of the people affected by this clause. This is essentially a ban of labour brokerage.

•·         A clause that allows for police, inspectors, interpreters and other officials to enter the premises of any employer at will.

•·         A clause that requires employers to escalate pay by minimum increases. This is a short-sighted proposal, as it will force employers to retrench workers in more difficult times when minimum increases will not necessarily be affordable.

In all of the instances above, the Basic Conditions of Employment Amendment Bill will make jobs more difficult to come by. By making the labour market more rigid and highly regulated, the bill will punish workers and the unemployed by making it more difficult for businesses to expand their staff complements.

ii) Employment Equity Amendment Bill

The Employment Equity Amendment Bill will compliment the job-threatening proposals in the other three pieces of legislation. It includes three additional proposals that are of concern:

•·         First, it includes an extremely vague clause that calls for equal terms of employment for employees performing roughly equal work. While the DA supports the principle of equality, this clause is much too vague to function as effective legislation. It raises the question as to what exactly constitutes "roughly equal" work. It also raises the questions around incentive bonuses for staff who have better quality work or go the extra mile.

•·         Secondly, the bill includes clauses that escalate penalties for contravention of the Act to preposterously high levels. The example of a minimum one year prison sentence for failing to keep all official documents for three years seems overly harsh and unprecedented - certainly financial penalties will suffice in this regard.

•·         Thirdly, employment equity requirements will now enforce general national demographics across all provinces. This represents another example of a centralised, one-size-fits-all policy that does not take unique provincial variations and demographics into account.

iii) Labour Relations Amendment Bill

The Labour Relations Amendment Bill includes particularly damaging clauses. Again, it concentrates the assault on labour market flexibility by making temporary employment services, temp-orary work and the relationship between employers and employees much more difficult and expensive. The following are areas of concern:

•·         A clause that declares all temporary workers to be permanently employed, unless employers can give good justification for why temporary employment is justified. Firstly, this clause is written in a vague way that will translate into ineffective legislation. The bill does not qualify what exactly "good justification" would be. Secondly, it forces employers to go through a longer, and thus more expensive, process if temporary employees are required. It will almost certainly have a profound impact on the labour market, and result in severe job losses.

•·         A clause that alters employee-employer definitions that make temporary employment services much less viable.

•·         Increased Ministerial powers to unilaterally publish changes in regulations and issue codes of good practice. This is structured in such a way as to give the Minister of Labour free reign over the labour market. This is a dangerous proposal that could see new regulations and codes of good practice being written without proper public or industry consultation. This is in contravention of the tripartite conventions of the International Labour Organisation (ILO) of the United Nations and allows the minister and the governing party to overrule Nedlac, should agreement not be reached within six months. It is effectively a gun to the head of the other social partners that make up Nedlac, and will severely undermine that body.

iv) Employment Services Bill

The Employment Services Bill is a totally new piece of legislation. It contains several aspects that will be damaging to our economy's ability to create and sustain jobs:

•·         Most importantly, it contains clauses that allow for the creation of a public employment service. This is clearly an unnecessary addition to the employment services sector. State bodies such as the Post Bank or the state mining company, Alexkor, have shown that state-run operations almost always produce sub-par results and services that normal industry role-players could provide much more effectively and without draining state resources. This public employment service would likely be another drain on the public purse and could divert resources away from key social spending priorities. Furthermore, employers would be obliged to offer all employee and vacancy information to a state employment service. This is clearly an unfair advantage and is likely to be challenged legally as it gives priority to the state employment agency.

•·         The bill also includes a bizarre clause stating that temporary employment services would be allowed to function for three more years, at which point they will have to be re-registered. This contradicts some of the other provisions in the four bills.

•·         Another clause will force the burden of proof totally upon employers in the case of discrimination cases in the CCMA court. The DA supports any measure that would allow workers' rights to be protected and advanced in the CCMA court, but this clause could easily be manipulated to punish employers unnecessarily.

Finally this bill proposes to fund the Public Employment Services through public funding as well as employees' funds from the Unemployment Insurance Fund and Compensation Fund, among others. These funds are desperately needed to fund hospital bills and pensions that injured workers currently find extremely difficult to access due to the Funds' inefficiencies

II. Key Problems

The DA's most pressing concerns with these bills are that they will essentially outlaw temporary employment services and temporary employment in general.

This is nothing less than a short-sighted attack on job creation and can rightly be described as job-killing legislation:

i) Temporary Employment Services

Labour brokers, or Temporary Employment Services, have become prominent role-players in the South African economy where they facilitate job creation, train workers and assist businesses to operate in the most effective way possible.

It is therefore of manifest significance that the regulatory impact assessment, which was carried out by Prof. Paul Benjamin, Prof. Haroon Bhorat and Ms. Carlene van der Westhuizen, all of the University of Cape Town, at the behest of the Department of Labour, has found that the effect of these legislative proposals on labour brokered workers would be absolutely ruinous.

