M Mdladlana: Labour Law Conference

6 July 2006

Theme: Labour law in the next decade: time for a change?

Programme Director
Leaders of Organised Business and Organised Labour
Academia
Labour law Specialists
Distinguished Guests
Ladies and Gentleman

I am indeed honoured to address this 19th Annual Labour Law Conference. The
theme of this year’s conference is Labour Law in the Next Decade: Time for a
Change? I want to start off by quoting an International Labour Organisation
(ILO) report on The Changing Patterns in the World of Work released in 2006,
which tells us that, and I quote,

“A study of 13 European countries between 1992 and 2002 reveals that
employment stability of the workforce is beneficial to productivity levels,
human capital investment and worker motivation.  In developing countries,
one of the most pressing problems is that the majority of employment
relationships are informal and insecure, hampering the developmental transition
from the household-based economy to more complex and productive systems for
organising productive work”. The report goes further to indicate that, “In
industrialized countries, part-time work can reflect workers’ genuine needs and
preferences, whereas in developing countries, many part-time jobs fall into the
category of “time-related underemployment” consisting of individuals who would
like to work more but cannot find sufficient work”. The report further
indicates that, “For many firms, the option of outsourcing an increasing range
of production or service functions, even to another country, is now feasible.
This implies that firms also want to have the option to increase or reduce
their workforce according to the choices they make about what to do and what to
buy. In turn, this has led to the questioning of laws that restrain employers’
ability to employ at will and protect workers from the effects of employment
instability”

In Denel vs JEF Gerber in 2005, the Labour Appeal Court was required to
decide whether an employment relationship existed in the context of “triangular
relationship”. Gerber sought to enlist the protection of the Labour Relations
Act following her alleged unfair retrenchment by Denel. After assessing the
evidence before it, the court found that Gerber was Denel’s employee.

In light of the burgeoning practice of using atypical workers who find it
difficult to exercise their rights, I am of the view that the labour law should
cushion and mitigate the adverse nature of atypical forms of employment and
lack of protection for these workers. Just as a new born baby who is vulnerable
and needs protection from the mother, so too will these vulnerable workers
receive the adequate protection and guarantees from the government in their
pursuit for decent work.

The intensification of globalisation and its ideological leaning towards
flexibility in labour relations and the labour market, has raised important
legal and sociological questions on our understanding of the role of labour
laws, employment relations and their consequences. They are touching on the
important subject of the Decent Work Agenda, especially in relation to social
protection. To what extent are these debates posing threats and challenges
towards the realisation of the Decent Work Agenda and social protection? The
ILO report correctly points out that, whilst globalisation is sweeping across
the globe and affecting everyone, its effects are not the same for the
developed and developing countries respectively. This leads to my second
proposition.

Assuming that we agree that the effects of globalisation are not the same
across continents and countries, consequently, continental and country
interventions on these matters cannot be the same. South Africa’s Comprehensive
Labour Market Commission in 1995 recommended that the post apartheid labour
market regulatory framework should be governed and underpinned by the principle
of regulated flexibility.

This entails that the law will be responsive and accommodative of the
different concerns of employers and employees. It will in essence, find a
balance between security for workers and flexibility for employers.

In the past decade changes in the labour law have been subject to, and
informed by this guiding principle. Changes thus far have also been sensitive
to the needs of vulnerable workers and small business. Through the Basic
Conditions of Employment Act (BCEA), I have promulgated various sectoral
determinations to improve the working and living conditions of vulnerable
workers. The sectoral determinations amongst others were promulgated for the
domestic, agricultural, taxi and retail sectors. My Department is working hard
on other sectors, such as hospitality, to ensure that workers enjoy similar
benefits of the law.

Programme Director, whilst there is little evidence on the effects of the
sectoral determinations on the working and living conditions of these
vulnerable workers, I am tempted to note a study by Tom Hertz. In a study
titled “The effects of minimum wages on the employment and earnings of South
Africa’s domestic service workers”, Tom Hertz argues that the real wages,
average monthly earnings and total earnings of all employed domestic workers
have risen since the regulations came into effect. Similarly, we have seen
steady growth in employment in this sector. This is a positive observation –
domestic work is regulated and workers are protected, whilst similarly people
have continued to be employed in the sector. We need to also look at the
effects of sectoral determinations in other sectors to see whether they also
give us as positive a picture as we have seen in the domestic
sector.  

