The meaning of the term ‘pay back’ in a settlement agreement

Genrec Engineering (Pty) Ltd v Metal and Engineering Industries Bargaining Council and Others [2016] ZALCJHB 213 (17 June 2016).

Issue

What does the term ‘back pay’ mean in a settlement agreement?

Court’s decision

 In the recent case of Genrec Engineering (Pty) Ltd v Metal and Engineering Industries Bargaining Council and Others [2016] ZALCJHB 213 (17 June 2016), the applicant employer instructed its employees to attend a BEE share incentive presentation. A number of employees (who were already on written warnings at the time) refused to do so and were then dismissed. The employees challenged the fairness of the dismissals. At the subsequent arbitration proceedings the arbitrator found the dismissals to be substantively unfair and ordered reinstatement (without back pay). The employer sought to review the arbitrator’s award. However, the parties consented to the award being set aside as the record of the arbitration proceedings had been deleted by the Bargaining Council. A second arbitration was commenced before a new arbitrator after which the parties reverted to mediation.

During the mediation proceedings the parties concluded a settlement agreement. The agreement provided, among other things, that the employer would reinstate the employees ‘with effect from’ 19 September 2011. What was left to be determined by the arbitrator was the amount of back pay payable. In 2012, the arbitrator awarded back pay retrospectively to the employees, i.e. from the date of their dismissal in February 2006, to the date of their reinstatement in 2011.

The employer took this decision on review. At the Labour Court the employer argued that the arbitrator had misinterpreted the settlement agreement, but more specifically the meaning of the term ‘back pay’. The employer argued that where the settlement agreement made reference to ‘back pay’ what it actually meant was ‘compensation’. The employer wished to pursue this argument because while the amount that can be awarded as ‘back-pay’ is unlimited, the amount that may be awarded by way of ‘compensation’ is limited by section 194(1) of the Labour Relations Act (‘LRA’). This interpretation, so the employer contented, was bolstered by the fact that the settlement agreement expressly stated that reinstatement would take place ‘with effect from’ 19 September 2011, which meant that the reinstatement could not be retrospective, and that the remuneration could not be ‘back pay’.

The Court reasoned that the manner in which the term ‘back pay’ was used in the settlement agreement meant that it referred to remuneration from the date of dismissal to the date of reinstatement. Furthermore, there was nothing in the wording of the settlement agreement to suggest that the arbitrator’s powers were limited to only awarding 12 months compensation as contemplated by the LRA. The Court held that it would not be a reasonable interpretation to imply section 194(1) into the settlement agreement in the absence of a clear reference to the provision or similar language.

In conclusion the Court found the arbitrator’s award to be reasonable, and dismissed the applicant’s review application.

Importance of this case

This case highlights the importance of ensuring that settlement agreements are carefully and precisely drafted.

Andre van Heerden is the Senior Associate and Jacques van Wyk is the Director at Werksmans Attorneys.

Top tips to get a foot in the employment door

If you’re looking for work in these tough times, the best place to start is online.
The employment environment is very competitive at the moment “so it’s important to list an ad that stands out from the rest and showcases all the necessary information your potential employer might need”.

Below are five simple steps to creating an effective Job Seeker ad

1.    Pro photo

Avoid uploading a casual image of yourself. If you don’t have a professional-looking picture, then get one taken (not a selfie!) standing against a solid colour wall, preferably a white one, while wearing suitable clothing.

2.    Strong title

The title is the first thing that potential employers will come across when browsing through the thousands of ads on the site. Make it catchy and informative to grab attention.

3.    Attention to detail

When completing your profile, include all relevant information – location, full name, a contact number and an email address. Treat the description section as a cover letter – write a short motivation as to why someone should employ you. Upload a clear image of your CV. Be sure to double check for spelling errors and grammar.

4.    Rapid response

From the moment you post your ad be on alert to immediately respond to any inquiries. A swift response demonstrates your enthusiasm and attention to detail, a slow one could mean you miss the chance.

5.    Check your social

Before potential employers respond they might check you out on social media. Make sure your privacy settings are in place on every platform that you use and that anything accessible publicly shows you off in a good light.

Claire Cobbledick is the Head of Marketing for Gumtree SA.

re SA’s controlled foreign company rules aligned with economic globalisation?

