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Employment Equity Act Amendments: Employers to be punished not encouraged

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Graham Giles

The proposed amendments to the Employment Equity Act [EEA] will have the effect of punishing and fining employers who fail to prove on a balance of probabilities that they have complied with certain undefined fairness provisions of the EEA.   The Department of Labour [DoL] has given up trying to encourage compliance by employers with undertakings and compliance orders.

Power to fine (as opposed to administrative penalty)

The Labour Court [LC] has the ultimate jurisdiction to ensure compliance with the EEA and already has the power to impose fines on employers but within certain stated limits.   There are only a couple of recent judgments of the LC where employers have been fined up to R300 000, with part of the amount being suspended on certain conditions.

The current schedule of fines attached to the EEA provides for a sliding scale of fines whereas the proposed schedule uses turnover, ranging from 2% to 10%.   In this regard it is interesting to refer to the Competition Act 89 of 1998 where the Competition Tribunal has the power to impose administrative penalties for prohibited practices (as defined) based on turnover.   Recently it ordered SA Airways to pay the maximum administrative penalty of 10% of turnover.   The EEA is different in that it deals with ‘unfair discrimination’ and the LC has the power to fine an employer without defining precisely what is ‘prohibited’.

Regulatory Impact Assessment (RIA) Options Analysis

The imposition of fines ‘point to far reaching economic impacts’ according to the Regulatory Impact Assessment (RIA) Options Analysis on the DoL’s website.   It states “(T)en per cent represents a considerable proportion of annual turnover.   A fine of this magnitude could pose a significant threat to the continued viability of a company.   Possible unintended consequences may include the imposition of penalties contributing to company contraction and retrenchments, and even company closure, resulting in job losses and negative impacts on economic growth.   An alternative option could be to link penalties for contravention of the Act to the employer’s payroll”.

There is also a warning about the possible adverse effect on first time offenders and those newly regarded as designated employers (namely companies expanding from small to medium businesses).   The RIA doubts the overall effectiveness of imposing severe fines and warns of possible unintended consequences, possibly rendering “businesses non-viable”.

The report goes on to state: “Possible unintended consequences may include the imposition of penalties contributing to company contraction and retrenchments, and even company closure, resulting in job losses and negative impacts on economic growth.   Companies might also choose to split into component parts in order to fall below minimum thresholds.   It is not clear that the risk of possible job losses is outweighed by the benefit of a more onerous penalty for non-compliance, nor that such penalties will translate into improved compliance”.

Competition Tribunal’s factors and formula

As pointed out in the RIA report the following formula has been applied by the Competition Tribunal when imposing an administrative penalty and could provide an indication of the approach to be adopted by the LC.

Formula adopted by the Competition Tribunal:

  1. Nature, duration, gravity and extent of the contravention – three per cent weighting, as it encompasses the widest range of factors;
  2. Loss or damage as a result of the contravention – one per cent weighting – relates to the loss or damage suffered by consumers and/or competitors and is curtailed because of the rights of both parties to recoup their damages through civil action;
  3. Behaviour of the respondent – one per cent sliding scale weighting – can work as an aggravating or mitigating feature;
  4. Market circumstances in which the contravention took place – one per cent weighting –assesses the structure and history of the market and the actual effects the unlawful conduct had on its structure;
  5. Level of profit derived from the contravention – 0,5 per cent weighting – low in recognition of difficulty of proof;
  6. Degree to which the respondent has co-operated with the competition authorities – 1,5 per cent weighting on sliding scale, as a mitigating or aggravating feature;
  7. Whether the respondent has previously been found in contravention of the Act –2 per cent weighting – designed to act as a deterrent against subsequent offences.

EEA section 27 – disproportionate income differentials and discrimination

Section 27 of the EEA currently only deals with disproportionate income differentials whereas the proposed amendment will include “unfair discrimination” in terms and conditions of employment as contemplated by section 6(4), being a “difference in terms and conditions of employment between employees of the same employer performing the same or substantially the same work or work of equal value”.

In terms of the proposals it will be “form of unfair discrimination and is prohibited on any one, or more grounds of unfair discrimination listed in subsection (1)”.

Evidentiary burden or onus of proof

The evidential burden or onus of proof will play a vital role.   In terms of the proposal “if the employee makes out a prima facie case of unfair discrimination, the respondent (read employer) must prove that (a) the discrimination did not take place as alleged; or (b) the conduct is not based on one or more of the prohibited grounds listed in section 6(1)”.   The prohibited grounds are “race, gender, sex, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language and birth”.

