PARTY

FMF vs Minister of Labour: Herman Mashaba's founding affidavit

Foundation's chairman lays out basis of his organisation's constitutional challenge to existing bargaining council system

IN THE GAUTENG NORTH HIGH COURT

(HELD AT PRETORIA)

 Case No: 13762/2013

In the matter between:

FREE MARKET FOUNDATION - Applicant

and

THE MINISTER OF LABOUR - 1st Respondent

THE MINISTER OF JUSTICE AND CONSTITUTIONAL DEVELOPMENT - 2nd Respondent

THE BARGAINING COUNCILS LISTED IN ANNEXURE ‘A' - 3rd to further Respondents

FOUNDING AFFIDAVIT

I, the undersigned,

HERMAN MASHABA,

do hereby make oath and say that:

My status

1. I am the Chairman of the applicant, an adult of full legal capacity, of 13 Somerset Estate, 100 East Avenue, Atholl, Sandton, 2196 and I am duly authorised to depose to this affidavit and to bring this application on behalf of the applicant as appears from the resolution annexed marked HM1.

2. The facts contained in this affidavit are within my personal knowledge. The expert evidence and matters of opinion that I refer to in this affidavit are supported by affidavit.

2.1. Averments of law are based on the advice of my legal representatives.

2.2. Averments concerning the manner in which the law is being applied and the effect of its application are supported by the confirmatory affidavit of Michael Craig Kirchmann, which is one of the affidavits being used in support of this application.

The parties

3. The applicant is the Free Market Foundation (‘the FMF'), a company incorporated in 1975 under s 21 of the Companies Act 61 of 1973 -

3.1. as an independent policy research and education organisation promoting the principles of limited government, economic freedom and individual liberty

3.2. having its head office at first floor, Block 6, Prime Meridian House, Bryanston Gate, 170 Curzon Road, Bryanston, Gauteng.

4. The first respondent is the Minister of Labour (‘the Labour Minister'), cited in his capacity as the minister responsible for the administration of the Labour Relations Act, 1995 (‘the LRA'), care of the State Attorney, SALU Building, Corner 316 Thabo Sehume Street and Francis Baard Street, Pretoria.

5. The second respondent is the Minister of Justice and Constitutional Development, cited in his capacity as the minister responsible for the national legislative process, care of the State Attorney, SALU Building, Corner 316 Thabo Sehume Street and Francis Baard Street, Pretoria.

6. The third to fiftieth respondents, whose full particulars are set out in annexure ‘A' to the notice of motion, are bargaining councils registered as such under s 29 of the LRA.

6.1. These bargaining councils are cited insofar as they may have an interest in the outcome of these proceedings, as more fully appears below.

6.2. An order for costs will only be sought against such of these respondents as oppose this application.

Locus standi

7. The FMF is an independent public benefit organisation founded in 1975 to promote and foster an open society, the rule of law, personal liberty and economic and press freedom as fundamental components of its advocacy of human rights and democracy based on classical liberal principles. Annexed hereto markedHM2, is a copy of FMF's constitution. I also annex hereto marked HM3, a copy of a schedule of members of the FMF.

8. The FMF contends that by reason of the nature of the relief sought in this matter, it has locus standi to bring this application.

Purpose of the application

9. Under the LRA, the primary function of bargaining councils is to conclude and enforce collective agreements (see s 28(1)(a) and (b)) regulating wages and working conditions for a sector (what is termed the ‘economic' classification) and area (the so-called ‘geographic' classification) designated by NEDLAC (s 28(1)(a) and (b) read with s 29(9)). Bargaining councils are also charged with preventing and resolving labour disputes (s 28(1)(c)-(e),(k)); promoting and establishing training schemes (s 28(1)(f)); establishing and administering pension, provident, medical aid or related schemes (s 28(1)(g)); making proposals to NEDLAC on matters of policy and legislation (s 28(1)(h)); and referring certain matters to workplace forums (s 28(1)(j)). In practice, bargaining councils make determinations for the sector or area on wage scales, working hours, training, health and safety, overtime, grievance mechanisms, and rights to participate in workplace or company affairs. Put generally, their powers within the field of labour relations are broad enough to encompass everything within ther field of labour relations short of the outright prohibition of strikes and lock-outs (see s 28(1)(i)).

10. Section 32 of the LRA, which is at the heart of this constitutional challenge, empowers the parties to a bargaining council to impose legally-binding terms and conditions of employment on non-parties within its scope of jurisdiction provided certain preconditions are satisfied. A bargaining council can achieve this outcome by petitioning the Labour Minister to extend a collective agreement concluded under its auspices to non-parties within its scope of jurisdiction. The Minister has no discretion to refuse to heed the request, but is obliged by subs (2) to grant the extension if satisfied that the formal requirements of the section have been met.

11. Two constitutional challenges to the section are mounted in these proceedings. They are directed at the structure and content of the section and are mounted cumulatively.

11.1. The first is based on the fact that the participants in the council are private actors to whom, so it is contended, the state cannot delegate substantive powers of statutory regulation without violating the requirements of the constitution.

