Research and Policy Brief: Five Bills Building State and Union Power - 8th February 2011.

The Cabinet used the festive season to unveil five new bills: four on labour, one on land. All five supposedly aim to help the poor, but their predictable effect will be to worsen unemployment and build dependence on the State. Apart from the controversial Protection of Information Bill, these five bills are the first major legislative intervention by President Jacob Zuma’s administration. They bode ill for South Africa, as the Institute’s in-house legal expert, Dr Anthea Jeffery, explained at a briefing in Johannesburg on 8th February 2011.

Three of the four labour bills make changes to three acts: the Labour Relations Act (LRA), the Basic Conditions of Employment Act (BCEA), and the Employment Equity (EE) Act. The fourth labour bill is a new measure called the Employment Services Bill. The fifth bill is the Draft Land Tenure Security Bill. 

The labour bills seem to have their origins in Cosatu’s determination to end non-unionised, atypical employment. The land bill seems to reflect a belief that small-scale farming offers a solution to rural poverty and that there is a large unmet demand for farm land for this purpose. 

Let us begin with Cosatu’s concerns.


Cosatu’s demand for ‘decent’ jobs

The obvious ideal is for every workseeker to find a permanent and well-paid job that offers benefits such as a pension and medical aid. But the ideal is not always attainable in an environment of low growth and poor skills – and the choice which confronts South Africans is very often between temporary, atypical jobs or no jobs at all. 

Cosatu’s demand for decent work is also fundamentally self-serving. Cosatu dislikes the growth of atypical or ‘casual’ jobs because this erodes its power. Temporary workers are hard to unionise. In addition, a high proportion of atypical labour weakens the impact of strikes, for non-Cosatu members are likely to ignore strike calls and keep on working.


Growth of atypical employment

Atypical employment has grown rapidly in the past decade, partly because job flexibility suits the needs of a modern knowledge-driven and services-dominated economy. In addition, temporary employment is often only the sensible solution for seasonal, cyclical, or project-based work. 

In South Africa, however, the growth of atypical employment has also been driven by the private sector’s need to circumvent unduly onerous labour regulation where possible.


Rigid labour regulation

The LRA and BCEA have made the South African labour market one of the most rigid in the world. South Africa thus scores very poorly on various labour-related aspects of the World Economic Forum’s Global Competitiveness Index. In 2010/2011, of the 139 countries surveyed, South Africa ranked at 135 for hiring and firing practices, at 131 for flexibility of wage determination, and at 112 for pay and productivity. 

In 1996 the Growth, Employment and Redistribution (Gear) strategy warned that if labour laws did not allow more flexibility, unemployment would soar. There would also be ‘an increased casualisation of the labour force’ as employers resorted to ‘unregulated’ forms of work.   

Opposition from Cosatu and the SACP defeated Gear’s call for ‘regulated flexibility’ in the labour market. Instead, Gear’s warning has proved prescient. Joblessness has grown by 26% since 1994, while the jobs that are available have increasingly become ‘atypical’ rather than permanent ones. The number of atypical employees has thus risen from 1.55m in 2000 to 3.89m in 2010, an increase of 151%.


Atypical work and labour regulation

Atypical work offers various ways to limit exposure to labour laws. For example, since a temporary job ends with the effluxion of time, there is at that point no ‘dismissal’ to found a costly dispute before the Commission for Conciliation, Mediation and Arbitration (the CCMA) or the labour courts. 

In addition, the outsourcing or sub-contracting of non-core functions, such as catering and cleaning, not only enables the outsourcing company to improve efficiency but also reduces the number of its employees, thus limiting the burden of labour law. 

Then there is labour broking. This arises where private employment agencies employ workseekers and then assign them to meet the labour needs of companies and other clients. Under current law, the assignees working in such triangular relationships are the employees of the labour broker, not the company. About 1m people are currently employed by labour brokers in this way.


Accusations against labour brokers

Cosatu has accused labour brokers of human trafficking, slavery, Somalian piracy, and the like. In fact, under current law, an individual who works for a company as an employee of a labour broker has significant protection. Both the labour broker and the company are jointly and severally liable for any breach of the BCEA, a bargaining council agreement, or a sectoral determination issued by the labour minister to lay down wages and working conditions. 