But the proposed amendment goes on to state that “discrimination is unfair, unless the respondent proves that the discrimination is fair, if the discrimination did take place (a) on a prohibited ground listed in section 6(1);  (b) on a ground not listed in section 6(1), and the discrimination:

  1. causes or perpetuates systematic (sic – systemic?) disadvantage in the workplace;
  2. undermines human dignity; or
  3. adversely affects the equal enjoyment of a person’s right and freedom in a manner that is comparable to discrimination on a ground listed in section 6(1)”.

For good measure it is also stated that “for the purposes of this section, a respondent includes an employer of the employee or any other person contemplated in section 6(1)”.

Equal pay for work of equal value

It is arguable that the proposed changes relating to equal pay for work of equal value do not change anything as such practices are probably covered in the present EEA.   But by specifically mentioning this aspect of unfair discrimination there is bound to be a greater focus on it, more particularly now that the fines are likely to be much larger.

PEPUDA as guideline for onus of proof

The RIA report confirms that the intention is to use the provisions of the Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000 (PEPUDA) as a guide regarding the onus of proof.   PEDUDA does not apply to any person to whom and to the extent to which the EEA applies.   The Equality Court, to which claims in terms of PEPUDA are referred, does not have the power to impose fines or administrative penalties.

Section 13 (burden of proof) of PEPUDA reads as follows: “(1) If the complainant makes out a prima facie case of discrimination (a) the respondent must prove, on the facts before the court, that the discrimination did not take place as alleged; or (b) the respondent must prove that the conduct is not based on one or more of the prohibited grounds.   (2)  If the discrimination did take place (a)  on a ground in paragraph (a) of the definition of ‘prohibited grounds’, then it is unfair, unless the respondent proves that the discrimination is fair; (b) on a ground in paragraph (b) of the definition of ‘prohibited grounds’, then it is unfair (i) if one or more of the conditions set out in paragraph (b) of the definition of ‘prohibited grounds’ is established; and (ii) unless the respondent proves that the discrimination is fair”.

According to PEPUDA “prohibited grounds” are (a) race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth; or (b) any other ground where discrimination based on that other ground (i) causes or perpetuates systemic disadvantage; (ii) undermines human dignity; or (iii) adversely affects the equal enjoyment of a person’s rights and freedoms in a serious manner that is  comparable to discrimination on a ground in paragraph (a).

Evidence that will be required

The RIA report refers to a recent judgment of the LC where the difficulty faced by claimants was highlighted and it was confirmed that a mere allegation of discrimination will not suffice.   It is unclear what evidence an employee will need to produce to discharge the evidential onus of proving a prima facie case of unfair discrimination.   Generally speaking it seems that employees must show at least differential treatment or disproportionate impact linked, at least to some extent, to a listed ground of discrimination or that it is related to “systematic disadvantage in the workplace; (ii) undermines human dignity; or (iii) adversely affects the equal enjoyment of a person’s right and freedom in a manner that is comparable to discrimination on a ground listed in section 6(1)”.

Assuming the employee discharges the initial evidentiary burden of proof the employer will effectively be ‘guilty’ and could be fined a substantial amount unless the employer is able to prove that the “discrimination” is fair.   It also seems that intent is not a prerequisite for liability but should influence the relief afforded to the employee or the punishment to be meted out.   Unlike the Competition Act where certain prohibited practices are clearly defined, employers could be found ‘guilty’ unless they are able to prove their innocence on unspecified grounds regarding certain labour practices that may be regarded as unfair by the LC.

Employers will be forced to lead evidence in virtually every case and in many instances this will have to be expert evidence, more particularly now that there is specific mention of differences in terms and conditions of employment between employees of the same employer performing (a) the same or substantially the same work or (b) work of equal value.

Schedule EEA9 – occupational levels

There is a schedule EEA9 to the regulations of the current EEA, headed “occupational levels” and it explains that job evaluation or grading systems are used to measure jobs according to their content and establish comparative worth between jobs.   But a strong case can be made for the adoption of seven as opposed to the current six occupational levels in EEA9.   There needs to be a greater focus on the organisational structure of the business and constant or proportional differentials in income or remuneration to prove fairness.

In this respect the evidential burden or onus of proof will be very important.   In the absence of clear guidelines it will be very interesting to discover what employers intend relying on to prove their ‘innocence’.

Organisational structure & design – not just ‘job evaluation’

It seems that the main focus to date has been on some form of “job evaluation” system.   The problem is that most, if not all, such systems focus only on pay or remuneration.   Dr TT Paterson, who visited South Africa in the decade after 1970, suggested the focus should also include organisation structure and design and not concentrate only on factors such as ‘effort, skill and decision-making’.   Various “systems” are referred to in EEA9 such as Paterson, Peromnes, Hay and Castellion.   It should be noted that Paterson did not advocate a specific system but some employers based their systems on his thinking.   EEA9 contains a semantic scale and employers who do not use one of the listed systems are advised to “use that scale for guidance in determining occupational levels within the organisation”.

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