Labour Relations Amendment Bill [B16-2012]: clauses 27-38 deliberations

Meeting report

Deliberations on the Labour Relations Amendment Bill
The Committee resumed clause-by-clause deliberations on the Labour Relations Amendment Bill.  The Parliamentary Legal Advisers had prepared a working document, summarising the legal issues that had been identified to date and their recommendations (see attached document).  The Committee had dealt with clauses 1 to 26 on 6 November 2012.

Clauses 27 and 28
Mr Thembinkosi Mkalipi, Chief Director: Labour Relations, Department of Labour (DOL) explained that the transitional arrangements in the Constitution provided for the Labour Court to be the responsibility for the Minister of Justice and Constitutional Development.  Amendments to labour legislation involving the Labour Court could therefore not be introduced by the Minister of Labour.

Professor Paul Benjamin of the University of Cape Town and legal adviser to the DOL explained that clause 27 amended the name of the High Court of South Africa (previously the Supreme Court).  Clause 28 clarified the position of Labour Court judges and had been included in earlier drafts of the Bill.  Provision was made for Labour Court judges to have the same remuneration and retirement benefits as High Court judges.  The same provisions were included in the Superior Courts Bill, which was introduced several years ago but had not yet been finalised.  If the Superior Courts Bill was passed, the clauses should be removed from the Labour Relations Act (LRA).  The constitutionality of the clauses was not at issue.

Mr Chris Todd, a member of the NEDLAC drafting team said that the transitional arrangements in the Constitution were intended to ensure the coherence of the Courts.  Provision was made for the Courts to continue to function in accordance with the applicable legislation.  It was accepted that the legislation governing a Court would require amendment from time to time.  The transitional provisions included provision for the Court system to be rationalised as soon as practical after the new Constitution took effect.  The rationalisation of the Court system was the responsibility of the Minister of Justice and Constitutional Development.  Currently, a Labour Court judge did not enjoy equal standing to a judge in the High Court.  The proposed amendments to the LRA were made in terms of the transitional arrangements in the Constitution.  It was arguable whether or not the country was still in a transitional phase and that changes to legislation should continue to be made in terms of the transitional provisions.  Including the same provision in different Bills was to be avoided.  The Superior Courts Bill currently before Parliament dealt with the restructuring of the Courts and if passed before this Bill there would be no need to include the provisions concerning the Labour Court in the LRA.

Mr F Maserumule (ANC) asked for comment from the State Law Adviser and the Parliamentary Legal Advisers.  The Parliamentary Legal Advisers had recommended that the clauses were omitted from the Bill.  He wondered if the constitutionality of the provisions could be challenged.

Ms Zuraya Williams, State Law Adviser advised that the legal team had considered the provisions and the arguments put forward by the Parliamentary Legal Adviser.  The Superior Courts Bill included substantive provisions.  Her view was that it would not be unconstitutional if clauses 27 and 28 were included in the LRA Bill.  Legislation concerning the Courts was best dealt with by the Portfolio Committee on Justice and Constitutional Development but there was no reason why the Committee on Labour could not pass legislation on the Labour Court.

The Chairperson wondered if it would not be better to refer the matter to the Committee on Justice and Constitutional Development.

Dr Barbara Loots, Parliamentary Legal Adviser said that if the Committee on Labour rejected the clauses, the Department of Justice and Constitutional Development would deal with the matter in the Superior Courts Bill.

Mr Mkalipi advised that the Committee on Justice and Constitutional Development had advised that the provisions were included in the Superior Courts Bill.  However, the Bill had taken an inordinately long time to be finalised.  There was currently a high risk of losing Labour Court judges because of the inequality in their benefits.  If the Superior Courts Bill was passed in the near future then the need for including the provisions in the LRA fell away.  On the other hand, if the passing of the Superior Courts Bill was delayed, the Labour Court would be paralyzed.  The Department’s concern was that the Superior Courts Bill had dragged on since 2008 and there were fears that the Bill might not be passed at all.

Mr E Nyekemba (ANC) remarked that Members had not been clear on the legal and constitutional implications during earlier discussions on clauses 27 and 28.  The matter had now been clarified and he suggested that the Committee proceeded with the next clause.

Ms Williams suggested that the clauses were retained in case the Superior Courts Bill was not passed before the LRA Bill.

Mr A Van der Westhuizen (DA) asked if any other provisions in the LRA Bill needed to be scrapped in the event the Superior Courts Bill was passed before the amendments to the LRA.  He suggested that the Committee planned for both eventualities.

Mr Todd advised that clause 28 only had to be omitted if the Superior Courts Bill was passed before the LRA Bill.  It would be problematic if the clause was omitted and the Superior Courts Bill was not passed in time.