From the company’s perspective, the use of temporary people working for labour brokers nevertheless reduces exposure to labour laws. This is partly because dismissal disputes are less likely to arise where employment has a finite term. In addition, since the individual assigned by a labour broker is employed by the broker and not the company, there is no contract of employment between the assigned individual and the company to found the jurisdiction of the CCMA or the labour courts. Though the company is jointly and severally liable with the labour broker for breaches of the BCEA and so forth, the aggrieved individual cannot take the company to the CCMA but must instead turn to the ordinary civil courts for relief. This is more costly and time-consuming than bringing a dispute before the CCMA. Thirdly, the use of individuals employed by labour brokers lightens other compliance burdens for the company which need not register such individuals for UIF, tax, or workmen’s compensation. 

There are may well be significant abuses by some fly-by-night labour brokers (the so-called ‘bakkie brigade’), who deduct excessive fees from the individuals working for them or fail to pay them their due wages. However, the solution to this problem lies in better enforcement of existing law by the Department of Labour (DoL) rather than the prohibition of labour broking. 

For labour brokers meet important needs, offering flexibility to both employers and workseekers and helping new entrants gain a foothold in the job market. Between a third and a half of those working for labour brokers are first-time job seekers, some 70% of whom move on in time to permanent employment.   

Through its invective against labour brokers, Cosatu has whipped up public concern and is now using this to buttress its demand for a ban on labour broking. But the four labour bills in fact go far beyond this, for they seek to put an end not only to labour broking but also to all atypical employment.


Key provisions of the four labour bills


A ban on labour broking

A ban on labour broking is achieved through three mechanisms. First, the Employment Services Bill confines private employment agencies to job placement. Second, the bills repeal existing provisions regarding labour brokers in the LRA, BCEA, and EE Act which recognise the labour broker as the employer of the individuals it assigns to work for a company. Third, the bills introduce new definitions of ‘employer’ and ‘employee’. Under these definitions, an employer is one who provides work, pays, and ‘directly supervises’ an employee.  These requirements are cumulative. Hence, since a labour broker does not ‘directly supervise’ the individuals it assigns to a company, the labour broker can no longer be recognised as the employer of those individuals. Rather, it is the company which ‘directly supervises’ the assigned individuals and it is thus the company which is their employer. 

In the words of the Labour Department’s regulatory impact analysis (RIA) of the bills, the effect of the new definitions of employer and employee is to ‘preclude’ labour broking because ‘the essence of labour broking is the supply of employees to work under the supervision of another’.   

This ban on labour broking is likely to be unconstitutional as it prevents labour brokers from pursuing their chosen trade or occupation, a right protected under Section 22 of the Constitution.  A ban on labour broking in Namibia was thus ruled invalid there in December 2009. 

A ban on labour broking would also seem to contradict a relevant ILO convention of 1998 (ILO convention 181 on private employment agencies), which sanctions the regulation of labour broking but not its prohibition.


The DoL argues that the bills are neither unconstitutional nor contrary to ILO requirements because they merely ‘regulate’ labour broking. However, as the RIA notes, the Constitutional Court looks to the substance of matters, not merely their form. And the substance of the bills is that labour broking is to be banned, not merely regulated. 

The RIA also warns that the new definitions of employer and employee will unsettle existing law and could leave many people – especially those working outside employer premises without direct supervision – beyond the ambit of labour law. The changes will add to the compliance burden of companies, which will have to meet tax, UIF, and other obligations for all temporary staff, including those employed for a single day.  It will also inconvenience temporary employees, who will need IRP5 tax certificates from a host of companies and might have to sue various employers if agreed wages are not paid.


All jobs to be permanent

Under the LRA amendment bill, ‘an employee must be employed permanently, unless the employer can establish a justification for employment on a fixed term’. 

