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Fast-food and the consequences of collective bargaining

22 January 2021 Gareth Stokes

Government’s long-term support of collective bargaining and multi-year wage agreements is under question as the full impact of global pandemic on the domestic economy becomes clear. The first tremors of unease were felt when the minister of finance announced cuts to the private sector wage bill during his February 2020 budget address. He said that the three-year deal concluded with public sector workers in 2018 could not be met and proposed restricting total cost increases for the sector to just 1.8% for 2020/21. Public-sector unions were having none of it. They rejected government’s revised wage offer out of hand and headed to the Labour Court for redress.

A public sector wage boom

The power that unions hold in decision-making alongside the African National Congress (ANC) has long been help up as the reason why public sector wage growth is outstripping that of the private sector. National Treasury has even gone on record that more than 95% of public servants earn more than the bottom 50% of registered taxpayers. They also admit that public service remuneration has increased at a faster pace than South Africa’s per capita GDP over the past decade. Government has said that it cannot afford to honour the third year of its three-year wage deal due to growing fiscal concerns linked to the coronavirus pandemic; but an honest assessment would reveal that the terms were unaffordable when the deal was penned back in 2018. 

Could South Africa’s government be squaring up for war with unions? Margaret Thatcher, who served as Prime Minister of the United Kingdom from 1979 to 1990, saw her struggle against unions as a moral fight that she likened to the Falklands War. During a speech to the backbench 1922 committee, in July 1984, she said: “We had to fight the enemy without in the Falklands; we always have to be aware of the enemy within, which is much more difficult to fight and more dangerous to liberty”. Union membership in the UK fell from around 12 million in the late 1970s to fewer than six million by the end of the 1980s, according to the BBC. By comparison, South Africa’s unions punch well above their weight, with an estimated 3.1 million members countrywide. Non-union employees do, however, enjoy significant labour rights. 

The political power that South Africa’s public sector unions enjoy has oozed into the private sector in the form of the collective bargaining laws enshrined in the Labour Relations Act. Labour Research Services describes collective bargaining as “the process through which a union tries to get an employer to formally agree and accept the workplace demands that workers put forward; collective bargaining can include [agreement on] wages, working conditions, union rights, maternity and paternity leave [and may include] mediation, arbitration, strike and lock-out actions as part of the process”. A collective agreement is presented to the labour minister who has powers to gazette it and bind the parties to it for a stipulated period of time. 

Collective bargaining or sustainability suicide?

Local fast-food outlets and restaurants are the latest private sector businesses to fall foul of the collective bargaining scourge. It was recently reported that the department of labour had gazetted a new collective agreement for all employers in the sector. In terms of the agreement, employers will have to pay December bonuses and countless additional employee-benefits. They will also have to join the new bargaining council by the end of February. An article on BusinessInsider.co.za gives some idea of what employers in the sector face. These include that wait staff must exceed the national minimum wage by at least 7% by May 2021 and that future annual wage increases must exceed inflation by 1.5%. 

The bargaining council, no surprises here, will take R8,00 from each employee’s wages and expect the employer to pay R8,00 per employee plus a monthly R25,00 general establishment levy to sustain the council. It has built in R25,00 per employee per month for funeral benefits and a 10% contribution to a provident fund, both costs split equally between employer and employee. Employers must also dock up R17,50 per week to employees that are expected to wash their own uniforms. “The new requirements will increase the overhead costs of restaurant employers by at least 16%, according to the National Employers Association of South Africa,” writes BusinessInsider.co.za. 

Many questions arise following the announcement. First and foremost, how does a newly-established bargaining council curry immediate favour with government? Second, how can laws that force private sector businesses across an industry or sector to become members of bargaining councils exist in the age of free trade? And third, how can government issue legislation that will effectively bankrupt countless small businesses? The idea that a bargaining council can hold sway over an entire sector by obtaining support from 51% of employees and employers in that sector is absurd. Their decisions have financial consequences for employee and employer alike, including payroll deductions that leave employees out of pocket. Another major concern is how a purported free market society such as South Africa can randomly impose operating costs on private capital. 

Absurd laws in a free market economy

It is absurd to expect that all businesses, regardless of size or area of specialisation, can be run under a one-size-fits-all, state-imposed cost template! It is also worrying that the law allows a bargaining council to extract its administration and operating costs from defenceless industry participants. An inevitable consequence of a bargaining council arrangement is that unaffordable demands can be imposed on a sector regardless of the impact on its individual stakeholders and without consideration of the underlying economic reality. 

South Africa’s hospitality sector is teetering following government’s response to pandemic. Revenues at fast-food outlets and restaurants have been halved by lockdown regulations that include a ban on the sale of alcohol, curfews and reduced capacity, not to mention the cost of complying with sanitation rules. The truth is that many restaurant owners entered 2021 questioning whether to renew leases or simply close shop. 

Construction sector under fire too...

Many of the bodies established to represent an industry’s interests end up being a drain rather than a boon, adding costs and stirring conflict. A recent example is the Construction Alliance South Africa (Casa), a new umbrella body comprising approximately 30 South African construction sector associations, established to ‘speak with one voice’ for the sector. Within days of its launch, the three largest existing sectoral bodies were up in arms for being excluded from the new structure. No surprise then that Casa chairperson John Matthews told Moneyweb.co.za reporter, Roy Cokayne, that there were “always turf wars between bodies”. 

The writer wonders how any industry can sustain more than 30 associations and bodies? This reality rubs up against the old English adage: Too many cooks spoil the broth. It is also worth noting that there are major challenges in the construction sector despite these 30-odd associations and bodies ‘going to bat’ for their stakeholders. Construction firms face unfair competition; unethical business practices; and the emergence of rent-seeking gangs at construction projects, to name a few. A rethink is indicated if this is the environment delivered courtesy the current incumbents. 

The optimal long-term outcome is for associations and bodies representing individual sectors to consolidate and offer better value in return for their dues. This trend played out in the financial services sector in the first decade of the 21st Century with the creation of the Financial Intermediaries Association of Southern Africa (FIA) following a merger between the Independent Brokers Council and the South African Financial Services Intermediaries Association. The FIA subsequently merged with the Association of Professional Financial Planners and, much later, re-housed the Forum for Assistance Business too. 

Legal pushback the only option

What does the future hold? Collective bargaining is here to stay; but we expect more pushback from affected parties as the economic outlook worsens. We have already mentioned the court battle between government and unions over public sector wages. The restaurant industry is getting ready for a legal battle too. The Restaurant Association of South Africa said that it would lodge an urgent interdict against the latest edict on the basis that the minister could not possibly have satisfied himself that the new bargaining council represented the majority of the sector’s employees and employers.

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