In 1999, I promulgated a Ministerial determination on small business as well
as amendments to labour legislation, most notably the Labour Relations Act in
2002. The Ministerial Determination on small business, which applies to
concerns of employers employing less than ten workers, varies four conditions
of the Basic Conditions of employment to make it easier for smaller business
concerns to comply with the Basic Conditions of Employment Act of 1997.
Firstly, it extended the maximum number of overtime hours that an employee can
work in a week from 10 to 15 hours; Secondly, it reduced the rate of payment
for overtime work from time and half in the BCEA to time and a third for the
first ten hours of overtime per week; Thirdly, it allows averaging of working
hours up to four months by written individual agreement whereas the BCEA only
allowed averaging by collective agreement.

In 2002, the Labour Relations Act was amended to further accommodate the
needs of small business. The amendment has made dismissal procedures easier for
small businesses. Section 188A, provides for an agreement for pre-dismissal
Arbitration where an employer may, with the consent of an employee, request a
Council, an accredited agency or the CCMA, to conduct arbitration into
allegations about the conduct or capacity of that employee. 

These amendments clearly demonstrate the flexible approach adopted by
government in relation to labour law. However, changes have not only favoured
employers, but have also addressed the employee concerns. The most noteworthy
example were the amendments made to section 200A of the Labour Relations Act
(LRA) and Section 83A of the BCEA in relation to the problem of independent
contractors.  These sections state that a person who works for, or render
services to, any other person is presumed to be an employee, regardless of the
form of contract, if it can be proven for example that the person’s hours of
work are subject to control or direction by another person. Changes to these
sections were mainly triggered by changes in the nature of work in recent years
that have spawned the rise of atypical employment relations such as
casualisation and externalisation, the latter of more concern as it includes
practices of subcontracting, outsourcing and the use of labour brokers. These
trends, as alluded to earlier in the ILO report, are widespread in South Africa
as in countries such as the United Kingdom and the United States. 

Despite these interventions by government, we however continue to hear
outcries about a rigid labour market in South Africa. Instead of simply
ignoring these outcries, which would have been very easy to do, we decided to
engage those complaining about our labour market so that they could explain
better the issues directly to us. We needed to be told what they meant in the
first place by a rigid labour market. Secondly, we requested these people to
point us to specifics in our labour laws, which are rigid. Thirdly, we needed
to also be given possible solutions to the aspects that they could identify as
problematic.

We commissioned experts to write papers for us and also held two Ministerial
Roundtables on these matters.

What we received in response to these questions was not what we had
expected. Firstly, we were told that broader growth and development issues –
specifically the macro economy and trade - need to be taken into account when
debating the labour market. To quote one of our social partners, “the labour
market is the “third element” on these debates”. Bhorat and Cassim (2004) argue
that “…based on a review of the literature on unemployment in South Africa, we
can conclude that the unemployment problem is not exclusively a macroeconomic
problem, or a trade policy problem or, for that matter, a labour market
problem”. Our current levels of economic growth, around 4%, are simply
insufficient to create the number of jobs we need to create, and our current
levels of both domestic and foreign investment are simply insufficient to
create the number of jobs we need to create. Equally, the reasons we are not
seeing the kinds of growth and investment we need to create jobs and eradicate
poverty, are also not limited to the labour market. For example, the cost of
banking and telecommunications in South Africa are much higher than you find in
most developed economies - banking in South Africa costs double compared to
banking in the United Kingdom. Our transport infrastructure is also too weak to
spur a sustained economic growth trajectory – the next World Cup in four years
time has to find this problem fixed. In trade, the key question to ask is
whether the trade reforms embarked upon by the democratic state have induced
productivity growth or constrained it.

The general picture that has emerged for South Africa is that these reforms
have had no impact on either job losses or job creation – thus their impact on
growth has generally been indifferent. 
                       

Secondly, we are told that there is nothing wrong with our broader labour
legislative environment. However, there are areas within our laws that are
producing some unintended consequences, and others which are largely
institutional problems/inefficiencies/overload. H Cheadle in his paper argues
for the retention of sector level bargaining but points out that it is under
threat unless radical steps are taken to overhaul its operation. He also argues
that there is too much judicial regulation of the individual employment
relation. P Benjamin in their paper on the efficiency of the CCMA on the other
hand tell us that there has been a significant rise in cases where parties to
conciliation and arbitration raised legal constraints before the start of the
process, which either prevents the commissioner from hearing the case or delays
the hearing.  There is also evidence of significant variations in the
outcome of arbitrations between regions. Also, considerable use is made of the
con-arb process, while on the other hand virtually no use is made of the
pre-dismissal arbitration. S Godfrey and J Theron’s paper on bargaining
councils and the effect on SMMEs tells us that the coverage of the BCEA and
sectoral determinations is much more significant than bargaining councils,
while the extension of agreements covers a very small proportion of the labour
market. According to the Labour Force Survey, bargaining councils cover 25% of
the total labour force, while extension of these agreements only affects 4.6%
of the total workforce.