On the wording used, it is not clear to whom or when must justification be provided or what factors will be considered relevant. The DoL says employers will have to provide justification only at the end of a fixed-term contract, if the employee in question takes the matter to the CCMA – and that the CMMA will recognise legitimate needs for seasonal or project work. But the obligation to provide a justification could nevertheless place an enormous burden both on employers and on an already overburdened CCMA. There is also nothing in the wording to confine the clause to the DoL’s current interpretation of it.


Similar benefits for temporary and permanent staff

Under the BCEA amendment bill, temporary and permanent employees must be given ‘benefits of similar or equal value’. Benefits would seem to include wages, while other key benefits are pensions and medical aid cover. 

Though no one is legally entitled to pensions or medical aid, in practice permanent employees are often given them. Wherever permanent staff have been accorded such benefits, temporary staff will have to be given the same (or monetary compensation instead). This will be very costly to employers, especially in sectors which currently employ large numbers of temporary staff.

In the construction sector, for example, building companies might have more than 50% of their staff working on fixed-term contracts without pensions or medical aid. Costings for building projects are worked out on that basis. If these companies are obliged to provide pensions and medical aid to all their staff, employment costs will increase sharply and it could be difficult to pass these on to clients.  Some companies might not survive. Others might have to retrench large numbers of staff to remain profitable. 

From Cosatu’s viewpoint, however, the reason for the rule is clear. If both temporary and permanent staff have to be given the same pay and benefits, there will be less reason for companies to employ people on a temporary basis. However, there will also be less reason for companies to give permanent staff pensions and medical aid, and such benefits are likely to become increasingly rare. In time, equal benefits could mean equality of no benefits.


New rules regarding sub-contracting

As noted, many companies outsource or sub-contract catering, cleaning and security services to smaller firms, thereby reducing the number of their employees. However, under the LRA amendment bill, a company which sub-contracts is to be made jointly liable for any unfair labour practices by its sub-contractors. 

The relevant clause is poorly worded and obscure, while the bill provides no definition of sub-contracting.  The proposed change raises major concerns for sectors, such as construction, where sub-contracting is the norm. Under the bill, a construction company could find itself responsible for any unfair labour practices by the plumbers, electricians, carpenters, and others to whom it has sub-contracted aspects of the main building contract. 

In addition, the outsourcing of cleaning and other services has become an important way of promoting the preferential procurement required by the BEE codes of good practice. Under the bill, however, if a major corporation outsources or sub-contracts its catering needs to a BEE firm, the corporation will be liable for any unfair labour practice by the BEE entity. As the RIA warns, this could ‘create a significant disincentive to supply chain diversification and have a negative impact on small business and job creation’.


Criminalising excessive overtime

Cosatu has said it wants to ensure that the labour bills close all ‘loopholes’.  One possible loophole is that employers could try to bypass the need to employ more staff by getting their existing staff to work longer hours. 

The BCEA amendment bill discourages this by making it a criminal offence to require or permit an employee to work longer hours than the act lays down. Employers will thus face criminal conviction for failing to comply with BCEA rules regarding:

-          ordinary hours of work, overtime, meal intervals, and rest periods;

-          Sunday work, night work, or work on public holidays; and

-          various types of leave (annual, sick, maternity, and family responsibility leave). 

Under the bill, all these criminal offences are punishable by a minimum fine of R10 000, or a minimum period of 12 months’ imprisonment, or both. The imposition of these minima undermines a necessary judicial discretion. It also means that actual penalties could be higher. In addition, the minister of labour is empowered to increase these penalties by notice in the Gazette.


Notifying vacancies/appointments

The Employment Services Bill imposes further administrative burdens on employers, who will have to notify every vacancy (whether permanent or temporary) to the Labour Department, along with the details of every appointment made. This will be particularly burdensome for those who frequently use temporary staff for short periods.


Restrictions on private employment agencies

Cosatu appears keen to restrict all the operations of private employment agencies, which it seems to regard as ‘labour brokers’ even where they confine themselves to making job placements. 

The Employment Services Bill thus requires all private employment agencies to be registered on the basis of criteria to be laid down by regulation. It confines their activities to the placing of workseekers and requires them to have a licence from the state to do so. 