11.2. The second is based on the fact that the section, by distorting the provisions of majority rule, permits a minority to coerce the majority into complying with a standard set of terms and conditions of employment.

12. The challenges are by no means inconsequential. The evidence presented in these proceedings shows that the current system of extension, by negating market competition between, on the one hand, a grouping of organized employees and employers who share a common interest and, on the other hand, their counterparts who share no such common interest, erects barriers to entry that operate to the significant detriment of small firms and the unemployed.

12.1. The expert report filed under cover of supporting affidavit emphasizes that trade unions have a natural interest in inflating the benefits their members receive from employment. They can only secure these extra benefits (in the parlance of economists, ‘rents') if they prevent competition by non-members (so-called undercutting). Binding non-members by agreements that, by setting mandatory standards for wages and working conditions, make undercutting impossible is central to their ability to secure these rents for their members. The process of extending agreements helps to achieve this result in profoundly important ways.

12.2. Less obvious, perhaps, but real enough is the fact that some employers, specifically those who are incumbents in the industry, have a comparable interest in inflating the levels at which labour is hired. By these means they increase the costs of production for new entrants and for existing firms who do not share their stance and can be expected to provide them with unwanted competition. Within the collective bargaining arena, therefore, they are predisposed to accept inflated rates if the resulting agreement is made binding on non-party employers. The extent to which they are prepared to make concessions depends ultimately on barriers to entry such as sunk costs and the threat of competition from firms outside the council's jurisdiction (domestic and foreign).

12.3. The results of rent-seeking of this nature are highly prejudicial. Unemployment is made significantly worse and entrepreneurship is retarded to a material degree.

12.3.1. In principle there should be no rent-seeking, but if is to be countenanced at all, then it must be subjected to proper controls if these prejudicial consequences are to be halted and reversed. Proper supervision by the state is necessary.

12.3.2. So is the proper implementation of the majoritarian system, since it becomes more difficult for interest groupings to capture a market if the majority objects. The first requirement - due control - is all but wholly absent under the present system, and the second - proper majoritarianism - is thoroughly distorted. These are the shortcomings in the present system that this application, by invoking the protections in the Constitution, seeks to correct.

13. Broad though the challenges may seem, their ambit remains limited in its scope.

13.1. The FMF accepts, for the purposes of this challenge, that collective bargaining representatives of employers and employees can, either within or outside a bargaining council, legitimately conclude employment-based agreements by which they and their members become contractually or statutorily bound. The right to bargain collectively is enshrined in clause 23 of the Bill of Rights and collective agreements in the sphere of labour relations are specifically exempted from the prohibitions on cartel activity embodied in the Competition Act 89 of 1998.

13.2. Equally acknowledged is the right of third parties (be they employers or employees) to elect, either autonomously or consensually, to adopt and observe the terms of such an agreement in their own dealings with each other. Within a liberal democracy persons engaged in trade are, in principle, entitled to frame their interactions as they choose. There is no breach of this principle if they elect to adopt standards set by others and, in the absence of statutory or contractual barriers, this can be done unilaterally.

13.3. Finally, it is not disputed in these proceedings that the state may, by way of ministerial regulation properly designed to promote the public interest, impose terms and conditions of employment on employers and employees within the economy. Whether this is economically desirable is a matter on which the FMF has considered views, but this is a matter beyond the compass of this application. In addition, the FMF accepts, for the purposes of this application, that the State can, in formulating such regulations, take the counsel of experts and even interest groups such as bargaining councils. What the FMF does say, however, is that the decision on the terms to impose must be that of the State and, under our Constitution, it must be ultimately be actuated by a genuine understanding of the public interest that is informed by a proper application of the tenets of due process. The LRA's breach of these requirements provides a basis for challenge not just through the political process but also through the courts.

14. In their first challenge, the FMF contests the notion that private actors can, without breaching the dictates of the Constitution, be entrusted by law with an autonomous coercive power to impose terms and conditions of employment on others. This is what s 32 achieves by making it obligatory for the Labour Minister to heed a request by a bargaining council, which simply comprises employers' organizations and trade unions, for the extension to non-parties of agreements concluded by them.

14.1. Under this head, the FMF's submission is that, if terms and conditions of employment are to be imposed, this can properly be done only by an organ of state (for present purposes, the Labour Minister) properly charged with a substantive discretion that is to be exercised in the public interest.

14.2. Since the discretion could scarcely be exercised without a proper application of the notice and comment procedures implicit in the audi alteram partem rule, it would have to be preceded by such a hearing.

14.3. The FMF submits that, since no provision is made for the exercise of this discretion and due process in the current system by which agreements are under s 32 extended to non-parties, the section is unconstitutional.

15. If imposing terms and conditions of employment cannot, consistent with the Constitution, be performed by private actors unbounded by ministerial discretion, it is a matter of no consequence that the parties to the agreement happen to represent a preponderance, or even a majority, of the employers and employees in the economic sector concerned. The reverse is true, however, under the second challenge, which proceeds on the assumption that if private actors can set terms and conditions of employment for others, the resulting collective agreements must enjoy the support of the majority of persons who are, following the process of extension, to be governed by it. This is in conformity with the principle that the will of some, if it is to bind all, must represent the majority of all who are to be bound. If the principle is not properly applied, there is a violation of the rights to equality and of freedom of association guaranteed by the Constitution. The FMF submits that provisions of s 32 traduce this principle and, if this argument is correct, the section must correspondingly be struck down as unconstitutional.