Firstly, that report found that the proposed creation of a "presumption of indefinite employment" restricts the legitimate role of fixed-term contracts, and places in jeopardy the jobs of a significant portion of the 2.13 million workers classified as fixed-term, temporary or seasonal. The report concludes that the bills would therefore almost certainly exacerbate South Africa's unemployment crisis.

Secondly, the bills would "effectively prohibit labour broking", which would risk violating the Constitution, insofar as they would violate the protected right to choose a trade, occupation or profession freely, and would violate the right to fair labour practices. The report also concludes that such a move would "place South Africa in breach of international obligations" and would "have serious destabilising effects in the labour market", leading to "increased levels of unemployment in the country [and] ... depriv[ing] the households attached to these workers of a valuable source of wage income."

The following facts underline very clearly just how important labour brokers are to our economy, and to millions of job seekers in South Africa:

Firstly, as of December 2010, there were 979,539 labour brokered workers in South Africa, representing 25.9% of all temporary workers and 7.6% of the entire workforce. By the broader definition used in the regulatory impact assessment, the number of affected South Africans, across all forms of fixed-term, temporary and seasonal forms of employment, is actually around double that - at 2,130,000. That between one and two million South Africans' jobs may be thrown into jeopardy by a single piece of legislation is thus a highly disturbing and exceptionally serious issue, which warrants the focus of the press, and the entire country. Given the number of South Africans potentially affected, we need to have an open and honest national debate on this matter.

Secondly, there is an abundance of economic evidence that undermines any notion that temporary workers will be absorbed back into the workforce, in full-time capacities, if the industry were to be outlawed. This is simply not what happens - as the Department of Labour's own impact assessment clearly demonstrated.

Thirdly, payroll taxes collected on behalf of labour brokered assignees total approximately R 3.1 billion. In 2009/2010, labour brokers paid R364 million in income tax. Additionally, in 2009/2010, labour brokers paid R4.6 billion to various statutory authorities (UIF, SETA/NSF and so on), and in 2010, labour brokers contributed almost R260 million to the National Skills Fund. By effectively banning temporary workers, in addition to the immediate impact on jobs, the Treasury and other statutory bodies would be left severely short of significant revenues they have collected in the past. This in turn would impact service delivery, or would force higher taxes, which would in turn crowd out more investment and job creation.

Fourthly, during 2010, 53 844 assignees working for labour brokers were on learnerships, apprenticeships and other skills programmes. This underlines how pivotal labour brokers are to developing the skills base of our economy.

Fifthly, 72% of assignees leave their job with a labour broker because they found permanent employment, showing that many agencies do already play a critical role in introducing workers to the formal, permanent workforce.

Finally, 98% of labour brokers pay skills development levies or are exempt from doing so; 77% of labour brokers recruit workers through word-of-mouth (i.e. by referrals from current/previous workers), indicating the general positive testimony of labour broker workers.

These facts indicate that labour brokers form a critical component of our economy and must continue to be allowed to function. They contribute enormously to economic activity in South Africa and help to improve the skills base of our economy by bringing new people into the workforce and training them. An outright ban on labour brokers, which is what the proposed legislation essentially is, would deal a great blow to our ability to employ or train people.

The question on the ethical functioning of the temporary employment services industry is, however, a fair question, and to ensure that it operates ethically, we propose a similar self-regulation system which currently applies to a variety of other industries, with industry peers and government monitoring the process.

This will involve:

•·         Mandatory registration for all practitioners.

•·         The establishment of an Institute or self-regulatory Board of Labour Brokers that will enforce a set of standards for the industry.

•·         A code of conduct, enforced by the industry board itself. Legitimate players in the industry would have an incentive to stamp out those labour brokers who exploit workers - they place the industry at risk and take away business.

•·         Annual consideration of profit margins attained.

•·         Initiatives to promote job creation.

•·         A redesigned, resourced and better managed labour inspectorate with a computerised database of registered brokers, transport to all remote corners of the Republic, powers to search premises and issue notices, and the support of the SAPS to gain access under certain conditions. This would include access to the records of the Institute/Board to be established.

Temporary employment plays an important role in both South African and global labour markets. International trends indicate that people change employment and work a much larger variety of jobs, for shorter periods of time, than ever before. As such, temporary employment has become a common aspect of both the global and South African economies. In today's knowledge- and service-dominated economy, a high proportion of workers are employed on contracts. Trying to legislate for the continuity of employment is thus a completely antiquated response to employability and shows that the Zuma administration is out of touch with market realities.

