Section 32 and the Cartel Economy

How the Labour Relations Act of 2005 is destroying our economy

Ah, the irony - a union member demanding jobs

From the dawn of South Africa, our economy has been dominated by seditious cartels. From Beit and Rhodes’s Rothschild-funded warmongering mining monopolies to Hogg and Oppenheimer’s JP Morgan-backed takeovers, the core of the economy has been dominated by ruthless and destructive monopolists, who began the subjugation of black labour by imposing poll taxes on the homelands which drove the men into the segregated mining ghettoes of the Rand.

In the late 80s, the formal economy, having seen foreign investment evaporate under foreign sanctions, shrunk considerably. But as corporations cut ties, many were scooped up by companies under the umbrella of the Anglo Group. The Oppenheimer family, who dominated this conglomerate, found a way to control entire sectors, and become the focal point of consultation for all business decisions across their portfolio.

By the calculations of David Palliser, this cartel held possession of 80% of the formal economy, which explains the family’s support for the ANC, apartheid, and the boycott, divestment and sanctions movement together. It also explains their support, and indeed design, of our current BEE laws through their pet think tank, the Brenthurst Foundation.

And yet, this practice of cartelisation has not ceased, nor has it stopped with the Oppenheimers. It has been generalised across every sector, with the help of the ANC and their pet Unions.

Evidence of the captured state of our economy is the unemployment rate, which sits somewhere between 35% (official) and 50% (including people who have given up looking for work). There are several key factors holding this world-first figure up so high, all of them the direct fault of ANC governance:

1.       State welfare, which takes in 17 million citizens, or 29% of the population, disincentivises work

2.       Minimum wage which sits at R3 500 per month for a fulltime worker, while 55.5% of the adult population earn less than R1 227 per month.

3.       A completely destroyed education system

4.       Lack of protection from crime, including racketeering like the “construction mafia”, which has cut the industry in half

5.       Near-impossibility of firing a worker without legal repercussions

6.       Brutal taxes on consumer goods such as petrol (70% of the price goes to various taxes and tariffs)

7.       Price and unreliability of utilities like Eskom or municipal water, which is a drag on all businesses, often causing businesses to close

8.       BEE, which mandates minority-owned companies give away at least 26% of their profits to freeloaders with the correct melanin content

9.       Among the highest tax rates in the world, which drive down consumption

10.   Broken rail systems, which have destroyed the package mail trains that supported small-town trade with metro hubs

11.   Port corruption/incompetence and cargo theft

But there is one additional factor which has been largely overlooked. Businesses, under such enormous pressure from every angle, seek ways to bend the system to their comparative advantage. As a consequence, larger corporations have reached a means of cartelising the sectors in which they operate, by exploiting the legal and political power of the trade unions.

While the commentariat and the politicians of South Africa like to harp on about the importance of small businesses to our economy, they continue to endorse legislation which poisons the soil in which they must grow.

Through collective agreements in sectoral bargaining councils, large scale employers create agreements with labour unions which, bizarrely enough, apply to every employer in the relevant sector, whether they were party to the bargain or not. The ability to strike bargains with extension to non-parties is a result of S32 of the Labour Relations Act (LRA). The key points are quoted here:

(1)    A bargaining council may ask the Minister in writing to extend a collective agreement concluded in the bargaining council to any non-parties to the collective agreement that are within its registered scope and are identified in the request, if at a meeting of the bargaining council—

a.       one or more registered trade unions whose members constitute the majority of the members of the trade unions that are party to the bargaining council vote in favour of the extension; and

b.       one or more registered employers’ organisations, whose members employ the majority of the employees employed by the members of the employers’ organisations that are party to the bargaining council, vote in favour of the extension.

(2)    Subject to subsection (2A), the Minister must extend the collective agreement, as requested, by publishing a notice in the Government Gazette, within 60 days of receiving the request declaring that, from a specified date and for a specified period, the collective agreement will be binding on the non-parties specified in the notice.

While the rest of the section provides several caveats, they ultimately hand sweeping discretion to the Registrar, and the powers of appeal are severely constrained – 21 days are allowed from the publication of an agreement in the Gazette, which typically gives no information as to the content of the agreement. This means that small and medium-sized enterprises which are not present in a labour dispute can be legally held to the terms of an agreement set by another, usually larger-scale corporations.

The upshot is that larger corporations which can afford to swallow larger labour bills in the short term can burn their smaller-scale competition out by striking legally binding agreements with their labour unions. This also raises the barrier to entry in any given sector, over and above the hurdles already posed by our irrationally high minimum wage, and the rest of the obscene obstacles to prosperity mentioned above.

This is deeply unfair to any small businessman, and creates monopolistic cartels run by large, corrupt and inefficient business practices, while cementing a corporatist stranglehold on the commanding heights of the economy, where unions already own a large portion of the shares on the JSE. This causes a large scale conflict of interest, much like that seen at Marikana – business, ANC and Charterist workers’ unions colluding to shut out smaller, rival unions and businesses from entering sectors dominated by established cartels.

In fact, it is this very feature of the LRA, extending labour agreements to non-parties, which resulted in AMCU, the newly-formed, nonaligned mineworkers’ union in Marikana, being held subject to bargains being struck which they were not party to. Binding any person to a contract they were not a part of through any court of law would normally be a violation of the principle of audi alteram partem (that nobody be judged without a fair hearing, and the chance to plead their own case). However, this argument did not apply in AMCU’s case.

In Association of Mineworkers and Construction Union and others v Chamber of Mines of South Africa and others, 2017, the union was bound to the agreement despite absence from the bargaining council, on the principle of majoritarianism. Because AMCU did not represent the majority of the employees of the mining cartel represented by the SA Chamber of Mines (as per S23), their protests were moot. They were defeated at the Labour Court, and at appeal.

What makes S32 different, is that the parties to the bargaining agreement under this section – extending agreements sector-wide, including non-parties on both sides of the employer-labour fence - need not represent a majority of the sector, only a majority of the parties represented at the agreement. This means that S32 gives powers that exceed the principle of majoritarianism, the dominant principle upon which the judges in AMCU’s case decided to dismiss it.

In fact, the Act makes it explicit: the Registrar in this case is empowered to extend agreements sector-wide even if the parties are a minority, if he believes that it negatively impacts collective bargaining at a sectoral level (S32(5A)). This is determined by whether the non-party workers in the sector are of a similar composition to those represented, with no criteria stipulated in the Act.

There have already been attempts, mainly by the libertarian FMF (Free Market Foundation v Minister of Labour & Others (2016)) and the SME representative group NEASA (NEASA v Minister of Labour (2012)), but these have had limited scope, given the difficulty of organising among SMEs. However, there area growing number of employers’ organisations who organise on behalf of smaller enterprises, driven by the increasing demand as economic conditions become more dire.

The solution to the problems created by extension of agreements to non-parties, is to seek out a reasonable test case which can be pursued by a united legal team with the specific aim of declaring as much of this practice unconstitutional as possible. There are already organisations such as Sakeliga, Solidariteit, NEASA, the Free Market Foundation and Labco, whose interests lie in protecting the economic freedoms of ordinary citizens.

If this article of our labour law can be overturned, it would be an enormous victory for small businesses in South Africa and a demonstration that the days of predatory cartels dominating the landscape may be drawing to a close.