The Chairperson said that the Committee had been given the reassurance that the Superior Courts Bill would be finalised within two weeks.  The Committee would err on the side of caution and retain the clauses.

Mr S Motau (DA) agreed to the Chairperson’s suggestion.

Mr Mkalipi suggested that the Committee proceeded with clause 38.  The DOL had prepared a document setting out the reasoning behind the clause, responding to opinions that the clause was unconstitutional and proposing alternative options.

Advocate Anthea Gordon, Parliamentary Legal Adviser understood that the Committee had decided to proceed with clause-by-clause deliberations on a sequential manner.  The Committee had not instructed the Parliamentary Legal Advisers to prepare a response to the Department’s document.

Mr Mkalipi agreed to postpone discussion on clause 38.

Dr Loots took the Committee through the working document.

Clause 29
No legal issues were identified.  The inclusion of the clause was a policy decision by the Committee.

Clause 30
No legal issues were identified.  The inclusion of the clause was a policy decision by the Committee.

Clause 31
The Parliamentary Legal Advisers recommended that the Committee rejected the clause for the same reasons as those applicable to clauses 27 and 28.

Clause 32
No legal issues were identified.

Clauses 33 and 34
The Parliamentary Legal Advisers recommended that the Committee rejected the clauses for the same reasons as those applicable to clauses 27 and 28.

Clause 35
Advocate Gordon suggested that the word “engaged” was replaced with the word “employed”.  “Engaged” was open to interpretation, which was not desirable when dealing with dismissals.  The working document included the rephrased clause.

Clause 36
Dr Loots explained that the proposed amendment was intended to address the anomalies in the interpretation of section 187 of the LRA.  In the matter National Union of Metal Workers of South Africa v Fry’s Metals (Pty) Ltd the Labour Appeal Court (LAC) had argued that automatically unfair dismissal contemplated in section 187(1)(c) was conditional (and reversible), if the employees accepted the demands of the employer.  The reasoning of the LAC was accepted by the Supreme Court of Appeal (SCA).  A policy decision was required whether a dismissal under this sub-section constituted a conditional dismissal that could be withdrawn if the employees complied with the employer’s demands.

Clause 37
No legal issues were identified.

Clause 38
The Parliamentary Legal Advisers recommended that the clause was rejected by the Committee on the basis that it was not constitutionally sound. 

Section 23(1) of the Constitution stated that everyone had the right to fair labour practices.  This right was not qualified or restricted to only vulnerable workers.  Clause 38 in effect qualified the rights of certain employees and was not compatible with International Labour Organisation (ILO standards).  Section 23 and labour legislation seeked to balance the relationship between employees and employers.  Labour law was based on principles of fairness and allowed for flexibility in deviation from set practices where such deviation was justified.  Employers were allowed discretion in regulating the employment relationship with high earning employees.  In terms of current labour law, an employee could be dismissed on the basis of incompatibility (as a form of incapacity).  The vulnerability of workers was determined by context and it could not be assumed that higher-paid employees were not vulnerable.  Clause 38 reverted back to the regulation of employment relationships on the basis of contract law (which had been found wanting in the past) and compromised the principle of fairness on which current labour legislation was based.

Mr Mkalipi disagreed that clause 38 was unconstitutional.  The exclusion of certain categories of workers from legislative provisions was not uncommon.  In his opinion, the clause met the ILO standards.

Prof Benjamin agreed with the Parliamentary Legal Adviser’s comments concerning the Constitution.  The question was not whether the right to fair labour practice was limited but if the limitation was reasonable and justifiable.  If the Constitution was interpreted literally, then every provision in the labour laws had to apply to every worker.  There were examples where this was not the case in the Basic Conditions of Employment Act (BCEA) and in the provisions governing the Unemployment Insurance Fund (UIF).

The purpose of clause 38 was to make provision for the employer to give at least three months’ notice of termination to a certain category of employees, after which the employee was deemed to be dismissed.  If at least three months’ notice had been given, the employee could only challenge his dismissal on the grounds of unfairness in terms of section 187 of the LRA.  The employer could dismiss an employee without following procedure under certain circumstances (for example if the employee committed theft) but ran the risk that the dismissal was challenged in Court.  Clause 38 allowed for changes at the senior management level of an organisation in a fair manner that allowed the business to proceed without undue disruption.  The dismissal of senior executives could be a lengthy and expensive process.  He cited a case that had taken 120 Court days for the employer to prove that an executive had failed in his duties as an example.

The purpose of labour legislation was to protect vulnerable employees.  Some employees are not vulnerable and had the capacity to protect themselves.  For the purpose of unfair dismissal, the law allowed the Minister of Labour to apply discretion in determining if an employee was vulnerable.  It was not anticipated that there would be many cases brought before the Court in terms of clause 38.  There had been arguments from Labour Court judges and academics to exclude highly-paid executives from accessing the Labour Court.  In general, highly-paid employees had the ability to negotiate fair employment contracts with the employer.

