One aspect of the new Employment Equity Act (EEA) – that its singular advantage is that it exempts all businesses with fewer than 50 employees – has been widely discussed, but on a kind of data-free basis.
The new EEA, signed into law last month, allows Labour and Employment Minister Thulas Nxesi to set racial “numerical targets” to pursue goals “at all levels of the workforce”; it effectively reintroduces racial no-entry criteria for government tenders; and employers may be delegated the odious “pencil test” duty of second-guessing workers’ racial self-identification.
Then comes the big but. The famous caveat is that the EEA now exempts all businesses with fewer than 50 employees. This get-out-of-EEA card is arguably the amended law’s most advertised drawcard.
Last year, for example, this News24 report described the forthcoming EEA as a “mixed bag, making compliance less onerous for small business”. Labour law expert Asma Cachalia of Cliffe Dekker Hofmeyr said she was “optimistic that the [exemption] amendment relating to small businesses can improve job creation”.
The EEA’s racial red tape is, indeed, “onerous” so that any exemption does improve “job creation”. We would add that according to every opinion survey commissioned by the Institute of Race Relations (IRR), unemployment is the country’s number one problem, that most respondents say that with more jobs and better education the inequalities between races will disappear, and that roughly 80% of black respondents prefer jobs to be appointed by merit than by the kind of racial criteria that may be forced under the new EEA.
The exemptions therefore matter, and this report in The Citizen leaves no doubt about exactly how important the EEA exemptions are. “First, and most importantly, is there will be less legislation to comply with for businesses employing fewer than 50 people…[emphasis added]”. The “most important” thing about the EEA is, curiously, the part where it does not apply.
SERR Synergy, another race-law compliance legal company, headlined their release on the topic “[EEA] eases regulatory burden for small businesses”. The “advantage of the new Amended Bill will be that it has little regulatory impact on smaller employers”, which is “a welcome relief from the regulatory burden” and “will enable these companies to focus instead on other challenges”.
Here is the Legal Academy, which trains attorneys, with a press note to say that “Justice & Constitutional Development Deputy Minister John Jeffery has drawn attention to clauses in the Employment Equity Amendment Bill often overlooked in the media”. All these “overlooked” clauses are about one thing: the grand new EEA exemptions.
Actually the Legal Academy was quoting a speech by Deputy Minister of Employment and Labour Boitumelo Moloi, not Jeffery. In the same speech, Moloi said the new EEA exemptions create “a conducive environment for investment and for small businesses to grow and create jobs”.
If the exemptions are so good for creating jobs why not exempt more? We have written to ask Moloi that question as well as whether her department has any idea how many businesses are actually affected by the new EEA definition of “small” business, and will report her answers.
Roman Cabanac and Byron Shepherd, co-hosts of the Morning Shot, claimed that the exemptions will practically apply to almost any business that wants them. “BEE is basically dead” they say. Cabanac said that what the EEA “has done to BEE is to basically stomp it out of the business world for, like, 90 percent of businesses in South Africa…This is very good news.”
Their argument is that 80% or 90% of businesses already have fewer than 50 staff and the rest can just franchise, decentralise, subdivide and basically employ legal experts to earn them the much-vaunted “exempt” status by restructuring themselves into smaller units so that they can “grow jobs” too.
Data-Free
Here is the first catch. Nobody knows how many small businesses are actually affected by the new exemptions. The official Socio-Economic Impact Assessment does not get close to an estimate. When we wrote to Cliffe Dekker Hofmeyr to ask them for their estimate of the number of businesses affected by the new exemptions, they replied: “Thank you for reaching out. Unfortunately, we are unable to assist with the below.”
To be fair, it is difficult to estimate how many businesses are newly exempted. To start with, small businesses were actually always exempted. All that changed is the definition of “small business” in a very marginal way. In the past a company with fewer than 50 employees and annual turnover under some sectoral limit was considered to be “small”. In 2014 the turnover limits ranged from R6 million (agriculture) to R75 million (wholesale), with allowance for inflation increases over time.
What changed with the new EEA is that a business with 30 staff making R76 million is now in the “small” club, too. What we would call big bucks small businesses have joined the rank and file of the previously exempt. These are the only winners from the new EEA exemptions.
We are happy for them; no one should suffer under race law. But it seems unlikely that these big bucks small businesses make up 1%, or even 0.1%, of all local businesses. And the remaining staff limit means they will have to automate, go offshore, or basically cook the books to grow. Not nice choices.
Labour
The data comes into play when one asks, what about the workers?
The Small Business Institute Baseline Study dates back to 2016, but it almost uniquely defines “small business” as those with fewer than 50 employees, making the research invaluable.
The SBI found that 84% of the workforce works in businesses with 50 employees or more. At the time that meant 11 330 000 workers in companies that are not exempt under the new EEA.
Minister Nxesi now has roughly 85% of the workforce in his racial “numerical targets” grip to implement what he calls a “more aggressive strategy”.
Without these data, advertising the new exemptions is like legend building, a matter of launching a grain of truth into an abstract plane detached from reality. Moreover, nobody knows how many of the other 2.2 million workers are in small businesses that were already exempt before the new EEA, but we wager they are the vast majority.
Conclusion
The government has already run some of the public sector under the “Barnard Principle”, which states that it can be better to keep a position vacant than miss a racial “target”. The public sector is less than 10% of all workers, but the knock-on effect for those outside the “Barnard” targets has been noticeable. For 85% to fall under the “Barnard Principle” would be more noticeable.
The handful of newly exempt businesses need not ask for whom the race bell tolls. Recall those ambitious lawyers who finally got to sip free champagne from crystal to the tune of desperately merry violins while the icy Atlantic lapped the Titanic’s ballroom floor. It was the last thing they ever did.
Support the IRR’s campaign against these onerous and job-destroying regulations by visiting our campaign page.
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