Unpacking the challenges of labour relations and their ramifications for business in South Africa

PIETERMARITZBURG and the wider KwaZulu-Natal (KZN) province are still recovering from the unrest that occurred in July 2021, which is estimated to have cost the economy around R50 billion. When employees resort to "direct action" at business premises, it sends a message to both local and international investors that property rights and the rule of law are unstable. If businesses cannot resolve labour disputes through the courts because of fears of political interference or other similar threats, the risk of investing in that region increases significantly.

Recently, a video circulated on social media regarding an incident at a private hospital in Pietermaritzburg. This situation involved allegations of unfair labour practices, including poor working conditions and wage disputes. By stepping outside the established framework of the Labour Relations Act (LRA), the third parties concerned effectively transformed a private contractual dispute into a public political spectacle.

Labour disruptions in workplace disputes raise important questions about the rule of law, the stability of the South African business environment, and the overall health of the national economy. This situation serves as a critical example for employers striving to navigate these complex dynamics in the business landscape.

Small and medium-sized enterprises (SMMEs) are essential to the South African economy. This trend discourages entrepreneurship and promotes capital flight, as business owners may choose to relocate their operations to provinces or countries with more stable legal environments. South Africa faces a chronic unemployment crisis (exceeding 30%). SMMEs are the intended engines of job creation. However, the complexity of compliance acts as a "barrier to entry."

Many small business owners are afraid to hire new staff because they fear the "CCMA trap" - the risk that a single unfair labour practice claim could bankrupt their business. This leads to a stagnant labour market, with businesses preferring automation or temporary "gig" contracts to permanent employment. In the complex socio-economic landscape of our country, the relationship between labour and capital is governed by some of the most progressive yet stringent labour laws in the world.

While the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA) aim to redress historical injustices and ensure workplace dignity, the prevalence of unfair labour practices remains a significant hurdle. Unfair labour practices - such as unjust suspensions, discriminatory promotion processes, and the undermining of collective bargaining - affect more than just individual employees. They create a ripple effect that destabilises businesses, erodes investor confidence, and hampers the national economy.

These practices impact both our national growth and the country's reputation. Global investors seek an "ease of doing business"; therefore, a country perceived as having high industrial volatility and frequent labour disputes is considered "high-risk." This fear also discourages small, medium, and micro enterprises (SMMEs) from hiring employees, resulting in a stagnant job market. Ultimately, these circumstances inadvertently weaken an already declining tax base in our country. When evaluating our approach to attracting foreign direct investment, South Africa finds itself competing with other emerging markets such as Vietnam, Brazil, and India for global capital.

International investors often express concerns about the rigidity of the South African labour market. Although "fairness" is a constitutional right, a perceived overlitigation environment can make investors hesitant. If a multinational company believes it cannot manage its workforce effectively or faces significant liabilities for minor procedural errors, it may relocate its regional headquarters to more "business-friendly" countries such as Mauritius or Kenya.

The prevalent "strike culture" and industrial instability pose significant deterrents to investment in South Africa, as they can lead to economic stoppages and supply chain disruptions. For South African businesses, the cost of losing a case at the CCMA or the Labour Court can be devastating. Arbitrators can award compensation of up to 12 months' salary for unfair labour practices and up to 24 months' salary for unfair dismissals. Often, the law favours reinstatement, meaning businesses may be required to rehire an employee after a breakdown in trust.

This can also result in “back pay” obligations that may amount to hundreds of thousands of Rand. Additionally, legal fees incurred in defending such claims can significantly add to the financial burden. We must also consider the other side of the coin. When employees perceive that promotions are based on nepotism or that disciplinary measures are applied inconsistently, "quiet quitting" becomes a reality. Unfair practices can lead to high employee turnover.

The loss of institutional knowledge is costly; replacing a skilled worker in South Africa can cost between 50% and 200% of their annual salary due to recruitment and training expenses. Additionally, a toxic work environment often correlates with higher rates of absenteeism, as employees may abuse sick leave as a coping mechanism for workplace stress. Since this is an intangible cost, employers often overlook the hidden expenses of failing to adhere to fair labour practices.

South Africa is facing a significant unemployment crisis, and Small, Medium, and Micro Enterprises (SMMEs) are seen as crucial for job creation. However, a concerning trend has emerged involving populist labour interventions. While employees' grievances may be justified, bypassing established legal processes in favour of political pressure threatens to undermine the economic stability essential to sustainable job growth.

For the South African economy to thrive, labour disputes should be resolved in the boardroom or at the Commission for Conciliation, Mediation, and Arbitration (CCMA), rather than through picket lines, social media, or political campaigns.

Jennifer Reddy is the CEO, Morar Incorporated.

** The views expressed do not necessarily reflect the views of IOL or Independent Media. 

THE POST