Bargaining Councils – Are they the cause of business closures?

According to the Labour Relations Act, Bargaining Councils are a forum for Collective Bargaining between one or more registered trade unions and one or more registered employer organisations on matters like wages and working conditions. A Bargaining Council can apply for an extension of any Collective Agreement reached through Collective Bargaining by parties involved, to include all employers in a specific sector, irrespective of whether they are part of the Bargaining Council. All employers would therefore be bound to comply with a specific Collective Agreement, whether they participated in the Collective Bargaining or not. These extensions can be challenged by employers, but they are not always successful.

The motivation behind the establishment of Bargaining Councils was to give smaller parties more negotiating power when they face bigger and more established businesses and unions. The hope was that this would lead to better compliance and governance of industrial relations and, consequently, peace in the workplace.

The intended benefits of Bargaining Councils include assistance with the creation and enforcement of Collective Agreements that are mutually beneficial to all parties involved. In many instances, Bargaining Councils have proven to do just that.  They are also able to provide valuable know-how on Industrial Relations, especially in smaller companies where they might not possess the necessary expertise. Bargaining Councils can assist in solving labour disputes where employers, unions and employees are not able to find a solution on their own, contributing to better relationships between all parties. And they are even able to establish and manage certain schemes or funds that can benefit all their members.

However, the benefits associated with Bargaining Councils are not experienced the same way by all the different role players and are also greatly influenced by factors such as the economic climate, the specific type of industry and the structure and nature of the Bargaining Council.

A study done by the Swiss Programme of Research and Global Issues for Development in South Africa in 2017 found that many employees are actually earning less than the prescribed minimum wage, which indicates that some Bargaining Councils might not be effective in enforcing its Collective Agreements. Consequently, some employers might be complying with these Agreements and paying minimum wages to their employees, whilst others pay well below the minimum wage and therefore have an unfair advantage in lower operating costs.

The study also found that new Collective Agreements set and implemented by Bargaining Councils can actually decrease employment, instead of promoting it.  In instances where employers comply with minimum wage rates, they might become less competitive due to higher operational costs. These companies are not able to compete with international companies that are able to keep their labour costs at a minimum. As a result, they are forced to either reduce their labour force and become more capital intensive, export jobs to low-wage countries, or simply shut down all operations.

The South African Chamber of Commerce and Industry found that Small and Medium Enterprises (SME’s) are often more negatively affected by Bargaining Council Agreements. The slow pace at which agreements are reached through the Bargaining Council has a negative impact on the flexibility of companies to adapt to changing circumstances, especially during the COVID pandemic. Small businesses are also often not able to participate effectively in Collective Bargaining, due to a lack in necessary expertise or even time to attend Bargaining Council meetings. Consequently, they do not feel like their interests are effectively represented at the Bargaining Council.

Our opinion is that whilst Bargaining Councils have an important role to play in effective Collective Bargaining and the establishment of fair Labour Practices, the structure and practice of the Bargaining Council will need to become more innovative and flexible, in order to adapt to a changing environment. If they fail to adapt, Bargaining Councils will continue to play a big role in the closure of businesses, especially for small and medium companies.

Picture of Miekie S

Miekie S

Director of Operations

LE Consult Group