Clause 38 did not violate ILO standards.  The ILO Convention had not been ratified by South Africa but many of the principles had been catered for in South African law.  The Convention was referred to in judgments by the Labour Court and the High Court.  Convention 158 dealt with termination and contemplated certain specific exclusions, for example managerial staff.  The exclusion of certain categories of workers from legislative provisions was common in other countries as well.  It was preferable to use a threshold rather than a category of workers.  The international experience had been that the exclusion of certain categories of workers resulted in much dissatisfaction.  It was also difficult to avoid different interpretations of the definition of ‘manager’.  Labour law in the United States of America excluded managers and supervisors, which was a major bone of contention.  Labour law in the United Kingdom focused more on the remedy and placed a cap on the amount of compensation.  Severance pay had to be separated from pay for the three months’ notice period.

Prof Benjamin was of the opinion that the provisions in clause 38 would survive a Court challenge.  The Court would take into consideration that the dismissal had been fair, that the employee had not been deprived of his rights to fair labour practice, that the employee had adequate contracting power and was adequately protected.  The current economic environment and escalating industrial unrest had to be taken into consideration.  The gap between high and low income earners was widening and the earnings inequality was driving labour unrest.  In general, highly-paid employees had skills that were in demand, were already well-protected and had a relatively high level of power in the organisation.  The Minister would take earning levels, skills levels, bargaining position and whether there was adequate protection into account when determining to whom the clause would apply.  In his opinion, the clause was reasonable, justifiable and appropriate in view of the broader policy scenario.

Mr Todd said that as a labour law practitioner, he was aware of many instances where companies and Government entities had been crippled and seriously hindered by disputes over the performance of senior executives.  Such disputes had major economic and efficiency implications for the organisation and could result in significant financial losses being suffered by the organisation.  The right to fair labour practices was given effect in the BCEA.  South African law recognised the exclusion of employees in the higher earnings brackets from the provisions intended to protect vulnerable workers.  Senior executives were already adequately protected and generally had far more bargaining power than ordinary workers.  There was no reason to give highly-paid employees more protection.  Such employees would still enjoy protection against arbitrary and unfair treatment, for example summary dismissal, being pressured to leave and sexual harassment.  Clause 38 made provision for a minimum notice period of three months but the period negotiated in the employment contract could be longer.  Three months’ pay for a highly-paid employee could be a significant sum.  He agreed that the limitation was legally defensible.

Mr Van der Westhuizen supported the rationale behind the proposed provisions but had a problem with how the dilemma was being addressed.  Clause 38 (5) enforced the application of section 188B to pre-existing employment contracts after two years from the date of enactment.  The employer’s position would be weakened if an employee claimed that he was more vulnerable as a result of the legislation and demanded that the existing employment contract was renegotiated.  He agreed that the earnings gap was too wide but the concern was that highly-paid employees could hold the employer to ransom.  He was concerned that the provision would have the unintended consequences of actually widening the earnings gap.  He suggested that alternative solutions were considered, for example spreading the risk more equally between the employer and employees and allowing for the culpability of the employee to be determined on a case by case basis.

Mr D Kganare (COPE) was of the opinion that the clause was unfair and allowed unfair dismissals if the employer had paid 3 months’ salary.  The fact that the employee earned a high salary did not mean that his standard of living would not be affected.  If an employee was dismissed for no just reason, the employer would benefit instead of being punished for unfair dismissal practices.  By allowing changes to pre-existing employment contracts, the employer was given the opportunity to get rid of employees for nefarious reasons.

The Chairperson pointed out that the employee continued to have legal recourse for any unfair treatment, regardless of how much the employee earned.

Mr K Manamela (ANC) remarked that the key issue was what was regarded as fair or unfair practices.  The LRA required that the process followed before an employee was dismissed was transparent, allowing for an assessment of the fairness of the process.  The level of authority and responsibility of an employee was not determined by the wage.  He agreed that certain high-level executives did not require protection in terms of the LRA, for example, executives with shares in the company.  He asked what other legal recourse was available to highly-paid employees and what processes had to be followed that ensured that the dismissal process was fair if such employees were excluded from the LRA.  He understood the intention to avoid the negative impact on the organisation.  There had been several recent instances where Government entities had paid substantial settlements in order to get rid of incompetent executives.  The public perception was that such excessive ‘golden handshakes’ had not been earned.  He was concerned that the threshold was determined by earnings rather than the position or level of authority of the employee.

Mr Maserumule was of the opinion that highly-paid executives should be excluded from the LRA entirely.  He was not convinced that the inclusion of clause 38 was justified by the very low number of cases where a highly-paid employee was considered to be vulnerable.  Such employees generally had a great deal of power to determine their conditions of employment, which negated any claim to vulnerability.

