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Collusion in labour legislation decision-making

FMF challenges the constitutionality of the LRA.

JOHANNESBURG – The Free Market Foundation (FMF) has filed a constitutional challenge against the extension of agreements concluded by bargaining councils in South Africa, under section 32 of the Labour Relations Act (LRA) of 1995. The respondents identified include the Minister of Labour, the Minister of Justice and Constitutional Development and bargaining councils registered under section 29 of the LRA.

The FMF application was filed on Tuesday at the High Court in Pretoria.

The FMF says that the current LRA stance on bargaining councils is draconian. Currently, bargaining councils are allowed to impose legally binding conditions of employment, such as wage agreements, to businesses and employees that are not part of bargaining councils.

The FMF says that it does not challenge the bargaining council system as it stands, but rather the ability that private players have been given to collude and set minimum wage agreements and then advance those to other individuals who are not part of a bargaining council and infringe on their rights, such as their right to freedom of association.

The FMF states that it is challenging the LRA because the bargaining council process distorts the provisions of majority rule in favour of minority rule. This reduces competition, makes it difficult for new and smaller businesses to survive whilst forcing others to close down and also finally contributes to a high unemployment rate. The FMF also states that having high wages makes sectors uncompetitive and places a heavy burden on smaller companies that rely on labour intensive production systems.

Cosatu Spokesperson Patrick Craven says that the union opposes the stand taken by the FMF and will always be supportive of collective bargaining. “It is incredibly short sighted of the FMF,” Craven says, explaining that this would begin a race to the bottom allowing employers to pay their employees lower wages, ultimately leading to workers having less spending power and depressing demand. Craven cited the example of Brazil where minimum wages were increased and he argues that it will lead to greater consumer spending, growth and a lower unemployment rate.

Herman Mashaba (pictured), FMF Chairman retorts that labour unions should not oppose the stand take by the FMF as it would allow them to recruit more members. He adds that the myth in South Africa is that business is the enemy , which he emphasises is not the case.

Neill Rankin, University of Stellenbosch economics professor says that South African can no longer afford to ignore the high unemployment rate as well as the labour policies which go against the creation of jobs. Young Africans are those most affected by increasing unemployment rates – 65.6% are currently unemployed (see graph below).

Rankin states the economic argument is clear: South Africa has a restrictive labour market that is forcing labour intensive economies to close down, meaning fewer employment opportunities. He adds that under the current bargaining system certain employers and workers collude to limit competition – comparable to operating as cartels.

Craven however justifies the existence of bargaining councils; he states that it’s been proven worldwide that workers are better off where they exist and that this move would have a negative impact on the economy.

Jonathan Goldberg, a Kirchmanns Inc legal team member working with the FMF, says that they looked at the entire LRA document and honed in on certain aspects, Section 32 being one of them. Goldberg says that the “FMF is challenging the constitutionality, negative effects and unintended consequences of the legislation” and that it would continue to challenge other aspects of the LRA that it felt needed to be addressed.

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