Bargaining extension fought on constitutional grounds

In yet another challenge to the principle of extending bargaining council agreements in South Africa to non-parties, the Free Market Foundation has filed a case with the Gauteng North High Court.

Unlike two other recent legal challenges to extension to non-parties, this challenge is entirely based on constitutional grounds.

In an engineering industry case late last year, a decision by the labour minister in September 2011 — to extend an agreement, primarily on wages and conditions, to non-parties — was successfully challenged in the Labour Court. In another recent case, an entity not party to the 2010 clothing industry bargaining council agreement challenged its extension. Judgment is still awaited.

But those two cases relate to particular industries and their circumstances.
The Free Market Foundation's case addresses all industries governed by bargaining councils where there is extension to non-parties.

It argues that the participants in bargaining councils are private actors to whom the state cannot delegate powers of statutory regulation without violating the Constitution, and that the Labour Relations Act, by distorting the provisions of majority rule, permits a minority to coerce the majority into complying with standard sets of terms and conditions of employment.

The respondents are the labour minister, the minister of justice and constitutional development and 13 bargaining councils. But most of all, the Free Market Foundation case will accentuate the ongoing argument about the effects of South African labour laws, particularly centralised bargaining and minimum-wage provisions, on employment creation.

Jonathan Goldberg, the attorney for the applicant, said the case would draw on the work of five economists, as well as examples from Germany, New Zealand, Australia and the United States, which had similar systems. Stellenbosch University economics professor Neil Rankin detailed South Africa's dismal performance in creating jobs recently.

He said unemployment among blacks had risen from a high 56% in 2008 to 66% in 2012, with the loss of about one million jobs. In the international context, South Africa had a relatively uncompetitive labour market. For instance, South African performed below Brazil and Malaysia when it came to co-operation in employment relations; flexibility of wage determination; hiring and firing practices; and pay and productivity.

In South Africa, there were also high concentration ratios, with large firms dominating many sectors, and high mark-ups (the difference between costs and prices).

"The causal evidence is that in South Africa bargaining councils result in 7% to 16% fewer employees in small firms and 7% to 15% fewer entrepreneurs," he said.

Rankin said the current system encourages big firms to agree to higher wages because it drives out smaller companies, or discouraged them from starting out in the first place. Smaller firms were naturally more labour-intensive and more likely to offer work to people on the first rung of employment: the unskilled, the youth, women and blacks.

This, he said, amounted to conscious or unconscious collusion between large companies and organised labour to limit competition. But, unlike in other fields of anti-competitive behaviour, there was an institutional structure to enforce this, so nobody had to worry about being caught. Research showed that it was more effective than overt collusion and price-fixing.

"Collusion is not only allowed but compulsory," said Leon Louw, the executive director of the Free Market Foundation. "And then we require that the collusion must be imposed on non-colluders."

The result was the development of a "sclerotic economy" in which South Africa was becoming less and less competitive and higher prices were paid for locally produced goods, said Rankin.

Coincidentally, the Free Market Foundation's case was launched on the same day as the release of the results of the third economic survey of South Africa by the Organisation for Economic Co-operation and Development.

The report noted that "large firms are able to share their excess returns with employees via collective bargaining. And many sectors of those bargains, including the setting of sectoral minimum wages, are administratively extended to the whole sector". This practice represents a barrier to entry for small businesses and increased unemployment, it said.

Case 'attacks worker rights'
​The Cosatu-affiliated Southern African Clothing and Textile Workers Union (Sactwu) said this week that the Free Market Foundation's case is "a brutal attack" on worker rights.

Sactwu said it would "mobilise to resist the destructive intentions of the Free Market Foundation. [Its] intention is nothing other than to create more exploitative conditions for vulnerable workers, to militate against our nation's stated vision of decent work".

It would table a proposal, which might include a national strike, to resist this attack at Cosatu's Collective Bargaining, Organising and Campaigns Conference in Johannesburg from March 12 to 15.

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