Labour liberalisation key to incentivise employment and small business growth


Martin van Staden | Executive Committee and Rule of Law Board of Advisors | Free Market Foundation | mail me |

South Africa’s labour-law regime is difficult, if not impossible, for small businesses to comply with. It imposes a relatively higher cost on them than on large firms. This leads to fewer people employed in small businesses, and often leads to small businesses not being formalised and therefore certainly not complying with the law.

Small businesses are, nonetheless, South Africa’s biggest employers. In them lies an opportunity to solve the joblessness crisis, if the law is adapted accordingly.

This is according to the authors of Laws Affecting Small Business: Labour, which is part of a series of research booklets published by the Free Market Foundation. The LASB booklets cover eight areas of government legislation and regulation that harms and hinders the establishment and growth of small enterprises in South Africa.

The authors argue that the so-called ‘protections’ found in South African labour law might be appropriate in the context of big businesses and their employees who are members of big labour unions, but are certainly inappropriate in the context of small businesses.

South African labour legislation places an unbearable burden on small businesses, especially if their owners are illiterate or at least not literate in the language of law. Small business is the biggest employer in South Africa for young, unskilled, and disadvantaged persons, meaning there is an above-average labour turnover in these businesses. There are multiple reasons for this, including small businesses not having the luxury of determining upfront whether the job applicant is a good fit, and also because employees regard small businesses as testing grounds where they gain experience before moving on to larger enterprises.

Higher-skilled jobseekers gravitate toward larger businesses where they can receive greater benefits, whereas lower-skilled, and unskilled jobseekers, gravitate toward small businesses.

Candidates at large businesses go to multiple interviews, and have to produce references and detailed CVs to human resource departments. This ensures the candidate is the right person for the job and fits the company culture.

Small businesses, on the other hand, often do not have these facilities, and therefore take a risk when employing new job applicants. Employers use instinct to evaluate new employees and operate on a trial-and-error basis, hoping that eventually the new person will fit the business appropriately.

If this does not happen, the small business must be empowered to part ways with the employee without having to expend large amounts of money and time – two luxuries that many small businesses in South Africa today do not have – in the process.

Given the risk that small businesses have to (and are willing, and eager to) take by employing inexperienced staff with poor or no prior employment history, they should be regarded as South Africa’s ‘job laboratories’. They cannot fulfil this function within the current, burdensome labour law environment.

It is mostly small businesses, not large enterprises, that get caught up in CCMA disputes. Is it any wonder, then, that small businesses are increasingly sceptical about taking the risk of employing people who might turn out not to be a good fit for their businesses? They are becoming increasingly risk-averse (a dangerous phenomenon in a country with a high unemployment rate), as they do not wish to face big trade union lawyers when they themselves likely have no understanding of the law.

Trade union lawyers hone their skills in their disputes with large corporation lawyers, and then go on to use those skills against small employers who have never read an introductory textbook to law. This is intimidating, especially when the threat of strike looms large as well.

Such disincentives for job-creation must be done away with forthwith. South Africa’s unemployment rate sits at 44.1% (on the expanded definition) – almost half of the working-age population – meaning drastic intervention of the correct type is necessary.

Demand for labour from small businesses is the best opportunity for South Africa to get out of this unemployment rut. As such, small businesses must be exempted from inappropriate labour legislation and regulations.

In theory, of course, strict labour law exists to protect vulnerable employees. This emotional appeal will immediately invite outrage at the suggestion that labour law be relaxed. But in reality vulnerable South Africans are the greatest victims of contemporary labour law because these laws and regulations condemn them to perpetual unemployment.

In particular, the LASB authors argue that employees must be allowed to enter into contracts that waive certain statutory entitlements under South African labour legislation. This they can do after obtaining a jobseekers’ exemption certificate (JSEC) from the appropriate labour department or municipal authority. They must, of course, be willing, and must understand the implications of this decision.

Small business owners’ constitutional right to freedom of association must also be respected. The Labour Relations Act infringes on that right in several respects, for instance, by forcing small businesses to comply with collective agreements at bargaining councils (between big companies that can afford the costs, and big labour unions) when those businesses themselves were not parties at the negotiating table.

Small businesses must also be exempt from ministerial sectoral determinations, which are almost always formulated with moustache-twirling wealthy capitalists, not struggling small business owners, in mind.

The burdensome provisions relating to strikes and lockouts must not apply to small businesses, and employees working for small businesses must not – in law – be entitled to strike in solidarity with workers at other businesses.

Finally, and perhaps most common-sensically, small businesses must be exempted from the national minimum wage and any other sectoral minimum wages. Pricing people out of the labour market is one of the most backward policy decisions the South African government has ever adopted.

These recommendations, while contentious, would, if implemented, put a significant dent in unemployment in South Africa.

The LASB booklets represent one-third of the Free Market Foundation’s book, Radical Economic Transformation: The Legal Route to Economic Freedom, which proposes a comprehensive law reform package that will get the South African economy growing and prospering.


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