The state will have the power to withdraw such licences in circumstances which remain as yet uncertain. In addition, under the BCEA amendment bill, the labour minister will be empowered, in making any sectoral determination, to prohibit ‘the placement of employees’. The more such events transpire, the more the viability of all private employment agencies will be put at risk. 

The Employment Services Bill also gives the government’s own public employment agencies the power to place workseekers in jobs for no fee. The obvious intention is that free public labour centres will reduce the demand for fee-charging private employment agencies. There is a potential for abuse in giving the State the power to regulate the private employment agencies that compete with its own labour centres.


More pressure to fill unrealistic racial quotas

Mooted changes to the EE Act reflect the view that the private sector is lagging, probably deliberately, in its efforts to make the workforce demographically representative at all levels. However, rapid change has in fact taken place, the proportion of senior black managers having risen from 5% in 1994 to 26% in 2010, an increase of 420%.  Faster change is held back by an acute skills shortage among black South Africans. This is largely the product of Bantu education – and it cannot easily be overcome via the present, largely dysfunctional, public school system. 

However, Jimmy Manyi, president of the Black Management Forum, has dismissed the skills shortage as ‘an urban legend’ and blamed slow progress in filling employment equity quotas on persistent white racism. The government is also intent on speeding up affirmative action in the private sector. Under the BEE codes of good practice, the target for black representation at senior management level has thus been set at 60% by 2017. The Commission for Employment Equity regards this as inadequate and wants the private sector to reach a target of 87% black representation at all levels as soon as possible (87% being the black share of the economically active population). However, these targets disregard both the skills shortage and the fact that the African population is generally youthful. Thus, in 2010 only 17% of Africans fell within the 40-64 age bracket normally considered eligible for senior management posts.


Loss of key defences

Under the Employment Equity Act, employers battling to fill quotas can currently rely in their defence on the skills shortage, similarly slow progress by other businesses, and financial constraints. However, under the Employment Equity Amendment Bill, these defences are to fall away. The DoL says the change is in response to the ComAir case. Here, the director general of labour wanted to refer ComAir to the Labour Court for non-compliance with the Employment Equity Act. However, the DG did so without first fulfilling his mandatory obligation to take these key defences into account. The DG’s referral was therefore set aside by the Labour Court, while the Labour Department’s response is now to take these defences away. Those unhappy with the change, it says, should ‘blame ComAir’s clever lawyers’. 

The bill not only removes important defences but also seeks to increase penalties for failure to fill quotas. These are to be set at 2% of turnover for a first offence, rising to 10% of turnover for a fifth offence within three years. Such penalties, as the RIA warns, are big enough to close down companies, especially as many have profit margins well below 10%. 

However, the department is adamant that the new fines will curb non-compliance – and that the magnitude of the penalties is a concern only to those intent on disobeying the statute.  The DoL shows no recognition of the practical difficulty of meeting unrealistic quotas.


Regional demographics

The EE Act currently allows employers to set targets for demographic representivity based either on national or regional demographics. Under the bill, reference to regional demographics will fall away. This will have particular ramifications for employers in KwaZulu-Natal (where 9% of the provincial population is Indian) and the Western Cape (where 52% of the provincial population is ‘coloured’). The change will make it harder for employers in these provinces to fill quotas, and is likely to fuel anger among coloured people, in particular.


Foreigners and racial quotas

The EE amendment bill also bars the use of foreign blacks to fill quotas, requiring that affirmative action be confined to people who were already South African citizens in 1994. This is an important corrective in the sense that those who did not suffer apartheid discrimination need no remedy against it.  However, the change will also pose a further challenge to employers, who will no longer be able to meet EE quotas by appointing black people from the rest of Africa or elsewhere.


Equal pay for equal work

The EE amendment bill also requires equal pay for work that is the same, ‘substantially the same’, or of equal value. It seems, however, that this requirement applies only where the pay differential is motivated by unfair discrimination on racial, gender, or other listed grounds. The bill makes no reference to factors such as experience and productivity which might justify differences in pay. The DoL says these factors will be taken into account in ministerial regulations, but there is no guarantee of this. The provision could unleash a torrent of litigation, while employers in breach of the requirement will also face fines between 2% and 10% of turnover.