History of statutory collective bargaining

16. In a 2007 paper entitled ‘Analysing Wage Formation in the South African Labour Market: The Role of Bargaining Councils' (annexed marked HM4Bhorat, van der Westhuizen and Goga give a useful summary of the history of centralized bargaining in South Africa. It reveals that the industrial council system, the precursor of the current bargaining council system, was established in response to the 1922 Rand Rebellion in order to provide an institutionalised form of collective bargaining in the South African labour market. The central objective of the enabling Act, the Industrial Conciliation Act 11 of 1924, was industrial self-governance through a network of national industry-wide councils within which employer and worker representatives would be encouraged to reach consensus on issues in dispute. The decision to establish a council was left to the parties to decide and so was the scope of its jurisdiction (problems of overlap being resolved by the Registrar).

17. In terms of the statute, the authors explain, employers and employees within the council jurisdiction became bound by and subject to council agreements upon their promulgation by the Minister in the Government Gazette. In addition, the Minister was empowered to extend the agreements to non-parties but he or she retained a discretion on this matter as on the whether to promulgate to extend the agreements to all employers and employees within the jurisdiction of the council. The discretion to promulgate, which was overarching, could only be positively exercised if the Minister was satisfied that the parties to the council were sufficiently representative of the employers and employees within the jurisdiction of the Council. Before the Minister could extend the agreement, he or she had, in addition, to be satisfied that non-parties would otherwise unfairly compete with the parties who were bound.

18. Since pass-bearing Africans were deemed not to be employees for the purposes of the Act, they fell outside its jurisdiction and could not, in consequence, be made the subject of an extension designed to prevent them from competing ‘unfairly'. In order to close this perceived loophole, the legislature passed amendments in 1930 permitting the Minister to subject them, by way of extension, to the wage and working day clauses of council agreements and, in 1937, the power was enhanced to embrace the clause in the agreement in their totality. 

19. In 1925 the Wage Act was introduced as a companion to the Industrial Conciliation Act to provide for a system of wage-setting in the unorganized sectors of the economy. It established a Wage Board to make recommendations on minimum wages and working conditions, but the Minister retained the final discretion on whether a wage determination should be made. This system was expanded in 1981 by the grant of a power to regulate wages mostly at the bottom end of the labour market.

20. Throughout successive iterations of the Act, principally in 1956 and 1981, the Minister's overriding discretion on matters of promulgation remained in place, but upon the enactment of the current statute in 1995, it was removed. Under the present regime, as I have said, the Minister is forced to promulgate a council agreement if satisfied that certain, largely formal, requirements are met.

21. At much the same time, the Minister's power to make wage determinations and labour orders was replaced by a power to make sectoral determinations covering employers and employees falling outside the compass of bargaining council agreements as extended. Under the new statute, the Basic Conditions of Employment Act 75 of 1997 (the BCEA), the Minister initiates an enquiry into conditions of employment in an unorganized sector of the economy and, on the basis of the ensuing recommendations, decides upon the floor of rights, if any, to be imposed on the employers and employees in question. A sectoral determination typically provides for minimum wages and other terms and conditions of Employment. The scope of these determinations and their impact on the labour market, which is extensive, is considered in the Bhorat (annexure HM4) report to which I have referred. Here it is important simply to note that the process is subject to the continuing oversight and scrutiny of the Minister, who at all times acts in the exercise of a policy based discretion (see s 56 of the BCEA). 

The specific provisions governing bargaining council agreements and their extension to non-parties

22. Section 27 of the LRA provides that one or more registered trade unions and one or more registered employers' organisations may establish a bargaining council for a sector and area of the economy. In terms of s 29, the parties can then seek registration of the council, which will be granted provided certain, largely formal, requirements are met. Of these the most important is demonstration, to the satisfaction of the industrial registrar, that the applicant parties are ‘sufficiently representative' of the employer and employees engaged in the sector and area in question (s 27(11)(b)(iv)). Since no definition of ‘sufficiently representative' is contained in the statute, the registrar can, and typically does, treat the requirement as satisfied when the evidence reveals a plurality that falls short (sometimes well short) of a majority.

23. Once the council is registered, its members are by s 28 empowered to conclude and enforce collective agreements within the council's scope of jurisdiction. Collective agreements of this nature can regulate only the relationship between the trade unions and employers' organizations that subscribe to them. By operation of s 21, the agreement becomes binding on the parties who conclude it (which can be fewer than the parties comprising the council) and the members of the signatories if in terms it regulates the employment relationship.

24. Read in isolation, a collective agreement concluded by a bargaining council has no bearing on employers, employees and their collective representatives who are not parties to it (so-called non-parties), but by s 32 its scope of operation can be extended to non-parties if the council requests as much (see fuller analysis below).

