The Constitutional Court has upheld a judgment that found the 2018 public sector wage agreement was invalid and unlawful.
The apex court’s ruling is a victory for the treasury, which in last week’s budget pinned its hopes of containing the wage bill — and, in turn, government spending — on a favourable court ruling. The judgment was unanimous.
The case relates to the public-sector wage agreement for the period between 2018 and 2021 and affects the payment of the country’s 1.3-million civil servants.
In November 2017, the treasury set aside R128.5-billion to fund the wage increases for all public sector workers over the period. but in January 2018, after unions rejected an offer that fell within the budget, they were presented with a far sweeter deal, which pencilled in above-inflation wage increases and no reduction in worker headcount.
The department of public service and administration has said the offer was “unmandated”.
In May 2018, the agreement that was eventually signed by the parties contained three clauses, which regulated wage increases for 2018-2019, 2019-2020 and for 2020-2021, respectively. The state wanted clauses in the agreement detailing cost-cutting measures, but this was rejected by unions.
The effect of the three clauses was that the allocated budget would be exceeded by R30.2-billion. The 2018-2019 and 2019-2020 increases were implemented.
But in his 2018 medium-term budget policy statement, then finance minister Tito Mboweni identified the risk that the wage agreement posed to the deteriorating fiscus. “The wage bill remains the biggest cost pressure on the budget. Over time, wages have crowded out other goods and services and capital investment, particularly in health, education and defence,” Mboweni said.
Because the wage agreement exceeded budgeted baselines, Mboweni said, national and provincial departments would be expected to cut costs elsewhere.
In 2020, after the treasury flagged worse-than-expected economic growth, the state proposed to revise clause 3.3 of the agreement regulating the 2020-2021 increases. The Covid-19 pandemic made the situation far worse.
By 2020 the cost of implementing clause 3.3 was expected to substantially exceed the R13.2-billion over-budget projection.
Unions rejected the revised offer and clause 3.3 was not implemented. In June 2020, unions launched an application in the labour court seeking an order to enforce clause 3.3. But the state launched a counter-application disputing the legality of the collective agreement and its enforcement.
The parties agreed to the matter being heard by the labour appeal court, which ultimately declared the enforcement of clause 3.3 unlawful.
Unhappy with the appeal court’s ruling, 10 public sector unions each lodged an appeal at the constitutional court. The department of public service and administration and the minister of finance opposed the applications.
Unions argued that the state’s decision not to enforce clause 3.3 undermined collective bargaining and that the agreement was concluded lawfully. The state — which argued that certain regulations governing collective agreements were not met when the 2018 deal was signed — contended that enforcing clause 3.3 would cost the fiscus R29-billion, which it does not have.
The apex court agreed that the state failed to comply with the public service regulations, which state that a collective agreement may only be entered into if the relevant departments can cover its cost.
The state’s negligence in this regard, the court found, means that the resultant collective agreement was invalid and unlawful. “To hold otherwise, would amount to validating the mischief the relevant constitutional provisions and regulations seek to prevent.”
Unions and their members, the judgment surmised, can be said to have been “unjustifiably enriched” because of the agreement.
“Firstly, the employees had their jobs secured and received year-on-year salary increments in the public sector outstripping inflation and outperforming the private sector salary increases. This occurred at a time when the rest of the country’s workforce … had suffered salary cuts or freezes as a consequence of the economic and the Covid-19 pandemic.”
The court concluded that if clause 3.3 were to be enforced, the amount available for service delivery “would be significantly reduced”.
“In the present economic and health circumstances facing the country, it would not be just and equitable to require the state to make good the illicit salary increases it promised at the expense of far more pressing needs affecting the country.”