Employment of foreign workers

The Employment Services Bill lays down new requirements for the employment of foreign workers. The bill does not define ‘foreign nationals’ and is silent as to whether its provisions extend to foreigners with permanent residence rights. 

Under the bill, foreign nationals may not be employed without a valid work permit and unless employers have first made use of the state’s employment services, explained to the DoL why they cannot appoint South Africans ‘with relevant profiles’, and provided proof of local recruitment campaigns. However, the labour minister may publish ‘categories of work’ for which foreigners may be employed. 

Since the Immigration Act already contains similar requirements, the bill’s effect, warns the RIA, is to establish a ‘parallel system’ for the employment of foreign nationals. Moreover, the wording in the bill differs from that in the Immigration Act, which will unsettle existing law. The bill also imposes a major new demand on employers by requiring them to use the State’s labour centres before hiring foreigners. ‘This will have significant financial and resources implications for the DoL and significant efficiency implications for employers,’ notes the RIA.


More power to Cosatu

The bills will give more power to unions: in practice, mostly Cosatu ones. This is partly, of course, because the mooted expansion of permanent jobs under the bills will aid unionisation.  In addition, the BCEA amendment bill empowers the minister of labour, in making a sectoral determination, to lower current representivity thresholds for unions to have organisational rights. In the agricultural sector, for example, where organising is difficult, the threshold could be reduced from 50% plus 1 to 30% or 20%, the DoL says.


New powers for the labour minister

The BCEA amendment bill will also give the minister increased scope for issuing sectoral determinations. At present, the minister generally needs a prior recommendation by the Employment Conditions Commission, but under the bill this will fall away. Instead, the minister will be able to introduce a new sectoral determination wherever there is no existing sectoral determination, or wherever an existing bargaining council agreement is not fully comprehensive and leaves space for ministerial intervention.  This would apply, for example, where a bargaining council agreement covers disputes but not conditions of employment.   

In making a new sectoral determination, the minister will be able (as earlier noted) to lower the threshold of representivity for union organising rights and ban the placement of employees by private employment agencies. 

In addition, the labour minister is empowered to set both minimum wages and minimum increases for employees covered by sectoral determinations. Hence, employers already paying wages above the legal minimum could be forced – irrespective of productivity or financial constraints – to provide minimum increases of, say, inflation plus 2%, as the DoL suggests. 

Under the Employment Services Bill, the minister will also be empowered to issue regulations regarding the data to be provided by employers on job vacancies and appointments. Such regulations could require disclosure of the racial identity of appointees, which could be used to facilitate enforcement of the Employment Equity Act. 

In addition, the minister could use his regulatory powers to reintroduce a clause which has been omitted from the current Employment Services Bill. This clause would have obliged employers to explain to the DoL ‘why any of the referred candidates with the required profiles could not be appointed’. Such a clause, if brought back via regulation, would require employers not only to use the Government’s labour centres but also to explain their failure to appoint the workseekers recommended by the State.


Likely impact of the labour bills:

Under the impact of the bills, labour regulation will become more rigid – and South Africa is likely to slide further down global competitiveness indices, especially on labour issues. 

Under the bill, business will face:

-          a higher regulatory and compliance burden;

-          increased employment costs, especially for those with atypical employees whose benefits will have to be brought up to those of permanent staff;

-          more pressure to equalise wages for work which might be ‘substantially the same’ but does not in fact add equal value;

-          more disputes over dismissals, pay, benefits, and affirmative action;

-          increased pressure to fill unrealistic racial quotas, with negative impacts for efficiency and competitiveness;

-          criminal convictions and the possibility of jail terms for managers and/or directors;

-          higher fines, some of which could be big enough to put firms out of business;

-          further obstacles to the employment of foreign nationals with vital skills;

-          a higher level of unionisation, plus the possibility of more strike action; and

-          increased ministerial intervention on wages and working conditions. 

