SUBMISSIONS ON THE PROPOSED EXTENSION OF THE SCOPE OF SECTORAL DETERMINATION 2, CIVIL ENGINEERING SECTOR
- Introduction
1.1These submissions are prepared in response to the notice, published in Government Gazette Notice No. 34980 of 27 January 2012,to review the feasibility of extending the scope of Sectoral Determination 2, currently applicable to the Civil Engineering Sector, to the Building and Construction Sector.
1.2These submissions deal with:
1.2.1the background to the issue at hand;
1.2.2the legislative framework applicable to sectoral determinations;
1.2.3the nature of the Building and Construction Industry and Civil Engineering Industry in South Africa;
1.2.4the reasons for objecting to the contemplated extension of the scope of Sectoral Determination 2 to apply to the Building and Construction Industry.
1.3The MBA in KZN intends to make oral representations as well, at the public hearing scheduled for 9 May 2012, when it will develop and expand on the issues raised in these representations.
- Background
2.1The Minister of Labour published Government Gazette Notice No.34980 of 27 January 2012 (“the Notice”), in terms of section 52(3) of the Basic Conditions of Employment Act 75 of 1997 as amended (“the BCEA”).
2.2The Notice provided for the commencement of a review into minimum wages and conditions of employment, and the feasibility of extending the scope of Sectoral Determination 2 applicable to the Civil to Engineering Sector to cover the Building and Construction Sector.
2.3The terms of reference of the review are:
To review wages, conditions of employment and the feasibility of extending the scope of Civil Engineering Sector to cover the Building and Construction Sector in the Sectoral Determination 2, Civil Engineering Sector, South Africa.[1]
2.4Interested parties were given the opportunity to make written submissions within 60 days of the date of publication of the abovementioned notice.
- Legislative framework applicable to sectoral determinations
3.1The Minister of Labour has powers to make sectoral determinations in terms of chapter 8 of the Basic Conditions of Employment Act 75 of 1997 (‘BCEA’).[2]
3.2Section 51(1) of the BCEA provides that “the Minister may make a sectoral determination establishing basic conditions of employment for employees in a sector and area.”
3.3This is made in accordance with the provisions of that chapter of the BCEA and by notice in the Gazette.[3]
3.4Before the Minister can make a sectoral determination, however, she is required to direct the Director-General to investigate conditions of employment in a sector or area.[4]
3.5The terms of reference must include the matters referred to in section 52(2) of the BCEA.
3.6Section 52(3) of the BCEA requires the Minister of Labour to publish a notice in the Gazette setting out the terms of reference of the investigation and inviting written submissions from members of the public.
3.7The Director-General directed to conduct an investigation in terms of section 52(1) of the BCEA must prepare a report on completion of the investigation, and after considering representations made by members of the public.[5]
3.8A copy of this report must be sent to the Commission on Conditions of Employment for consideration.[6]
3.9The Commission on Conditions of Employment must in turn consider the Director-General’s report when advising the Minister of Labour on the publication of a sectoral determination, and must also consider the following in connection with the sector or area:
(a)the report prepared in terms of subsection (1);
(b)the ability of employers to carry on their business successfully;
(c)the operation of small, medium or micro-enterprises, and new enterprises;
(d)the cost of living;
(e)the alleviation of poverty;
(f)conditions of employment;
(g)wage differentials and inequality;
(h)the likely impact of any proposed conditions of employment on current employment and creation of employment;
(i)any other relevant information made available to the Commission.[7]
3.10The Minister may then make a sectoral determination in respect of one or more sectors and areas, after taking into account the report and recommendations of the Commission.[8]
3.11If, however, the Minister does not accept a recommendation of the Commission, she may refer the matter back to the Commission for its reconsideration, indicating matters of disagreement.[9]
3.12A sectoral determination may apply to all or some of the employers and employees in the sector or area.[10]
3.13The Minister is precluded from publishing a sectoral determination in the following instances:
(a)covering employees and employers who are bound by a collective agreement concluded at a bargaining council;
(b)regulating any matter in a sector and area in which a statutory council is established and in respect of which that statutory council has concluded a collective agreement;
(c)regulating any matter regulated by a sectoral determination for a sector and area which has been in effect for less than 12 months.[11]
3.14A sectoral determination remains in operation and binding until it is amended or superseded by a new or amended sectoral determination or is cancelled by the Minister.[12]
3.15In addition, if a collective agreement envisaged in section 55(6)(a) or (b) is concluded, the provisions of the sectoral determination cease to be binding on employers and employees covered by the collective agreement.[13]
3.16The provisions of the sectoral determination take precedence in circumstances where a matter regulated in the BCEA, is also regulated in the sectoral determination.[14]
- The nature of the Building Industry and Civil Engineering sector in South Africa
4.1Construction in South Africa has traditionally been recognised as comprising two distinct business sectors: the Civil Engineering Sector, and the Building and Construction Sector.