25. Collective agreements normally provide for the terms and conditions of employment, such as minimum and actual wage levels, hours of work, overtime arrangements, leave pay provisions, maternity leave, retirement fund and education and training arrangements. The terms of the agreements that regulate these matters, so-called main agreements, are fairly standard. They typically begin by stipulating the scope of the agreement's applicability, then define the posts and skills of personnel whom the agreement regulates, then fix their levels of wages, working conditions and other benefits, and finally deal with details of, enforcement and ancillary matters. I have instructed FMF's attorneys to ensure that a copy of the main agreement of the Motor Industry Bargaining Council (the 3rd respondent in these proceedings) is placed in the court file prior to the hearing of this matter. The purpose of this being to give this Honourable Court an example of a bargaining council collective agreement which has been extended by operation of section 32 of the LRA.

26. By s 31A of the LRA, bargaining councils are vested with the power to enforce their agreements directly and through the conclusion of collective agreements that establish mechanisms and procedures for the purpose. The section gives councils the power to appoint ‘designated agents' with the capacity to issue compliance notices when breaches of the agreement are uncovered. Failures to comply with the notice are referred to an arbitrator appointed by the council or, in the event of objection to the appointee, by the Commission for Conciliation, Mediation and Arbitration. In addition to remedial awards, the arbitrator can exact fines from the defaulting party and order the payment of fees and costs implicit in the arbitral process. The award is final and binding and is executable in precisely the same manner as an order of the Labour Court under s 143.

27. Provision is made for exemptions to be granted from part or all of the obligations of a binding council agreement. Bargaining councils typically make express provision for the grant of exemptions in the agreements they conclude and for appeals against decisions that are adverse. To put the matter beyond doubt, s 32(3)(e) requires the Minister to be satisfied, before extending an agreement to non-parties, that it makes provision for an independent body to hear and decide appeals against the bargaining council's refusal of a non-party's application for exemption or the withdrawal of such an exemption. Subsection (3)(f) pursues the theme by stipulating that the collective agreement, to be eligible for extension, must contain criteria that must be applied by the independent body when it considers an appeal and the criteria y must, in the Minister's opinion, be fair and promote the primary objects of this Act. From this it should be clear that exemptions are not to be had for the asking, but must be motivated by proof of special circumstances demonstrating that the applicant has a deserving case.

The effect of section 32

28. Section 32 is, as I have said, the provision that regulates the extension of bargaining council agreements. Since the constitutionality of the section is at the heart of this application, its provisions and their effect need careful consideration.

29. Subsection (1) provides that a bargaining council may request 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 -

29.1. 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

29.2. 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.

30. Subsection (2) stipulates that, within 60 days of receiving the request, ‘the Minister must extend the collective agreement, as requested, by publishing a notice in the Government Gazette 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.'

31. The relevant portions of subs (3), which is important, read as follows:

‘(3) A collective agreement may not be extended in terms of subsection (2) unless the Minister is satisfied that -

(a) the decision by the bargaining council to request the extension of the collective agreement complies with the provisions of subsection (1);

(b) the majority of all the employees who, upon extension of the collective agreement, will fall within the scope of the agreement, are members of the trade unions that are parties to the bargaining council;

(c) the members of the employers' organisations that are parties to the bargaining council will, upon the extension of the collective agreement, be found to employ the majority of all the employees who fall within the scope of the collective agreement;

(d) the non-parties specified in the request fall within the bargaining council's registered scope;

(e) ...

(f) the collective agreement contains criteria that must be applied by the independent body when it considers an appeal, and that those criteria are fair and promote the primary objects of this Act; and

(g) the terms of the collective agreement do not discriminate against non-parties.

 (4) ...

 (5) Despite subsection (3)(b) and (c), the Minister may extend a collective agreement in terms of subsection (2) if -

(a) the parties to the bargaining council are sufficiently representative within the registered scope of the bargaining council; and

(b) the Minister is satisfied that failure to extend the agreement may undermine collective bargaining at sectoral level or in the public service as a whole.

 (6) ....'

32. It will be observed that the consent of the non-members sought to be bound is not a pre-requisite for the validity of the extension. Indeed, they need not even be consulted on the matter. The members of the bargaining council deliberate on the terms and conditions that they consider appropriate and, upon reaching agreement, decide whether they want the agreement to be extended to non-parties. If, as invariably happens, the decide this question in the affirmative, they simply transmit the agreement to the Minister, who is (subject to what is said below) obliged to make the agreement binding on non-parties within 60 days of receipt of the request. The Minister has no discretion to decline the request on policy grounds and, in particular, may not reject it in the grounds that an extension to non-parties would be against the public interest.

33. The obligation to extend the agreement is imposed by subs (2), which stipulates that the Minister ‘must extend the agreement, as requested, by publishing a notice in the Government Gazette 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.' It is, it will be observed, made subject to a set of formal requirements ostensibly designed to ensure that the agreement has a preponderance of support in the industry or sector that it will govern. Subsection (3) read with subs (5) sets preconditions for extension that, read superficially, appear to invoke the principle of majority rule but on a proper consideration of s 32 are shown to traduce it. There are, however, at least five respects in which the principle of majoritarianism is traduced, as I shall show below.

