President Ramaphosa signed the Employment Equity Amendment Bill into law this week. It is probably unconstitutional, and will leave the country worse off, not better.
In the wake of the indefensible inequality created by apartheid segregation, the Employment Equity Act (EEA) of 1998 prescribed affirmative action policies for companies with more than 50 employees or a turnover higher than a sector-dependent threshold.
At the time, using race as a proxy for disadvantage seemed reasonable, but this proxy, like the Act itself, has outlived its usefulness.
The 1998 Act required these ‘designated’ companies to prepare an employment equity plan in consultation with employees, to pursue demographic representivity targets at all levels of staff and management, and then report annually to the government on its progress towards achieving those self-imposed targets.
Failure to adhere to the submitted plans could lead to substantial fines of between R500 000 and R900 000.
Attempts to implement section 53 of the Act, which requires companies to comply with their employment equity plans if they want to bid for government contracts, have been struck down by both the Supreme Court of Appeals and the Constitutional Court as being inconsistent with the Preferential Procurement Policy Framework Act (PPPFA), which takes precedence over the EEA.
The EEA initially appeared to succeed in drawing previously disadvantaged people into predominantly white-owned and -staffed businesses, although it is arguable that some large companies were grooming black people for career advancement long before apartheid finally fell and the EEA was promulgated.
Hit the limits
It didn’t take long, however, before the Act hit its limits.
Thanks to an appalling history of poor education, first under the apartheid regime and then – damningly – under ANC rule, the pool of ‘suitably qualified’ candidates simply did not grow as fast as employers would have liked to accommodate them.
The result was that affirmative action candidates could command far higher salaries than anyone else, because they were in short supply. Companies simply couldn’t find enough suitably qualified people.
The EEA may have established a new elite out of a small minority of previously disadvantaged individuals, but was unable to make significant inroads among the vast majority of presently disadvantaged citizens of our country. To do so would take far broader measures, starting with radical reform of the education sector.
It was with this problem in mind that the Institute of Race Relations (IRR) launched its campaign promoting Economic Empowerment for the Disadvantaged as an alternative to black economic empowerment and affirmative action.
Recognising that righting the wrongs of the past is both noble in itself and critical to good relations among South Africans, it noted that race-based empowerment and affirmative action policies were failing to work as advertised.
Race as a proxy
One of the core objections to the existing legislation was that it was openly and crudely based on race and gender. It benefited people not because they were disadvantaged and merited advancement, but because of the colour of their skin or the contents of their pants.
It also placed a costly burden upon companies, not only to develop, implement and monitor affirmative action commitments, but also because for many reasons, including education, skills and individual choices, the available pool of potential employees rarely matches the demographic makeup of the country, or even the region.
Race-based legislation created a wealthy black elite, but it also enabled the establishment of a crony-capitalist patronage network that would so thoroughly corrupt the state. More importantly, perhaps, it achieved little to address the inequality and poverty in the country.
Quotas in all but name
Instead of going back to the drawing board, however, the ANC has doubled down. After years of promising not to impose race quotas on companies, the newly passed Employment Equity Amendment Act (EEAA) does exactly that.
It doesn’t say those quotas must be fulfilled immediately, which is how they get away with calling them ‘targets’ rather than ‘quotas’, but quotas is what they are.
Thulas Nxesi, the Minister of Employment and Labour described the amended Act as a ‘more aggressive strategy’. It empowers him to set affirmative action ‘targets’ for entire sectors or regions. Companies will have to ditch their own targets, and adopt the sectoral or regional targets imposed upon them, no matter the circumstances or the availability of qualified employees.
The EEAA also re-introduces the pre-qualification requirement, insisting that companies must produce an EEA compliance certificate before they are entitled to bid on government contracts.
This still violates the PPPFA, which still takes precedence over the EEA, and still violates the court rulings that struck down such a pre-qualification scheme.
On the face of it, it also violates section 217 of the Constitution, which requires government contracts to be awarded ‘in accordance with a system which is fair, equitable, transparent, competitive and cost-effective’.
Pencil test
Like the previous Act, the newly amended Act will require employers to perform racial classification on their employees. This violates the privacy of the employees and the imperatives in the Constitution requiring non-racialism.
Since a substantial part of today’s labour force was never classified by race under apartheid, and modern identity numbers no longer contain racial classification data, this essentially re-introduces the ‘pencil test’.
What is a company to do if someone identifies as a race other than how they appear? Imposing such vague requirements upon companies violates the rule of law and opens the EEA up to abuse.
In any case, achieving demographic representivity within individual private companies was never contemplated in the Constitution. It does require ‘broad representivity’ in the public sector in section 195, but that section does not apply to the private sector.
Another clause which violates the rule of law is the ‘trumping provision’, which says that if any other legislation conflicts with the EEA, the EEA takes precedence. The problem is that conflicting legislation such as the Black Economic Empowerment Act (BEEA) also contains a trumping provision, which insists that the BEEA should trump conflicting law.
Circularity in trumping provisions is an absurdity and undermines the certainty required by the rule of law.
Precedent
The equality clause in the Constitution prohibits unfair discrimination on the basis of race and other characteristics, but it adds: ‘To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.’
This is the core justification for any laws that establish preferential treatment for certain races, genders, or physical abilities.
However, the Constitutional Court in Minister of Finance v Van Heerden established a three-fold test to determine whether a measure complies with that clause in the Constitution.
The first is whether the measure targets persons or categories of persons who have been disadvantaged by unfair discrimination. The EEAA does not target the vast majority of poor black people, but only targets a small minority of those who are employed and are suitably qualified to occupy management or other senior jobs. It is hard to make the case that those who qualify for the EEAA’s intervention are still disadvantaged by unfair discrimination.
The second is whether the measure is designed to protect or advance such persons or categories of persons. It might advance the narrow group that do gain employment or promotion as a consequence of the Act, but it will throttle investment, economic growth and job creation, which will actively disadvantage those who are presently most disadvantaged.
Thirdly, the measure should promote the achievement of equality. The establishment of a new black elite has done nothing to achieve equality for the great majority of people who live in poverty and unemployment.
On the contrary: it has significantly widened inequality in South Africa by comparison with the apartheid era. The new amendment will not change this in any significant way.
Monstrous penalties
A further objection can be raised against the penalties for non-compliance, which can reach R2.7 million or 10% of a company’s turnover, whichever is larger.
Largely because of the heavy bureaucratic burden the ANC already lays upon companies, and its inability to provide basic services such as electricity, there are few companies that enjoy profit margins fat enough to cover such a monstrously large fine.
Fines this draconian pose a significant existential risk to many companies. Bankrupting them kills the goose that lays the golden employment eggs.
The only positive development I could find in the EEAA is the repeal of the turnover thresholds above which companies with fewer than 50 employees would have to comply with the EEA. Now, no companies with fewer than 50 employees will have to comply.
This reduces the regulatory burden on small companies, although one shouldn’t forget that regulatory burdens on larger companies are equally inimical to their growth and ability to create jobs.
Popcorn
Once again, the government will find itself in court over ill-considered, counter-productive, race-based legislation.
The IRR has opposed this amendment for years, and last year submitted a detailed exposition of its flaws to the President.
It has now written to the president to question why its arguments were not considered, and has vowed to continue the fight in the courts, if necessary.
The trade union and civil rights group Solidarity has likewise declared itself ready for a legal battle over the newly amended Act, and the largest opposition party, the Democratic Alliance, has promised to join Solidarity in this action.
Bring the popcorn.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, support the Daily Friend
Photo by Timon Studler on Unsplash