4.2The Building and Construction Sector involves the erection, completion, and renovation of buildings and structures.
4.3The Civil Engineering Sector, by contrast, involves the carrying out of work of a civil engineering character and includes such work in connection with one or more of the following activities:
(a)The construction of aerodrome runways or aprons; aqueducts; bins or bunkers; bridges; cable ducts; caissons; rafts; or other marine structures; canals; cooling, water or other towers; dams; docks; harbours; quays or wharves; earthworks; encasements; housing or support for plant, machinery or equipment; factory or works chimneys; filter beds; land or sea defence works; mine headgear; pipelines; piers; railways; reservoirs; river works; roads or street; sewerage works; sewers; shafts or tunnels; silos; sports fields or grounds; swimming baths; viaducts or water treatment plants;
(b)Excavation work or the construction of foundations, levelling or paving of parking areas, pavements, roads, streets, aerodrome runways or aprons, premises or sites; and further includes-
(i)Any work of a similar nature or work incidental to or consequent on any of the aforesaid activities; and
(ii)the making, repairing, checking or overhauling of tools, vehicles, plant machinery or equipment in workshops which are conducted by employers engaged in any of the activities referred to in subclauses (2)(a), (2)(b) and (2)(c);
but excludes-
(aa) Work in connection with any one or more of the activities specified in subclause (2)(b) where such work, when undertaken in connection with the erection of structures having the general character of buildings and irrespective of whether or not such work involves problems of a civil engineering character, is carried out by the employers erecting such structures;
(bb) work in connection with any one or more of the activities specified in subclause (2)(c) when undertaken as an incidental operation in connection with the erection of structures having general character of buildings or when undertaken by the employers erecting such structures;
(cc) any work falling within the scope of the Iron, Steel, Engineering and Metallurgical Industries as defined in the Main Agreement of the Bargaining Council for that Industry.[15]
4.4There are material differences between the collective bargaining structures that have evolved over time in these two sectors.
4.5The Civil Engineering Sector has established a single bargaining forum on a national basis. The National Bargaining Forum (“NBF”) consists of the South African Federation of Civil Engineering Contractors (“SAFCEC”) representing employers, and the National Union of Mine Workers (“NUM”) and Building Construction and Allied Workers’ Union (“BCAWU”) representing labour or workers.
4.6This forum was established in 1996, and has traditionally concluded wage negotiations for periods of three years at a time. It enjoys full recognition, with participation by the only employer organisation, and the two major trade unions in the sector.
4.7However, the bargaining forum lacks the levels of representativeness that would be necessary to establish a bargaining council in the sector.
4.8Despite this, collective bargaining agreements concluded in the NBF have traditionally been taken into account in the making of sectoral determinations in terms of the BCEA. Provisions not incorporated in the sectoral determination have remained binding only as between parties to the NBF.
4.9By contrast, collective bargaining in the Building and Construction Sector has historically been divided geographically. Regional bargaining structures have, in some provinces, been sufficiently representative in the sector to establish bargaining councils. In other provinces, bargaining councils have either ceased to be representative or have not reached the levels of representativeness necessary for the establishment and continuation of bargaining councils.
4.10In the 1990s, there were ten regional bargaining councils in the sector, but some of them have since ceased to exist as bargaining councils. Bargaining councils with regional scope which remain in the sector include inter alia; North and West Boland, Bloemfontein, Cape Peninsula, Boland, East London and Southern and Eastern Cape.
4.11The Master Builders Association in KZN is an employers’ organisation registered under the provisions of the Labour Relations Act. Its membership comprises employers in the Kwazulu Natal building industry.
4.12The KZN MBA currently has 714 members, and is affiliated to the Master Builders Association nationally, which is in turn a member of Business Unity South Africa (“BUSA”).
4.13There are a number of other regional master builders associations across the country affiliated to BUSA in the same manner as the KZN MBA.
4.14The KZN MBA is currently not party to a bargaining council structure. It is however, willing to engage with organised labour on the terms and conditions of employment and minimum rates in the industry within the KZN region.
4.15One of the consequences of the separate collective bargaining history in each of the sectors is that grading and differentiation between employees on the one hand, and the wage levels and conditions of employment on the other, have evolved differently in each sector.
4.16There are, in addition, material differences in the cost structures in the civil engineering and building industries. It is estimated that in the building industry, labour accounts for 35% of production costs while in the civil engineering sector, labour accounts for approximately 10% of costs.
4.17As a result of these and other structural differences in the sector, there are significant differences in minimum wage levels in the two industries.
