“Just let me work”
The voice of the unemployed
FMF Constitutional Challenge to LRA 1995 S32
March 2013
FACT SHEET
“The extension of bargaining council agreements not only limits job creation, but also leads to higher prices and an uncompetitive economy. Thus a victory in this legal challenge will be a huge benefit to the little guy that typically has no voice and cannot afford to be party to bargaining council agreements.”
Herman Mashaba
Chairman, Free Market Foundation
South Africa
- 25% unemployment in 2012 – 13% in 1994
- Official labour force size: 18.1 million; 13.6 million employed
- 4.5 millionSouth Africans are currently unemployed
- A further 2.3 millionwho would like to work are discouraged about prospects of finding work
- 2.1 millionpeople underemployed (Stats SA)
- 3.1 million(68%) of those officially unemployed have been out of work for more than a year
- Less than half (41%) of those aged 15-64 are working
- Only 12% of those between 15-24 have a job
Draconian legislation
- The Labour Relations Act 1995 (s32) allows the extension of agreements on wages and working conditions, often reached by a minority of employers in an industry, to non-parties to the negotiations.
- It creates unemployment and uncompetitive conditions in product markets.
Why?
- By setting wage levels (and broader labour costs) above what some companies would pay and some employees would accept, makes it unprofitable for certain types of firms to operate.
- These firms are forced to exit and new firms which might enter the market under different conditions do not. These new, potentially dynamic firms are precisely the kind of firms SA needs to create new jobs.
- It is mostly smaller and more labour intensive firms, where wages are generally lower, where these extensions bite.
- By reducing competition from smaller firms (which are typically affected by bargaining council agreements), Bargaining Councils entrench incumbents and raise the price of goods and services above the market clearing level.
- One outcome of this is that firm efficiency and market share in SA are not as closely related as they should be.
Process
- The affidavit has been issued to the Gauteng North High Court (held at Pretoria).
- The applicant is the Free Market Foundation (‘the FMF’).
o The FMF is an independent public benefit organisation founded in 1975 to promote and foster an open society, the rule of law, personal liberty and economic and press freedom as fundamental components of its advocacy of human rights and democracy based on classical liberal principles.
- The first respondent is the Minister of Labour, cited in her capacity as the minister responsible for the administration of the Labour Relations Act, 1995.
- The second respondent is the Minister of Justice and Constitutional Development.
- The third to fiftieth respondents are bargaining councils registered as such under s 29 of the LRA.
o These bargaining councils are cited insofar as they may have an interest in the outcome of these proceedings.
Purpose of the application
- Under the LRA, the primary function of bargaining councils is to conclude and enforce collective agreements regulating wages and working conditions for a sector and area designated by NEDLAC.
- Bargaining councils are also charged with preventing and resolving labour disputes; promoting and establishing training schemes; establishing and administering pension, provident, medical aid or related schemes; making proposals to NEDLAC on matters of policy and legislation; and referring certain matters to workplace forums.
- In practice, bargaining councils make determinations for the sector or area on wage scales, working hours, training, health and safety, overtime, grievance mechanisms, and rights to participate in workplace or company affairs.
- Put generally, their powers within the field of labour relations are broad enough to encompass everything within their field of labour relations short of the outright prohibition of strikes and lock-outs.
- Section 32 of the LRA, which is at the heart of the FMF’s constitutional challenge, empowers the parties to a bargaining council to impose legally-binding terms and conditions of employment on non-parties within its scope of jurisdiction provided certain preconditions are satisfied.
- The FMF has proceeded with two constitutional challenges to the section. They are directed at the structure and content of the section and are mounted cumulatively.
o The first is based on the fact that the participants in the council are private actors to whom the state cannot delegate substantive powers of statutory regulation without violating the requirements of the constitution.
o The second is based on the fact that the section, by distorting the provisions of majority rule, permits a minority to coerce the majority into complying with a standard set of terms and conditions of employment.
- The expert report filed under cover of supporting affidavit emphasizes that trade unions have a natural interest in inflating the benefits their members receive from employment.
- Some employers, specifically those who are incumbents in the industry, have a comparable interest in inflating the levels at which labour is hired. By these means they increase the costs of production for new entrants and for existing firms who do not share their stance and can be expected to provide them with unwanted competition.
Impact
- Business cannot afford to take on more workers and often go out of business thus destroying existing jobs.
- The types of people who are most likely to be employed in labour intensive small firms – the young, females, Africans and those with low skills – remain unemployed.
- Businesses are discouraged from starting up in these sectors and therefore there are fewer opportunities for the unemployed.
Consumers lose. Why?
- The lack of competition in these sectors comes at the expense of consumers who are now forced to pay higher prices for these goods and services than otherwise they would in a more competitive market.
If FMF challenge is successful:
- Reversing LRA S32 will not solve the unemployment problem overnight BUT it will be a step in the right direction for the creation of employment in South Africa.
Why?
- Because employers have had this system imposed on them without their consent an environment will be created where employment of people is encouraged.
- Small firms are not forced to use capital intensive methods of production which are better suited to large firms – they can choose to use labour over capital and thus create employment.
South Africa will gain. Why?
- Young people will have hope! A foot on the ladder.
- People will regain dignity, self respect and their place in society.
- More jobs, less strain on social grants.
- More people earning, fewer driven to crime and brutality.
- The national economy will benefit from the increased competition, which will lower prices, which will also benefit consumers = more disposable income = improved economy.
- More people will pay tax = higher GDP.
- Less inequality = a better society.
If unsuccessful:
It is highly unlikely that the 90% of new jobs that the NDP envisions being created by SMMEs will be created if the current institutional structure of the labour market is maintained.
ENDS