The first challenge: coercive statutory powers are impermissibly entrusted to private actors

34. Under the first challenge, the FMF contends that it is unconstitutional to empower bargaining councils, which are private actors, to determine the terms and conditions of employment for an industry or sector of an industry without the consent of the parties affected by such an extension (whether through their direct consent or duly represented by employers organisations or trade unions, as the case may be) unless the determination has at least the imprimatur of state approval that proceeds from the exercise of a discretion on the substantive merits of the extension that is designed to promote and advance the public interest.

Elements of the challenge

35. Under this head, the FMF makes five submissions, summarized here and then considered in slightly more detail below.

36. The FMF submits that the current system by which collective agreements are extended violates the following stipulations in the Constitution:

36.1. first, there is a violation of the principle of legality embodied in s 1 of the Constitution, since the current system of extensions constitutes the improper delegation to private actors by the state of core coercive function on matters of consequence;

36.2. secondly, there is a violation of the right to of freedom of association enshrined in s 18, since the current system of extensions obliges persons who are outside the framework of the bargaining council to identify with and subscribe to rules and regulations set without their consent by persons who have no legitimate, responsive and accountable authority over them;

36.3. thirdly, there is an infringement of the right in s 33 to lawful, reasonable and procedurally fair administrative action since the current regulatory framework is being delineated by private actors who may be legally accountable (though this is a matter on which there can only be some doubt), but are certainly not accountable through the democratic political process as organs of state;

36.4. fourthly, there is a violation of the right to dignity in s 8 and fair labour practices in s 23(1), since the current system of extensions obliges employers and employees, actual and prospective, to submit on important matters of self-actualization to the exclusionary diktats of private actors that are undemocratic, unaccountable and beyond state supervision;

36.5. the fifth point, which is allied to the fourth, is that there is a violation of the right to equality enshrined in s 9 of the Bill of Rights since, by failing to vest the Minister with supervisory powers in the public interest, the current system of extensions permits the imposition on non-parties of conditions of employment that, the evidence shows, unfairly discriminates against work seekers and prospective business entrants.

The first point: lawfulness

37. The contention on the first point is that that the statutory grant to employers and unions, qua private actors, of the substantively unconstrained power to determine the working conditions of non-parties constitutes a breach of the principle of lawfulness enshrined in ss 1 and 33 of the Constitution.

38. The lawfulness principle subjects the people of our country to the Rule of Law and, in so doing, locates the powers of coercive government in, and only in, the state. The rule is infringed when the legislature confers on private actors a power unbounded by state control to determine what third parties must do or refrain from doing and compel them to comply. Private actors, in contrast to state officials, are under no duty to act in the public interest, owe no obligation of accountability to democratically elected leaders, and are unconstrained by the principles of judicial review for inter alia rationality and reasonableness. Giving them the power to impose employment terms and conditions on third parties is a breach of the Rule of Law, which forecloses on state action that is actually or potentially arbitrary or capricious.

39. Read as a whole, the Constitution reveals that core functions allocated by it to distinct branches of government cannot simply be removed from those branches and given to outside parties.

39.1. Section 43 of the Constitution provides that the legislative authority of the national sphere of government is vested in Parliament. Section 44 in turn provides that the national legislative authority, as vested in Parliament, confers on the National Assembly the power to pass legislation. Section 85 of the Constitution, which spells out the executive authority of the Republic, provides that the executive authority of the Republic is vested in the President.

39.2. The President exercises the executive authority, together with the other members of the Cabinet, inter alia by implementing national legislation, developing and implementing national policy and performing any other executive function provided for in the Constitution or in national legislation. In the exercise of executive authority, Ministers are given the power to make regulations and promulgate other subordinate legislation in the exercise of their powers. They exercise these principles in a manner that is responsive to political imperatives and, in discharging this function, are accountable to the organs of state and, ultimately, the electorate (cf s 92(2) of the Constitution). Private citizens, who operate under no such constraints, cannot be empowered to exercise these functions in their stead.

40. That private actors cannot be vested with core state powers is evident not just from the general tenor of the Constitution. Section 195 of the Constitution specifically bolsters the point by saddling organs of public administration with specific duties designed to ensure that they pursue the public interest in the way they carry out their functions. If private actors were intended to discharge core government functions, they too would have been saddled with these obligations. That they have not been clothed with these responsibilities is instructive.

40.1. Section 105 provides as follows (emphasis supplied):

‘Basic values and principles governing public administration.

(1) Public administration must be governed by the democratic values and principles enshrined in the Constitution, including the following principles:

(a) A high standard of professional ethics must be promoted and maintained.

(b) Efficient economic and effective use of resources must be promoted.

(c) Public administration must be development oriented.

(d) Services must be provided impartially, fairly, equitably and without bias.

(e) People's needs must be responded to, and the public must be encouraged to participate in policy-making.

(f) Public administration must be accountable.

(g) Transparency must be fostered by providing the public with timely, accessible and accurate information.

(h) Good human resources management and career development practices, to maximise human potential, must be cultivated.

(i) Public administration must be broadly representative of the South African people, with employment and personnel management practices based on ability, objectivity, fairness and the need to redress the imbalances of the past to achieve broad representation.

