BUSINESS owner Dennis Pillay was once a fervent supporter of bargaining councils. But the system he so supported ended up killing his business and casting 18 people into unemployment.
Up until a few years ago, Pillay - who even served as a member of the Master Builders Association (MBA) -- believed councils, which cover about a fifth of the country’s labour force, created a just playing field in any industry.
He also believed they allowed workers and employers to come together and set wages and benefits, which were then extended to the rest of the industry – to those, mainly small, companies that are not members of employers’ associations.
Although the same system also forces small firms to pay the same wages and benefits as big companies, this didn’t seem to trouble Pillay for many years.
His garage door manufacturing business Interior Spectrum in Blackheath, Cape Town, was doing so well that by the late 1980s he had two factories and employed 54 people.
But then bad times hit. His joinery sector collapsed and from a workforce of 10 000, 10 years ago, today only a 100 or so workers remain.
The death knoll came in 2008 when his struggling business was hit with R50 000 in outstanding levies, contributions and penalties from his council.
A year later he closed his doors when his accountant advised him to liquidate. He has since had to turn to mentoring other business owners because having been blacklisted on credit bureax, he is effectively barred from running a business for at least five years.
Yet Pillay’s story pales in comparison to the devastation occurring in the clothing sector, where competition from cheap imports mainly from China has seen employment in the sector halve in just 10 years.
Things are so bad now that about half of employers in the sector are either holding back on paying over provident fund contributions to the bargaining council, which manages these, or paying below minimum wages. This is despite an agreement, which took effect in April, between employers and employees wage rates be phased in over a few months so that by year end all employers would be paying the minimum wage.
Frustrated, officials at the clothing bargaining council have responded by ordering the sheriff of the court to execute writs of execution to non-compliant companies, closing down companies left, right and centre and leaving thousands unemployed.
In early July the clothing bargaining council reported that it had closed down 37 firms employing about 3,000 people, while another 36 employing 1,600 people had closed voluntarily since the compliance drive had started.
Further writs of execution were also pending by the time of going to print. Ironically President Jacob Zuma announced in his State of the Nation Address in February that 2011 would be the year of job creation, while the New Growth Path released last year, aims to create five million jobs by 2020.
But the clothing sector is not alone. The furniture sector could be next. Writs of execution are already being handed to furniture manufacturers in the Western Cape.
Terry Miles, the Secretary of the Furniture Bargaining Council Western believes the issue of late payment of provident fund contributions - which in 2009 resulted in about 20% to 30% of employers paying late – had worsened.
At the Furniture Bargaining Council Northern Region which covers the Free State and Gauteng, the sheriff is this year handing out just 10% more writs of execution a month than last year, according to Mark Willemse, the northern region’s deputy secretary.
In recent years there has been hardly any growth in the industry according to the secretaries of the three regional furniture councils and many firms had put workers on short time.
Miles said the industry is still struggling to jump back after the recession and that competition from cheap imports – especially from China – had more than doubled in the last five years.
“Ideally we don’t want to close firms, but we want compliance,” said Miles, who added that the council, together with the government and a local training company, the Western Cape Furniture Initiative, had engaged with struggling businesses to assist them. But he said some employers were “flying under the radar” trying to avoid compliance and came with the attitude that the council should “take a hike”.
Some like Pillay and labour attorney Michael Bagraim say the solution is to exempt small businesses from council agreements. While Bagraim believes this should be in the form of permanent automatic exemptions, Pillay contends that exemptions should cover the first three years when a business starts out.
Miles’ council once did have something similar – an exemption for employers with five or fewer employees.
But this was done away with a few years ago, ironically on request by other small employers party to the council. These employers argued that the measure was being abused by some companies that would use contract workers so that on paper it appeared as if they only had five or fewer employees, when they actually had a far greater staff complement.
Both the Bargaining Councils for the Furniture Manufacturing Industry in KwaZulu-Natal and the Northern Region have phased in exemption processes for companies with either five or fewer employees and 10 or fewer respectively.
Gawie Blignaut, general secretary of the Bargaining Council for the Furniture Manufacturing Industry, says the council no longer receives requests for exemptions – and that the last application for exemption was about four years ago. This is despite the challenges the industry faces with imports.
The idea of blanket exemptions for small firms was dismissed following the finding of a presidential task team in 2005 that the exemptions system was working.
A 2006 report by the University of Cape Town’s Labour and Enterprise Project revealed that between 2000 and 2004 about 70% of applications for exemption were granted, most of them to small businesses that were non-party members.
The Department of Labour’s latest figures, which cover 2009, reveal that in that year 1 876 applications for exemption were made – 46% of them from non-party members. In all ,70% of these were granted. The department believes this is proof enough that the system is fair, but many small firms aren’t convinced.
Tommy Molewa, who runs Empowered Couriers, a small logistics company which has 51 employees, says his council “doesn’t have any mercy” and had often hit his firm with penalties for late levies – which in one recent case was R3 000 on R30 000 which Molewa paid a month later.
Complying with the various provisions of the council’s agreement was time consuming, he said, adding that it was getting “tougher and tougher” with the new wage increases.
South Africa’s number one problem may be unemployment, but the country’s history of mistrust between workers and bosses, means its unlikely that central bargaining will become more accommodating to smaller firms any time soon. Jobs will just have to wait.
This article was originally featured in October 2011 in the Wits Business School Journal (Issue 26).
Stephen Timm is a