The Chairperson said that there were many categories of employees.  Employees with high levels of responsibility faced greater risk and were compensated accordingly.  Such employees were generally highly skilled and had less difficulty in finding other employment.

Mr Motau agreed that employees at the senior management level were capable of negotiating favourable employment contracts.  He agreed that such employees did not need additional protection.  The 3 months’ notice period provided for was the minimum period and a longer period could be agreed by the parties.  Pre-existing employment contracts should not be discarded because a new law came into effect.  He asked if the Parliamentary Legal Advisers were unconvinced by the arguments put forward by Prof Benjamin and Mr Todd and stood by the recommendation that clause 38 was rejected because it was unconstitutional.

Mr Nyekemba asked how clause 38 was linked with the provisions in the BCEA regarding the termination of employment contracts. 

Advocate A Alberts (FF+) aid that a more balanced approach would be if the level of power and influence enjoyed by an employee was considered in addition to an earnings threshold.  He asked if there were comparable examples of legislation in other countries.

Mr Mkalipi said that the Committee could decide what the notice period should be.  Clause 38 (5) provided protection to employees with pre-existing contracts and allowed them the opportunity to renegotiate their employment contracts.  Disputes with senior executives had a negative effect on service delivery and threatened the jobs of other workers.  The DOL was reluctant to give senior executives too much protection to the detriment of the organisation and lower-echelon workers.  Parliament could call the public entities to account over excessive settlement payments to get rid of non-performing officials.  If the provision had been in place, the recent substantial payments made to departing officials would have been avoided.  The Minister would take the skills level, position and authority level into account before determining the threshold and would consult with NEDLAC during the process.

Mr Todd said that a monetary basis to determine the threshold was more certain than a definition of a position of power.  The concern was that the threshold was set so high that the provision became a moot point.  In general, high earnings levels went hand in hand with high levels of power and authority.  The provision allowed for the dismissal to be deemed to be fair if the employer had given three months’ notice of dismissal to the employee.  The exception was if the employee claimed that the reason for dismissal was discriminatory.  The intention was to avoid dismissed employees from taking the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA) to get a larger settlement.  Consideration could be given to cap the amount of compensation paid.  The provision in the LRA to restrict pay-outs to an amount equal to 12 months’ salary was arbitrary in any event.  Constitutionality was a balancing act between what was reasonable and fair.  The Constitution did not dictate policy legislation and allowed for the implementation of policy, provided that constitutional rights were not violated.  Testing the boundaries of the Constitution should not be avoided.

Prof Benjamin said that the proposed legislation was broadly constitutional and the debate should focus on what was best for the country.  He agreed with Mr Mkalipi that the provision would have curbed excessive settlement pay-outs by the public sector to get rid of non-performing officials.  Parliamentary Committees could query settlement payments of more than three months’ salary.  The issue was important and alternative options should be given due consideration.

Dr Loots advised that the recommendation that the Committee rejected clause 38 remained.  The arguments for retaining the clause did not justify the removal of the right to fair labour practice of certain employees.  Although the exclusion of certain employees from labour legislation was common in other countries, the South African historical context and the provisions of section 23 of the Constitution should be taken into consideration.

Prof Benjamin said that the purpose of the provision concerning the dismissal to be deemed to be fair was to prevent the employee from challenging the dismissal in terms of section 188 of the LRA.  The employee was not prevented from challenging the dismissal in terms of section 187.  The point was raised during discussions at NEDLAC.  Whether or not the dismissal was deemed to be fair was not a major issue.  Consideration could be given to changing the wording of the clause.

The Chairperson asked for suggested alternative clauses to be drafted by the legal advisers for consideration by the Committee.

Ms Williams suggested that clause 38 (5) included provision for employees to be given the opportunity to re-negotiate pre-existing employment contracts.  She pointed out that clause 38 (4) provided for the Minister to take the extent of the bargaining power of employees into account in the determination of the earnings threshold.

Mr Van der Westhuizen said that, the legal advisers should be allowed to draft the provisions in accordance with the Constitution provided that the Committee supported the policy behind the legislation.  In his opinion, there were alternative options to deal with the removal of unsatisfactory senior executives in a fair manner.

Ms Williams advised that clause 38 would be discussed further by the legal team and possible alternative options would be explored.

Advocate Gordon advised that the re-drafting of the clause would be done by the State Law Adviser and the Department.  The role of the Parliamentary Legal Adviser was to advise the Committee on the legality of the provisions.

Mr Nyekemba suggested that the rationale for the re-drafted clause was provided to the Committee as well.

The Chairperson advised that the deliberations on the Bills would be resumed on 8 November 2012.

The meeting was adjourned.