(2) The above principles apply to -

(a) administration in every sphere of government;

(b) organs of state; and

(c) public enterprises.

(3) National legislation must ensure the promotion of the values and principles listed in subsection (1).

(4) ...'.

40.2. By extending a bargaining council agreement on the request of the bargaining council, the Minister binds a sector of the citizenry otherwise than by their consent (i.e. employer non-members of the bargaining council, employees not represented by member unions and employers and employees who intend entering the affected sector of the market). It is this feature that gives to the decision the essential features of public administration

41. Chapter 8 of the Basic Conditions of Employment Act 75 of 1997 (‘the BCEA') illustrates how the matter might appropriately be regulated if regulation is thought to be necessary. The power it creates to regulate employment conditions through sectoral determinations is given not to private actors but to the Minister. That this is an apt analogy is clear from the fact that such determinations are seen as complementary to bargaining council agreements. So much is plain from the fact that, by s 55(7)(a) of the BCEA, the Minister is precluded from making a sectoral determination on terms and conditions of employment within the scope of application of a bargaining council agreement that regulates equivalent matters.

The second point: freedom of association

42. Under the second point the FMF complains of a violation of the principle of freedom of association in s 18 of the Constitution. The effect of a system sanctioning the extension of bargaining council agreements without policy-based ministerial intervention and supervision is to force non-parties to align themselves with the parties to the council and subscribe to their unconstrained dictates.

43. The formation of a bargaining council by its members is itself an instance of the exercise of the freedom of association. Not only do employers exercise the freedom of association in order to form employers' organisations, and employees to form trade unions, but these two sets of organisations also associate with each other in forming the bargaining council and creating its collective agreement. By exercising their freedom of association in this way, the employer parties of the bargaining council create a set of rules for conditions of employment by which their employer members must abide.

44. Freedom of association includes not only the freedom to associate, but also its necessary corollary, the freedom to dissociate. The freedom to dissociate comprehends the right of one person to decline, whether through operation of law or otherwise, to subscribe to a coerced association with another. Section 32 has this effect by forcing non-parties to submit to the regulatory framework of a bargaining council as if they were members of the council and signatories to its agreements. By compelling non-members to abide by prescribed conditions of a bargaining council whose agreement is extended to them, s 32 in effect negates the freedom of association of those non-members.

45. Whether parties can legitimately be forced to associate when their interests coincide or overlap is an interesting question, but it does not arise here, for the interests of non-parties diverge significantly from those of council parties. Non-parties, being potential as well as actual competitors for business and for jobs, can scarcely be thought to share the interests and aspirations of incumbents in the industry. By a parity of reasoning, the insiders have powerful reasons for wanting to protect their position at the expense of new entrants. Far from being driven into a corral with potential adversaries, therefore, non-parties should have the right to dissociate and pursue their own interests and aspirations separately.

46. Whether the violation of these entitlements constitutes a breach of the principle of freedom of association embodied in clauses 18 and 23 of the Bill of Rights is, once again, a matter of law best left for argument. Here I simply set out the framework of the challenge. Clause 18 of the Bill of Rights provides that ‘everyone has the right to freedom of association.' This right is supported by the provisions of clause 23 of the Bill of Rights, which gives employers and employees the right to establish collective bargaining representatives (trade unions and employers' organizations) and participate in their activities, not least collective bargaining.

The third point: fair administrative action

47. Section 35 of the Constitution stipulates that everyone ‘has the right to administrative action that is lawful, reasonable and procedurally fair.' There are, it is submitted, two components to this right.

47.1. First, in circumstances where coercive administrative powers are vested in a decision-maker, the power must be administrative in nature, that is, must vest in an organ of state or in a person subject to supervision and control by an organ of state. Only then will it be lawfully exercised.

47.2. Secondly, a coercive power must be exercised in a manner that is reasonable and procedurally fair. The decision-maker's concern must be with the public interest before it can be reasonable, and there must be due compliance with the principles of due process (manifestly by way of an application of the requirements of the notice and comment doctrine) before there can be procedural fairness.

48. Neither is present in the instant case.

48.1. The power created by the council's right to demand an extension of a collective agreement vest is private actors, not an organ of state. It is not subject to state supervision and control on matters of substance.

48.2. The power is not being exercised in a manner that is reasonable and procedurally fair. Councils, comprising vested interests as they do, can hardly be expected to act in the public interest, and as a fact do not. In addition, they do not call for representations from non-parties before seeking extensions, nor do they even invite comment on the terms and conditions of employment they seek to impose. To suggest that they act arbitrarily would be to understate the objection: in fact they act in the way that is common to everyone given unfettered and unaccountable powers, that is, in pursuit of their own self-interest. Lord Acton's famous dictum - that absolute power corrupts absolutely - has clamant application in the present context.

The fourth point: dignity and the right to fair labour practices

49. Today, the ability, through work, to give expression to one's creative impulse is all but universally recognized as a vital form of self-actualization. So is the ability to provide for one's own needs and the needs of one's dependents through one's own autonomous efforts. Both are elements of the constitutionally recognized right to dignity and, it is submitted, to fair labour practices.