Furthermore, we know that the enforcement capacity of both councils and the
Department of Labour is limited, which likely translates into relatively high
levels of non-compliance. For the 4.6% of the total workforce potentially
affected by the extension of collective agreements - the exemption systems of
councils appear to be functioning well; the number of exemptions is increasing;
and the number of appeals against refusals is low. Most exemption applications
come from small firms and many more exemptions come from non-party firms, than
party firms. Furthermore, many councils appear to be sensitive to the problems
faced by small firms, with blanket exemptions being used by some to accommodate
small and new firms. However, in many countries, far more workers benefit from
collective agreements. For example, in European Union Member States, about 78
per cent of workers were covered by collective agreements in 2001. The EU
figures are high because of the continued strength of industry bargaining and
the use of voluntary or legal procedures to make agreements binding on all
employers in the sectors concerned.

Thirdly, it has become increasingly clear to us that there are a number of
critical areas where we simply lack sufficient information to make proper
judgements of the impact of our interventions. For instance, the impact of our
Ministerial determinations of 2002 remains unclear. There is a need to look at
the impact of variations, exemptions, and sectoral determinations on small
business since the Ministerial Determination of 2002; there is a need to
further look at collective bargaining trends, the coverage of collective
agreements and the extension of collective agreement to non-parties; there is
also a need to look at broader regulatory burdens facing micro-enterprises
generally and not only those limited to the labour market; the extent to which
it is difficult to hire and fire needs to be further explored using empirical
data.  The research would need to explore areas of possible tweaking to
unblock any unintended consequences emanating from the implementation
processes, and must assist in identifying pervasive employer/employee practices
that potentially create difficulties.

Lastly, it would seem that a bigger part of the debate on the labour market
in South Africa is simply ideological, and in some cases mischievous. How does
one explain for instance, the outcry we have been seeing on the coverage of
collective agreements when their coverage if so low compared to developed
economies whose labour markets are punted as flexible? How does one explain the
thousands of job losses reported by Statistics South Africa in their Labour
Force Surveys when we are told it is difficult to hire and fire? How does one
explain the millions of our people in insecure and atypical work when our
labour laws are that rigid? All these data and trends, independently verified,
point to a certain degree of mischievousness that we need to always guard
against.

As the clamour for a more deregulated market amplifies and gains strength,
like a colossal Tsunami with the noble and virtuous intention of reducing
unemployment and poverty, we must be mindful of the destruction this Tsunami
could potentially have for the rights of vulnerable and marginalised
workers.

An unfettered and deregulated labour market will not only leave vulnerable
workers with no recourse against unfair labour practices, but will also not
afford them the opportunity to improve their lives as most atypical jobs are
insecure and pay low wages with prospects for upward mobility virtually
negligible. 

As a member of the International Labour Organisation (ILO) and as a
signatory to its conventions and practices, South Africa unequivocally supports
and is committed to the ILO’s Decent Work Agenda. According to the ILO, the
Decent Work Agenda is productive and delivers a fair income, security in the
workplace and social protection for families, better prospects for personal
development and social integration, freedom for people to express their
concerns, organise and participate in the decisions that affect their lives,
and equality of opportunity and treatment for all women and men. In addition,
our commitment to the decent work agenda should be reflected in our attempts to
reduce poverty, and to achieve equitable, inclusive and sustainable
development.

Externalisation and casualisation if allowed to grow and spread unchecked
will go against the fundamentals of the Decent Work Agenda because it does not
afford workers security, social protection and prospects for personal
development to name but a few. 

I am not saying that there should be no flexibility in our labour market at
all, to think in such a manner would be foolish and naïve. The law accommodates
and permits companies to employ atypical workers, such as casuals, but it
should provide and entitle these workers to protection from exploitation and
harsh treatment.

In his paper, Halton Cheadle states that, “The Constitutional Court has held
that protection against unfair dismissal is at the core of the concept of the
unfair labour practice and the employees of small employers are a more
vulnerable class of employee and their need for protection will weigh heavily
in any court evaluation of the limitation of the right”. Therefore, any
proposed changes in the law in the next decade should ideally extend protection
to vulnerable workers while balancing it with the needs of small
employers.  Proposed changes should be the result of an extensive process
of research and engagement underpinned by the principle of regulated
flexibility that is at the heart of our labour market. It is however imperative
that we continually communicate a very clear message that we are not going to
de-regulate the labour market.

Let me finally take this opportunity to wish you the best during this
conference, and that somehow your debates will contribute towards resolving the
kinds of labour market issues I have raised.

Thank you.

Issued by: Department of Labour
6 July 2006