As for the further consequences of the bills, some temporary workers could benefit from having their fixed-term contracts made permanent or from having their wages and benefits increased, as the RIA points out. 

At the same time, however:

-          much of the atypical work (3.89m jobs in 2010 alone) that currently helps to boost employment and offer new entrants a foothold in the labour market will come to an end;

-          new permanent jobs will not match the temporary jobs lost, as the RIA has warned;

-          the crisis of unemployment will grow worse;

-          the capacity of South African companies to compete in the global market will be reduced;

-          it will be harder to attract direct investment or increase the growth rate; while

-          the ANC will once again have put the narrow interests of Cosatu before the well-being of the poor or the needs of the country as a whole. 

As if this were not bad enough, then there is the land bill.


The Draft Land Tenure Security Bill

Before turning to this bill, it is worth noting the impact of the four labour bills on the agricultural sector. To highlight but three consequences of this:

-          all seasonal workers will have to be employed permanently unless a farmer can justify a fixed-term contract;

-          even if a farmer can provide such justification, he will have to give seasonal workers the same benefits as permanent ones, which could be costly; while

-          the minister will be able to set not only minimum wages for agricultural workers but also the minimum increases they must receive each year. 

Under the land bill, farm residents other than farm workers, along with the extended families of farm workers, will be given many more rights in relation to farmers. They will have the right (which cannot be ‘unreasonably restricted’) to own livestock. They will also be entitled to graze animals, grow crops, do ‘commercial farming’, and be given skills. In addition, they will have rights of access to water, electricity, education, and ‘development’ – seemingly at the expense of farmers rather than the State. 

Farmers will be prohibited from evicting farm residents without a court order, which will be more difficult to attain than it already is under existing legislation. Farmers will also face imprisonment for up to five years (without the option of a fine, it seems) for any constructive eviction: for failure to allow a burial on the farm, for instance, or for cutting off access to water and electricity. 

The underlying idea seems to be to motivate farmers to encourage farm residents to move off farms to agri-villages. The Government hopes farmers will donate the land for these new settlements, failing which it will either purchase or expropriate the necessary land. 

Agri-villages are intended, it seems, to give rural residents somewhere to live; better access to services (such as roads, schools, clinics); and land to farm. Residents of these villages will live under state control and will be given permission to build houses, grow crops, and graze livestock. Since it takes six hectares of land to provide grazing for a single head of cattle (in relatively well-watered areas) and most families have at least ten head of cattle, each family could need about 60 hectares for grazing alone. As herds expand, more land is likely to be needed. 

The government asserts that that residents of agri-villages will have both the dignity that commercial farmers deny them plus the chance to own their own homes and land. But in fact there will be little, if any, freehold tenure in agri-villages. Generally, residents will have only temporary permits to use the land – and such permits will be withdrawn from those who do not farm well enough. 

Hence, the tenure available in agri-villages will be little different from that in traditional or tribal areas. Since no one will own the land, no one will be able to use it as collateral for loans while there will be little incentive for anyone to take proper care of it. Hence, there is a risk that agri-villages could turn into dense shack settlements in which attempts at small-scale farming will add to soil erosion, overgrazing, and trespassing by livestock on to adjacent commercial farms. 

The Government claims the bill will help overcome rural poverty and speed up rural development, but this is unlikely to occur. Instead commercial farmers will be given yet more incentive to reduce their need for labour before the bill takes effect. Coupled with the adverse conditions likely to evolve in agri-villages, the unintended, but predictable, consequence is that rural joblessness and destitution will worsen rather than improve.



The labour bills are open for comment to the DoL until 17th February. The land bill is open for comment to the Department of Rural Development and Land Reform until 24th February. 

However, the bills have such damaging ramifications that piecemeal changes to them cannot suffice. As Michael Spicer, CEO of Business Leadership South Africa, has said of the labour bills (but in words equally applicable to the land one): ‘The bills are so far wide off the mark that to tinker with them in their current construct would be futile. As such, the withdrawal of the bills pending a reasoned and rational rethink of…[their] likely effect on job creation, economic growth and foreign investment is the only logical way forward.’ 


-          -  Anthea Jeffery