50. These rights are currently impaired by the current system by which bargaining councils, granted the unfettered right to set employment thresholds through the extension of agreements, create barriers to entry and advancement by third parties. These third parties, it should by now be clear, include workers within the industry who seek advancement through their willingness to work harder and longer than the colleagues in employment with whom they compete for work; small entrepreneurs who seek a comparable advancement through their respective efforts; and prospective employers and employees who cannot enter the industry because the barriers are set too high to make competition viable.

51. Whether ministerial scrutiny will eliminate these problems is a matter to be assessed when the current system is struck down and the appropriate level of scrutiny in reintroduced. Until then, we can only speculate. Once supervision is re-established, however, the exercise of the ministerial discretion will be susceptible to evaluation through the process of constitutional and judicial review and mis-directions and misconceptions will be subject to appropriate correction through judicial review.

The last point of the three: Unfair discrimination

52. The last point, which can only be assessed in the light of the facts, depends upon a comprehensive examination of the facts. In the submissions made below, the FMF shows that the extension of collective agreements without due concern for the public interest significantly retards employment and entrepreneurship. The natural result of this is detriment to the most marginalized people in our society: the unemployed and small entrepreneurs. Whether this constitutes a breach of the principles of equality embodied in clause 9 of the Bill of Rights is a matter for legal argument.

The second challenge: employment conditions are imposed on third parties in breach of the majoritarian principle

53. In mounting the second challenge, the FMF contends that the current system is unconstitutional because it enables parties who are not truly representative of the industry or sector governed by the proposed extension to impose a minority preference on non-parties to the agreement. These derogations from the principle of true majoritarianism enable the parties to a bargaining council to impose their minority preferences on the majority. In principle this is wrong, and its effects on the marginalized members of society are egregious. The derogation from majoritarian principles, by having one or more of the consequences referred to in this paragraph, constitutes a breach of the principles entrenching equality in clause 9 of the Bill of Rights and freedom of association in clauses 18 and 23.

54. I have already said that there are at least five respects in which the provisions of s 32, taken at face value, traduce the principle of majoritarianism. They are the following:

54.1. First, the parties seeking the extension need not represent the majority of employers and employees in the industry or sector concerned. Under subs 32(1) they need merely reflect a preponderance of players - members of the council, separately assessed - that in turn are merely sufficiently representative of the employers and employees in the industry. At best, this will be a majority of a majority.

54.2. Secondly, the extension must be promulgated even though the employees who are members of the trade union signatories do not comprehend the majority of those to be covered. Section 32 (3) does make some provision for testing the agreement's level of support, but includes in the calculation employees whose union representatives may actually have voted against the agreement. The section, to be more specific, does not require the employees who are members of the signatories to be in the majority of those covered, but the members of the parties to the council on the union side taken as a whole. In effect, dissenters are being counted as though they were assenters.

54.3. Thirdly, the numerical strength of the employers (as opposed to the employees) is never tested; instead, what is tested in determining the level of support for the agreement is the cumulative size of their respective work-forces. Subsection (1)(b) stipulates that the employers on the council who join in requesting extension must ‘employ the majority of employees employed by the members of the employers' organisations that are party to the bargaining council'. In similar vein, subs (3)(c) provides that the members of the employers' organisations that are parties to the bargaining council must, upon the extension of the collective agreement, be found to ‘employ the majority of all the employees who fall within the scope of the collective agreement'.

54.4. Fourthly, subs (5) permits the Minister to jettison the requirements of majoritarianism completely if satisfied that the parties to the council are sufficiently representative in the area for which extension is sought and the failure to extend the agreement will undermine collective bargaining at sectoral level. The first requirement is otiose since a council's formation (see above) and continued existence (see s 61(3)(b)) in any event depends of its fulfilment. The second - undermining collective bargaining - is so porous that its observance is all but impossible to police.

54.5. Finally, a close reading of the provisions I have described reveals that the determination of whether the agreement enjoys the requisite level of support is by subss (3) and (5) entrusted to the subjective discretion of the Minister. Whether, as is generally thought, this discretion is generously exercised to ensure that extensions are granted wherever possible is a matter beyond the scope of this application; what is clear is that, being framed subjective, its exercise will generally escape judicial review unless shown to have been irrational or unreasonable.

55. These deviations from the principle of majoritarianism can have potentially far-reaching effects. A hypothetical example, which can scarcely be dismissed as fanciful, reveals as much.

55.1. Assume that an industry with a total pool of 1 000 employers (100 of whom, employing half the employees in the industry, comprise the members of the only relevant employers' organization) and of 50 000 employees (of whom 16 000 are members of Large Union, 9 000 of Middle Union and 5 000 of Small Union, giving a unionized complement of 30 000).

55.2. Assume, further, that in the face of a negative vote by the two smaller unions, Large Union signs an agreement with the employers' organization that, if extended, will govern all the employers and 20 000 of the employees in the industry,

55.2.1. 5000 of whom are members of Large Union, 3500 of Middle Union and 2500 of Small Union (11000 in all);

55.2.2. 12 500 of whom are employed by the members of the employers' organization.

