Shotgun approach hurts co-ops

In terms of amendments to the Co-operatives Act, which was signed by President Jacob Zuma early in August, some of the most basic and most vulnerable business entities in South Africa — thousands of worker co-operatives — will have to shoulder a burden similar to that of companies, by having to comply with all labour legislation, including bargaining council levies and the provision of provident funds.

Since the privatisation of most large, white run agricultural co-operatives, the smaller worker co-ops that have been set up have been “barefoot” organisations, consisting initially of a few individuals who had no other job opportunities, or were created because there was an opportunity to supply a customer — for instance, making bags, cleaning or transporting.

The formation of such co-operatives has been encouraged by the department of trade and industry to create jobs and empower people. Co-operatives offer limited liability, and registering them has been made easy and inexpensive.

But, paradoxically, the Co-op­eratives Amendment Act, signed on August 5, works against the development of this basic business form.

Faan Coetzee, an employment law expert for the legal firm Cliffe Dekker Hofmeyr, says that, previously, co-operatives were excluded from South Africa’s welter of labour laws.

But all worker co-operatives are now expressly included in the amendment Act because they satisfy the definition of “employee”, as defined in the Labour Relations Act. The definition applies to anyone who earns up to R193 805 a year, he says.

Co-operatives in the mainstream media
Only the smallest co-operatives that have no formal structures will not satisfy that definition and still be excluded, he says.

Little is heard about co-operatives in the mainstream media but there are many of them, particularly in the impoverished and rural areas.

A search for the word “co-operative” on the Companies and Intellectual Property Registration Office (Cipro) website yields about 43 000 registered co-operatives with names such as the Abaququzeli Cleaning Women Primary Co-operative Limited and the Abaphokopheli Siyaya Upholstery Co-operative.

Worker co-operatives form the vast majority of those in South Africa today, according to Jacques Denecker, owner of an employers’ association, Perfect Partners, which operates in the Newcastle-Ladysmith area of KwaZulu-Natal. There are also housing, financial and other forms of co-operatives.

As co-operatives have to renew their registrations every year, most of those on the Cipro website are likely to be functioning in some way, although, Denecker says, most are doing so at very low margins.

So the new law will make life even more difficult for them.

Particularly damaging, he says, is that, where a bargaining council exists in the industry concerned, the co-operatives will have to pay bargaining council minimum wages; where not, they will have to pay sectoral determination wages or other legislated minimum wages.

This is despite the fact that, theoretically, members of co-operatives are co-owners and, as entrepreneurs, would theoretically expect to be paid in line with the fortunes of their enterprise.

Many co-operatives also have non-member employees, but they have always enjoyed the protection of all labour laws, he says.

Furthermore, Denecker says, they will have to pay bargaining council levies (where applicable), which in many cases might amount to an extra 10% on top of their newly increased wage bills.

The co-operatives will also have to adhere to the Basic Conditions of Employment Act and submit annual financial statements, which were not always required under the old Act.

“These must be unintended, unfortunate consequences of the amended law, which is meant to improve governance,” says Coetzee.

The irony
This measure joins a succession of recent laws that will discourage the creation of employment, he says.

The amendment Act will come into effect at a date set by the president.

Ironically, says Coetzee, there was probably no need to change the exemption in the Act relating to labour law because it had become well established in case law that an adjudicator could “pierce the veil” where a co-operative was bogus and rule that its “members” were in fact employees and, therefore, that all labour laws should be applied to them.

There is no indication that the barefoot co-operatives were consulted before the amendment was passed and they are probably still unaware of it.

The department, by pushing for the inclusion of worker co-operatives under labour laws, was apparently responding to Cosatu’s objections to new co-operatives recently set up by mainly former owners of clothing factories, particularly in KwaZulu-Natal, specifically to avoid paying minimum wages.

Another motivation for the establishment of those co-operatives has been to get workers in a low-margin industry on side and “willing to take the rough with the smooth because that improves the chances of survival in the long term”, Denecker says.

Sactwu's take on co-operatives
But the Southern African Clothing and Textile Workers’ Union (Sactwu) regards these co-operatives as “bogus”, apparently because they do not satisfy the classical socialist format for co-operatives. But Denecker says Sactwu in particular felt threatened by the co-operatives because usually the new co-owners (the workers) would relinquish their union membership “because it is difficult to strike against yourself”.

In most cases, the new clothing co-operatives set up still have the former owners as participants, such as in management roles and for the provision of machinery and orders.

Internationally, co-operatives no longer follow the classical egalitarian socialist format.

For instance, in Britain co-operatives, “mutuals” and other forms of worker-shareholder democracy are promoted by the current Conservative government.

Denecker says the clothing industry co-operatives may not be absolutely egalitarian but they have transferred some potential power to workers, particularly since the objections of Sactwu and the government have become known.

With co-ownership, the workers have also become better educated about the realities of business and, therefore, more capable of eventually starting their own businesses.

Involvement of former owners
He says that the involvement of former owners in the co-operatives is usually positive because of their long experience and resources. Without their input, there would be a particularly high rate of failure.

“Co-operatives generally don’t have a good reputation for success but this can be improved if they get ongoing support.”

He says that, when the amendment Act comes into force, many former owners of the clothing co-operatives are likely to decide that they have had enough and will move their assets out of South Africa, causing hundreds of job losses.

Whatever the defects of the new clothing industry co-operatives in the eyes of the unions and the government, they are unlikely to number much more than 100 or have a total of more than 5 000 workers.

However, the department apparently decided that the unions’ concerns about this group should take precedence over the interests of the thousands of barefoot co-operatives when it pushed for the labour law amendment. There are many other amendments.

One is the creation of a new state institution, the Co-operative Development Agency, which will operate in all provinces, and include a Co-operative Tribunal to settle disputes.

New amendments
The department’s deputy director general for co-operatives, Sipho Zikode, told parliamentarians that the amendments, inter alia, were aimed at reducing “the regulatory burden for co-operatives” and reducing their failure rate.

The new amendments allow worker co-operatives to apply for exemption from the labour law provision, although the applications will go to the bargaining council concerned, or to the minister of labour if there is no bargaining council, and not to the tribunal.

Denecker says experience has shown that applying to bargaining councils for exemptions from their minimum wages is generally futile.

“It is like asking the wolf to decide on the sheep’s interests,” he says.

Even the application for exemption would be a big additional bureaucratic burden on the barefoot co-operatives, he says.

Denecker says he knows of hundreds of labour-intensive, black-owned co-operatives in the Newcastle-Ladysmith area. Many have not grown beyond a few people but a few have more than 100 members.

New labour law provision
Besides making life more difficult for thousands of co-operatives that have nothing to do with the new co-operatives in the clothing industry, the new labour law provision is likely to kill off possible empowerment deals linked to small, white-owned businesses, Denecker says.

He says many ageing non-black owners of small and medium businesses would like to sell or give their low-margin businesses to groups that include their workers, out of gratefulness for past services and in a spirit of nation building. Before the amendments, those groups could have been co-operatives if there was a reasonable chance of their success.

Denecker says, before the amendments, there was also the possibility of workers taking over concerns in dying industries where higher wages could not always be paid, such as other labour-intensive manufacturing industries, including the gold- mining industry.

“For instance, if a gold mine is closed, it is often invaded by illegal miners,” he says. “An alternative possibility could have been for workers at the mine to take over in a co-operative and run the mine professionally but on a fortune-sharing basis.”

Despite repeated requests, the department did not respond to questions.

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