Should small business pay Bargaining Council rates?

November 18th, 2013, Published in Articles: Vector

The Free Market Foundation (FMF) has launched a constitutional challenge to section 32 of the Labour Relations Act 1995 in the Pretoria High Court in 2013. The section governs relations between bargaining councils (BCs), the minister and employers, and compels the minister to extend agreements struck by those at the bargaining table to those not present and not party to the negotiations.

According to Rob Wilkie, chief financial officer at business management services company Sage, small businesses are under pressure from rising costs and should be exempt from paying wages agreed to at bargaining councils between unions and big business.

National Employers Association of South Africa CEO Gerhard Papenfus says “it is unfair to expect small businesses employing fewer than ten people to adhere to the same wages as companies employing 250 people, with triple the output.”

Both men voice the mounting concern and chorus of calls from business leaders, economists, commentators and editorials for the government to relax the rigid labour laws.

Wilkie’s comments were made after the release of Sage’s annual business index, which showed that local SMEs are concerned about the cost implications of wages determined at bargaining councils:

“They are getting tied into bargaining council agreements which apply industry-wide and are negotiated with unions and big business, and now they must give a 9% or 10% increase in wages. They just cannot afford this,” said Wilkie.

“Thousands of small businesses who had no opportunity to make inputs into collective bargaining agreements were subjected to conditions of service favourable to big business”.

He said this activity was similar in substance to that of a cartel, illegal in other sectors and the subject of wide-spread condemnation from government and the media.

South African Institute of Race Relations chief executive John Kane-Berman told Business Day that “our centralised collective bargaining system, set out in the Labour Relations Act of 1995, is one of the causes of our very high unemployment rate”.  Berman called the centralised bargaining system “undemocratic and cruel” as it “lifts he bottom rung of the wage ladder too high for unskilled people to be able to step on to it.

A Reserve Bank paper published in July last year stated that, “where large firms and unions agree to high standards, legal extension reduces competition and inhibits the creation of new firms and their survival.”

The IMF recently called for an end to the extension of negotiated wages to firms which were not part of the bargaining process.

In an October 2013 report, Nedbank flagged labour issues as a constraint on South Africa’s investment, production and export capacity.

FMF chairman Herman Mashaba says business leaders are calling on government to relax laws which protect those with work but penalise the unemployed, especially the young “lost generation”.

“Surely government and Cosatu cannot ignore the growing level of appeals for much longer? We are asking them to listen to these local and international voices of reason and act accordingly before it is too late for the seven million unemployed South Africans”.

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