55.3. Under these assumptions, it is plain that the signatories can transmit a request for extension to the Minister since it has received the approval of -

55.3.1. the employers' organization, which comprises employers who, being large, employ more than 50% of the employees employed by member employers, even though nine-tenths of the employers have not been asked to approve it;

55.3.2. Large Union, because it boasts a membership of more than half the totality of members represented by unions on the council, even though three-fifths of the employees in the industry have not been asked to approve it.

55.4. When the Minister receives the agreement for which extension is requested, he or she must promulgate its extension since -

55.4.1. on the union side, more than half the covered employees, 11 000 out of 20 000, are members of one or other of the three unions on the council, even though those covered and represented by Large Union (5 000) are, first, a mere tenth of employees in the industry (5 000 out of 5 0000); are, secondly, a mere quarter of the total number of employees to be covered (5000 out of 20 000); and are, finally, outweighed by the combined representative strength of the two dissenting unions (5 000 compared to a totality of 6 000);

55.4.2. on the employer side, since they employ more than half the employees who are to be covered by the agreement, even though these employees comprise a quarter of the employees in the industry a tenth or less of the employers.

55.5. On top of this, even if the figures were less favourable to the parties to the council, the Minister could still promulgate the extension since he or she need only be subjectively satisfied that the parties to the council are sufficiently representative in the industry and collective bargaining might be undermined if no extension were granted.

56. So far I have been debating the matter as though the constituency within which the assessment must be made is homogeneous and comprises only current incumbents. Neither is a sound assumption.

56.1. The fallacy in the first is exposed by systems in which the need to give a voice to discrete interests is recognized by the erection of separate bargaining units. This explains why the labour relations systems of countries such as the United States of America decline to treat employees as an undifferentiated whole even where they share common employment in the same individual firm. If this is so of employees within a firm owned by a single employer, it is doubly so when the employers and employees are competitors for remunerative work within an industry. In the light of this divergence, indeed conflict, of interest, it is little wonders that no firm in the United States can be compelled, either by law or coercive compacts between management and labour, to enter a multi-party bargaining unit.

56.2. The second may have some force when majoritarianism is being applied on an intra-firm firm basis since the constituency is axiomatically a closed one. The matter is quite different, however, when bargaining takes place over a whole industry, for then outsiders do have a material interest in the terms and conditions that are being imposed on a blanket basis.

57. These outsiders are the employees and employers who seek but have yet to gain entry into the industry. They deserve to be polled as part of the constituency but cannot be, since they comprise a mere potentiality. The only way their voice can be heard in a system such as the present through their democratically elected representatives. It need hardly be said that this important point re-emphasizes the first objection to the current system: namely, that it is a requirement of a properly constructed rechstaat that the imposition of coercive regulatory obligations, terms and conditions of employment not least, should be subject to state scrutiny and control in the public interest.

The effects of the current system

58. In consequence of the reduction in competition over wages and working conditions brought about by the current, improperly structured, system by which agreements are extended, bargaining councils can generate employment standards that are unrelated to prevailing market forces. This contributes towards the erection of barriers to entry by firms and workers who would otherwise seek to compete in the market in question. In addition, it means that employers currently engaged in the market are able to retain only those workers whose productivity, skills and experience justify the higher wages, and must retrench the rest. In short, giving bargaining councils a power to extend agreements unfettered by state control and unconstrained by the imperatives of true majoritarianism retards competition over wages and working conditions and so creates an economic environment that operates to the detriment of small firms and lower-skilled workers (the unemployed especially). Since these are the most marginalized actors in our economy, which is plagued by unemployment and its consequences, they deserve and, it is submitted, are entitled to due protection under the Constitution. Insisting up a proper system by which council agreements might be extended would, by helping to secure the proper interplay of market forces in the labour market, tend to generate a result that would improve their lot and promote the interests of the consumer.

59. In his expert report which, together with his qualifying affidavit which forms part of this application) Professor Neil Andrew Rankin examines the structure of the system of collective bargaining within bargaining councils and the consequences of extending council agreements to non-parties. He endorses the allegations contained in this affidavit and concludes by emphasizing that the people who most immediately suffer the prejudicial effects of the system are those who comprise the most marginalized sector of our economy.

60. In this court, I submit, it is unnecessary for the FMF to provide proof positive on the extent of the harm being suffered as a result of the current system by which bargaining council agreements are extended. In this context it is enough to show that the effects are not de minimis. I submit that no one who is properly informed on the issue could conclude that the extension of bargaining council agreements is an important facet of our collective bargaining regime and that its effects, however beneficial they may be for those within the system, are materially prejudicial to outsiders that are at the margins of our society. The expert evidence on the point is sufficiently clear to demonstrate this fact. 

Conclusion

61. Accordingly, the FMF prays for the relief contained in the notice of motion to which this affidavit is annexed.

_____________________________

HERMAN MASHABA

Signed and sworn to before me at Johannesburg on this the 4th day of March 2013, the deponent having acknowledged that he/she knows and understands the contents of this affidavit, has no objection to taking the prescribed oath and considers the prescribed oath binding on his/her conscience.

___________________________

COMMISSIONER OF OATHS

Source: Free Market Foundation.

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