President Cyril Ramaphosa has signed the Employment Equity Amendment Bill into law
President Cyril Ramaphosa signed the Employment Equity Amendment Bill into law this week, but some experts believe the new legislation may be unconstitutional and could ultimately harm the country rather than help it.
After apartheid segregation created indefensible inequality, the Employment Equity Act (EEA) of 1998 prescribed affirmative action policies for companies that employ more than 50 employees or that has a turnover above a sector-dependent threshold. The use of race as a proxy for disadvantage was deemed reasonable at the time, but it has since outlived its usefulness.
The 1998 Act required “designated” companies to create an employment equity plan in consultation with employees, pursue demographic retrospectivity targets at all levels of staff and management, and report annually to the government on their progress. Failure to adhere to these plans could result in substantial fines ranging from R500,000 to R900,000.
Attempts to implement Section 53 of the Act, which required companies to comply with their employment equity plans if they wanted to be eligible for government contracts, were deemed inconsistent with the Preferential Procurement Policy Framework Act (PPPFA) by both the Supreme Court of Appeals and the Constitutional Court and was therefore struck down.
The EEA appeared to have initially succeeded in drawing previously disadvantaged people into predominantly white-owned and -staffed businesses, although it can be argued that some large companies were grooming black people for career advancement long before apartheid fell, and the EEA was enacted.
The Employment Equity Act of 1998 soon encountered limitations. The legacy of apartheid and poor education, which persisted under the ANC, meant that the number of suitably qualified candidates was insufficient to meet the demands of affirmative action policies. As a result, affirmative action candidates could demand higher salaries than other employees due to their scarcity, leaving companies struggling to find enough qualified individuals. While the EEA created a new elite among a small minority of previously disadvantaged individuals, it failed to make a significant impact on the vast majority of currently disadvantaged citizens. Addressing this would require broader measures, beginning with a comprehensive reform of the education sector.
To address this issue, the Institute of Race Relations (IRR) launched a campaign promoting Economic Empowerment for the Disadvantaged as an alternative to affirmative action and black economic empowerment. While the IRR recognised the importance of rectifying past injustices and promoting good relations among South Africans, it argued that race-based empowerment and affirmative action policies were ineffective in achieving their stated goals.
The existing legislation faced a significant objection as it was openly and crudely based on race and gender. It favoured individuals not because they were disadvantaged and merited advancement but because of their skin colour or gender. Additionally, it imposed a costly burden on companies to develop, implement and monitor affirmative action commitments. However, due to various reasons, including education, skills, and individual choices, the available pool of potential employees rarely matched the demographic makeup of the country or region. Despite creating a wealthy black elite, the race-based legislation also enabled the establishment of a crony-capitalist patronage network that deeply corrupted the state. Moreover, it achieved little in addressing the country’s inequality and poverty.
The ANC has chosen to intensify their approach instead of starting from scratch. Despite their promise to not enforce race quotas on businesses, the recently passed Employment Equity Amendment Act (EEAA) does precisely that. Although referred to as “targets,” they are essentially quotas. Minister of Employment and Labour, Thulas Nxesi, calls the amended Act a “more aggressive strategy.” This strategy allows him to set affirmative action “targets” for entire sectors or regions. Companies will be required to abandon their individual targets and instead adopt the sectoral or regional targets that have been imposed upon them, regardless of circumstances or the availability of qualified candidates. The EEAA also reinstates the pre-qualification requirement, which mandates that companies produce an EEA compliance certificate before being eligible to qualify for government contracts. This contravenes the PPPFA, which takes precedence over the EEA, and also violates court rulings that have previously invalidated such a pre-qualification scheme. Furthermore, it appears to contravene section 217 of the Constitution, which requires that government contracts be awarded “in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”
The recently amended Employment Equity Act (EEA) mandates employers to perform racial classification on their employees, similar to the previous Act. This violates the privacy of employees and the constitutional imperative of non-racialism. Furthermore, a substantial portion of the current workforce was not racially classified under apartheid, and modern identity numbers do not contain racial classification data, leading to confusion and reintroducing the outdated “pencil test.” Imposing such vague requirements on companies is arbitrary and could be subject to abuse. Additionally, the EEA’s aim to achieve demographic retrospectivity within individual private companies was never a constitutional requirement. While Section 195 does call for “broad reprehensively” in the public sector, it does not apply to the private sector. The “trumping provision” clause of the EEA is also problematic because it asserts that the EEA takes precedence over any conflicting legislation, including the Black Economic Empowerment Act (BEEA), which also contains a trumping provision. The circularity of such provisions undermines the certainty required by the rule of law.
The Constitution’s equality clause prohibits unfair discrimination based on race and other characteristics but allows for legislative and other measures designed to protect or advance disadvantaged persons or categories of persons. This is the basis for laws that establish preferential treatment for certain races, genders, or physical abilities.
However, the Constitutional Court established a three-fold test in Minister of Finance v Van Heerden to determine whether a measure complies with the equality clause. First, the measure must target persons or categories of persons who have been disadvantaged by unfair discrimination. The EEAA targets a small minority of suitably qualified individuals in management or senior positions and does not address the vast majority of poor black people who are still disadvantaged.
Secondly, the measure must be designed to protect or advance such persons or categories of persons. While it may benefit those who qualify for the EEAA’s intervention, it will harm investment, economic growth, and job creation, which will disadvantage those who are already most disadvantaged.
Thirdly, the measure should promote the achievement of equality. The establishment of a new black elite has not achieved equality for the majority of people living in poverty and unemployment. On the contrary, it has widened inequality compared to the apartheid era. The new amendment will not significantly change this situation.
One can raise a further objection against the penalties for non-compliance, which are set to a maximum of R2.7 million or 10% of a company’s turnover, whichever is larger. Due to the ANC’s existing bureaucratic burden and inability to provide essential services such as electricity, few companies have the profit margins to cover such a heavy fine. The draconian nature of these fines poses a significant existential threat to many companies, potentially leading to bankruptcy and job losses.
However, there is one positive development in the EEAA – the repeal of the turnover thresholds for compliance with the EEA for companies with fewer than 50 employees. This reduction of the regulatory burden is beneficial for small companies, though it is important to remember that regulatory burdens on larger companies are also detrimental to their growth and ability to create jobs.
Once more, the government may face legal challenges over its poorly thought-out and detrimental legislation that is based on race. For years, the IRR has been opposing this amendment and had provided a thorough explanation of its shortcomings to the President last year. The IRR has now written to the President to question why its arguments were not taken into account and has pledged to continue its battle in the courts, if necessary. Similarly, Solidarity, a trade union and civil rights group, has also expressed its willingness to engage in a legal dispute over the newly amended Act. The Democratic Alliance, the largest opposition party, has also committed to supporting Solidarity in this action.