Temporary employment is an important access point into the labour market, as stringent labour regulations have scuppered employers' ability to permanently hire new employees from the get-go. Temporary employment also fulfils an important role in the labour market, as it helps employers deal with seasonal changes in product demand, staff absences, or a need for employees with scarce skills for a short period. These issues all demand a certain degree of labour market flexibility. The reality is that temporary employment is an integral part of our labour market and economy. It is very likely that this ban on temporary employment will cause many people to lose their jobs as employers are unlikely to permanently hire workers that are only needed seasonally. Again, this is borne out by the Labour Department's own commissioned study, which shows that the effect of this legislation relating to temporary employees will be severe for economic welfare, and for the labour market.

iii) Constitutional and other legislative considerations

The bills also propose some new aspects that are likely to be unconstitutional, and the DA will consider the possibility of taking this matter up in the courts, in order to ensure that the basic liberties afforded to South Africans by our Constitution are safeguarded.

To begin with, as the Department of Labour's impact assessment concluded, provisions contained in the draft would  potentially violate the protected constitutional right to choose a trade, occupation or profession freely, and would also quite possibly violate the right to fair labour practices. That the Department's own study openly admits this is profound.

We are particularly concerned with the constitutional soundness of the following components of the proposed legislation:

•·         The Employment Services Bill requires private actors to provide the proposed public employment service with sensitive information that would give it an unfair advantage over private sector competitors. This could also be challenged on constitutional grounds, as it forces cooperation with a state-owned company.

•·         A provision states that non-compliance with employment equity requirements could be punished by forcing companies to pay the state 10% of their annual turnover. This is possibly unconstitutional, as such financial penalties are only allowed in the case of "ill-gotten gains". In other words, if money was made unfairly (as is the case with collusion), the state is allowed to fine companies a percentage of its turnover. Not complying with employment equity requirements is certainly not an ill-gotten gain - which means that this clause could be declared unconstitutional.

In addition, the clause prohibiting temporary employment services could be in contravention of the International Labour Organization's (ILO) rules on sectoral interests. The ILO, of which South Africa is a member, prohibits sectoral discrimination - prohibiting temporary employment services could thus be challenged on these grounds.

The criminalisation of various breaches of the BCEA and EEA is also extreme and has no legal precedent.

Finally, the proposed amendments make both the client and the subcontractor liable for all unfair labour practices committed in respect of an employee of a subcontractor. This is in conflict with contractual law in South Africa.

Conclusion

The conclusion in this case is simple. The four pieces of proposed legislation collectively represent a new approach to our labour market that will kill jobs. Countless South Africans are dependent upon temporary employment and temporary employment services for jobs; the banning of these practices will leave many families without a source of income.

Certain parts of the legislation have perhaps been put together with the noble intention of attempting to further the rights of workers and to aid workers who suffer from the unethical behaviour of a small minority of labour brokers. The actual outcome of these proposed changes are, however, likely to be much more far-reaching and devastating to our hopes of creating 5 million new jobs by 2020. It will directly threaten thousands of jobs in the temporary employment industry, but also indirectly threaten thousands more jobs by making investment, employment and economic growth much more difficult in South Africa. The increased rigidity and regulation of our labour market will likely make South African firms less competitive in the global market and that will lead to additional job losses as a knock-on effect.

The vagueness of some clauses will only amplify the uncertainty regarding South Africa's labour market and could also threaten continued growth and job creation.

These bills should be read within the context of South Africa's national priorities. Millions of people cannot find work, many have given up on finding work and the Zuma administration has recently announced a plan that hopes to create five million jobs within ten years. These legislative changes will without doubt cost our country jobs and limit economic growth. If we are to see a meaningful reduction in unemployment, employment and growth will have to be made easier, simpler and cheaper; not more complex and expensive.

The DA will fight these bills with every tool available to us, because we believe that institutional measures that will exacerbate unemployed constitute an assault on the basic liberties of ordinary South Africans, in a  manner not seen since 1994.

Though we believe certain aspects of the bills have been written with noble intentions in mind, we also suspect that the attempt to ban labour brokers is yet another cynical attempt by unions to advance their own permanent membership numbers, even if the outcome is an increase in unemployment. The Department of Labour needs to understand the ANC's alliance partners for what they are - an interest group that is acting in its own self-interest; although there is nothing wrong with this in principle, it is the responsibility of the national government to take into account the interests of all South Africans, including the unemployed and those who stand to lose their jobs, and not simply the interests of a single union group. The fact is that the Department of Labour's impact assessment spells out the damaging effects of this proposed legislation in great detail, and the costs of failing to take these concerns into account will far outweigh the benefits of appeasing a small clique of union leaders.

We urge the public to comment on these bills and insist that the necessary changes are made.

Details for submitting public comment are made available in the final section of this document

Public Comment

Comments must be addressed to Mr. Thembinkosi Mkalipi, at the Department of Labour.

The postal address for comments is:

Department of Labour
Private Bag X117
Pretoria
0001

Alternatively, comments can be faxed to:  012 309 4156

Or e-mailed to:  [email protected]
Or e-mailed to:  [email protected]

Comment needs to be submitted by the deadline of 17 February.

Issued by the Democratic Alliance, January 17 2011

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