4.18There are, in addition, differences in the grading structures used in the two industries, so that direct comparisons in wage rates and other conditions of employment cannot easily be achieved.
4.19Any sudden change or consolidation is likely to lead to significant shocks to the building and construction industry.
4.20As yet, there has been no meaningful investigation into the effect on businesses in the building industry or on employment levels in that sector. Without a proper regulatory impact assessment, the consequences of a change of this kind are simply unknown.
4.21There are, however, very clear risks of significant closures of small businesses, with loss of employment on a large scale in a segment (small and medium businesses) which the government has made a key focus of economic stimulation and job creation efforts in its recent policy pronouncements, including both the National Growth Plan and the report of the National Planning Commission.
- Summary of main reasons for opposing the extension of sectoral determination 2 to cover the building and construction sector
5.1There are a number of reasons why the KZN Master Builders Association opposes the extension of sectoral determination 2 to the Construction and Building Industry. These are summarised in the paragraphs below.
5.2The existence of bargaining councils in various regions in the building and construction sector means that extending the sectoral determination in the way contemplated would result in significant regional fragmentation, with different standards applying in the building industry in different regions. This is undesirable in principle and would result in further fragmentation of the industry.
5.3An extension of current minimum rates in the civil engineering sector may have the effect of literally doubling the rates currently paid in the industry. This would be likely to result in construction companies being forced to close or scale down their operations on the grounds of the sudden and significant increase in labour cost.
5.4This would in turn also be likely to result in job losses at a time when the country is struggling to preserve and grow the number of jobs.
5.5These effects would have a very significant impact in particular on small, medium and micro businesses.
5.6In stark terms, the industry may not survive if it had to pay the same rates currently outlined in the sectoral determination for the civil engineering sector.
5.7Government has planned for large infrastructure spending and its targets and objectives on this score may be materially undermined if this occurred.
5.8This would, in turn, have an adverse effect on the goals of the NGP and NPC in so far as infrastructure is concerned.
5.9 The approach of the MBA in KZN is that it is not opposed to a regulated wage, provided that this is set at reasonable levels having regard to the history of the sector, the needs of the economy, and each of the further considerations set out in section 54(3) of the BCEA.
5.10The MBA in KZN supports the objective of decent work and fair labour practices in the industry, and is committed to addressing concerns about vulnerable workers employed in the sector. It is, however, crucial to address these issues through measures that do not result in the building industry becoming unsustainable, with the resulting loss of employment.
5.11In summary, a sudden and dramatic increase in wage rates in the building industry would have very significant adverse effects on the viability of many employers in that sector, particularly among small, micro and medium enterprises. It would almost certainly result in significant job losses.
5.12The full extent of this impact can only be determined by an appropriate, properly conceived and conducted regulatory impact assessment. The MBA in KZN strongly recommends that an assessment of this kind be conducted before any further step is taken toward extending the provisions of sectoral determination 2 to the building industry.
5.13That assessment would take into account the possibility of resulting consolidation in the construction industry, with only large players being able to compete on a profitable basis, and the likely consequences of this, in turn, for black economic empowerment in the industry and the viability of small and medium enterprises.
5.14For these reasons, the KZN MBA opposes an extension of the kind being contemplated.
5.15The KZN MBA and its members are embarking on a process of discussing the conditions of employment and the minimum rates in the KZN Building Industry, and need more time to formulate more detailed proposals in this regard. The organisation is committed to engaging with the Department to further these objectives.
[1] Government Gazette No 34980 of 27 January 2012 at p5.
[2] See sections 51-58 of the BCEA. Section 52(2) requires the Minister to determine the terms of reference for the investigation, which must include-
(a)The sector and area to be investigated;
(b)The categories or classes of employees to be included in the investigation; and
(c)The matters to be investigated, which may include matters listed in section 55(4).
[3] Section 51(2) of the BCEA.
[4] Section 52(1) and (2) read with sections 53 of the BCEA
[5] Section 54(1) of the BCEA.
[6] Section 54(2) read with section 54(4) of the BCEA. The Commission must also prepare a report to the Minister in terms of section 54(4) of the BCEA.
[7] The Commission must then prepare a report to the Minister making recommendations on the proposed sectoral determination of any sector or area, see section 54(4).
[8] Section 55(1) read with section 55(4) of the BCEA.
[9] Sections 55(1) and (3) of the BCEA.
[10] See section 55(5) and (6) of the BCEA for exclusions and limitations on application of sectoral determinations.
[11] Section 55(7) of the BCEA.
[12] Section 56(1) of the BCEA.
[13] Section 56(2) of the BCEA.
[14] Section 57 of the BCEA.
[15] Clause (1) (a) to (c) of Sectoral Determination 2.