SA’s international tax laws regarding controlled foreign companies (CFCs) have not entirely kept pace with the advent of globalisation and technology – they are rigidly mechanical and may not cater for the bona fide business operations of modern business and specialist industries.
In addition, mismatches in the domestic laws of different countries can lead to gaps and frictions in the way in which multinationals are taxed.

The concept of a CFC was introduced into the Income Tax Act almost 15 years ago, long before the advent of Facebook, Uber and the mainstream use of smartphones. Essentially CFC rules are an anti-avoidance mechanism designed to prevent a company from artificially moving its profits abroad to a country with a more favourable or lower tax rate. The CFC rules will broadly speaking apply if South African residents hold more than 50% of the shares and/or voting rights in an offshore company. Section 9D will not apply to a resident who holds less than 10% of the shares in a CFC.

Unless an exemption applies, the South African Revenue Service (SARS) can ‘look through’ the offshore company and include the notional net income of the company in the South African shareholder resident’s taxable income, where it will be subject to South African tax. If an exemption applies then the income of the CFC may not be taxed in the South African resident’s hands or some may be partially included.

One of the most important exclusionary exemptions relates to the “substance” of the ‘business establishment’ of the foreign company – that is the people, equipment and facilities required to run the foreign company’s business. The purpose of the exemption is to exempt bona fide established businesses from the provisions of section 9D. Even if a company is located in a foreign country such as New Zealand, if it does not meet the foreign business establishment “substance” requirements prescribed by SA CFC legislation, the (notional) net income of that company may be imputed to the South African shareholder, and therefore subject to tax in this country.

The policymakers have carefully crafted a definition for identifying whether a self-contained foreign business establishment has been set up. It requires that: the business be carried on from a fixed place of business occupied by the CFC for a period of at least 12 months. Furthermore, the premises should be suitably staffed by on-site managerial and operational employees who conduct the primary operations and the premises should be suitably equipped and have suitable facilities for the conduct of the primary operations.

The definition is dependent on two key concepts: the primary operations of the business and suitability. Although it may be possible to identify the nature of the operations and the purpose for which they are directed with relative ease, account should also be taken of the business model applied in operating the business enterprise, which is a question of fact.

Failure to properly account for the business model may lead to a rigid insistence that there should be on-site managerial and operational employees who conduct all the primary operations associated with a particular industry, even though all these operations may not be “primary” in the context of the operating model of the company being tested. By way of an example, a courier service carries on the primary business of document delivery from a small office in city A. It receives documents from customers and warrants same day delivery within a radius of 200 km. It owns no vehicles and has no employees who perform the delivery service. Instead, it contracts with Uber to collect and deliver parcels four times per day. The depot is staffed by one person, who receives the parcels, issues an invoice, enters the details in a computerised system housed on a personal computer, makes up bundles for delivery, hands the bundles to the Uber drivers and receives proof of delivery documentation from Uber. This individual enters into all contracts with service providers, processes all payments and prepares the financial statements.

On a rigid application of the requirements for a FBE, this operation may be found lacking. Its primary operation is document delivery, yet it has no equipment or facilities to make delivery. It does not have separate managerial and operational employees as these functions are combined in a single person. Yet, it carries on the business successfully and efficiently. In the context of its business model, it is suitably staffed and equipped for the conduct of its primary operations, and does not offend CFC policy. The manner in which it is equipped is by outsourcing certain functions through appropriate contractual relationships. Outsourcing is a recognised business practice and does not necessarily detract from the core or primary operations. It is critical in applying the definition of a foreign business establishment that sight not be lost of the business model applicable to the operation.

Other difficulties may arise where the management and administration are centralised and operations are decentralised – which is not catered for in the existing FBE exemption rules. Globalisation has impacted the way in which multinationals are managed and structured. They are increasingly being managed from a centralised function at a global or regional level rather than their operations being managed within individual countries. There is no longer a need for a multitude of offices, staff, equipment and other resources to be physically present in each office that is set up in a country offshore. The growing digital economy has also made it possible for a company to have a virtual presence in a number of countries with little physical presence.

In the “pre-Facebook and Uber era” during which South Africa introduced CFC legislation, the policymakers may have not envisaged the way in which the business world will undergo change. It is a fast-paced environment where virtual offices are becoming the norm and can be linked to one another by way of a communications network in order to function as a coherent business operation. Interestingly, in the latest attritions of SARS’ Interpretation Note 6 (Issue 2) dealing with place of effective management, SARS explicitly recognises the changes in modern business practices brought about by advancements in telecommunications, business travel and information technology. This is however not recognised in existing CFC rules.

The South African CFC rules fall towards the mechanical end of the CFC policy spectrum. The legislation is largely based on mechanical rules, unlike that of other developed countries, such as the UK and the US which are more facts and circumstances-based. The ease of application of the more mechanical rules should be weighed against the international competitiveness of South African multinationals competing with their non-South African global peers. A more facts and circumstances based CFC system arguably allows for more flexibility in dealing with the ever evolving modern business practices without compromise to the fundamental anti-tax avoidance purpose of CFC rules.

Considering the ever increasing transparency of multinational businesses in line with the OECD’s country-by-country reporting requirements, the difficulties in administering a “facts and circumstances” type CFC system are arguably becoming fewer.

Significant legislation changes will be required to level the playing fields and provide a solution. A considered and balanced approach is required. However, the legislation needs to be developed so that it is consistent and takes into account changes in the way in which business is conducted.

Cor Kraamwinkel is a Partner in PwC’s International Tax Division.

Professional services are essential for implementing new systems

There is a shift in the way companies interact with their customers as people seek new ways of communicating with business. Many organisations are implementing new technology solutions to answer this call, ensuring their contact centres are equipped to handle multiple communication channels.
However, integrating new systems is a complex endeavour, one which could fail entirely if not managed properly, resulting in disastrous and expensive consequences. Professional services, can ensure that existing technology and new solutions maximise business value derived from technology, whilst having a minimum negative impact on a company’s productivity and bottom line.

Implementing new technology is a process fraught with challenges. Companies seeking to upgrade their systems need to take several factors into account when doing so. They need to consider the expense and where they can save costs, such as by using optimising existing infrastructure and not just replacing it. They need to ensure their people buy into new systems and will be willing and able to use them, avoiding wastage. And they need to make sure their systems are legally compliant while meeting their exact requirements.

But many companies are not considering these things before implementing a new contact centre solution. They are simply adding new technology into the mix, often replacing whole systems at great expense, only to find that they are failing and not meeting expectations. They may implement a new technology and end up only using half of the functionality, not needing several components which look good on paper, but don’t actually address their specific needs. Professional services seek to ensure that this does not happen and that companies receive the best from new systems.

Businesses that engage professional services when implementing any new contact centre solution, have a far higher success rate than those who don’t. Professional services comprise business analysis and systems analysis, and will effectively analyse a company’s structure, processes, infrastructure and needs. Based on results, they provide advice on which new technology will work best and how to successfully implement it. Professional services will ensure that a new solution will completely address a business’s needs, eliminating potential wasted expenditure on unnecessary items, superfluous new systems and lack of integration.

Businesses seeking to digitally transform need to change their approach. They need to shake traditional thinking and embrace change. Applying old processes and ways of thinking to new technology is a sure fire way to a failed implementation. For example, an agent continuing to ask their usual questions of a customer after a new interactive voice recording system has already done so, results in unnecessary repetition and frustrated customers. It is imperative that processes be examined so that they can be adapted to fit a new system, ensuring that it is effective and productive.

Similarly, a workforce that is resistant to change will lead to failure of a new system. It doesn’t matter how effective a new solution is, if the people do not buy into it and are unwilling or unable to use it, it will fail. Taking advantage of the guidance offered by professional services, following an investigation into a business’s processes and skill levels, will ensure that new systems and the related processes are not just implemented, but welcomed.

Some solutions will work for one company but may not necessarily work for another. Often, a company will invest in a solution as they heard that it worked for another business, but they do not take into account that their needs may be different. An interactive voice recording system may be efficient in a company that deals with hundreds of the same type of queries on a daily basis, but may be completely wrong for a business that handles individual requests, where such a system will hinder the customer interaction process. If a business first analyses their specific needs before matching them to a solution, they are more likely to find a solution that works for them.

A service provider needs to fully understand a business before being able to offer an effective solution. Professional service enables this, taking a service provider from merely being a supplier, to becoming a useful business partner. When a service provider understands the impact of a new solution on a business, it can be implemented to maximum effect and minimum impact.

Jacques Malan is the Executive: Operations as Jasco Enterprise.

Don’t let derailers make you hit the leadership brick wall

Senior executives who seem stuck on a never-ending plateau in their career should investigate whether their halt in upward mobility is potentially linked to a so-called derailer in their leadership makeup.
Companies have long been investing in psychometric assessments when making leadership appointments, to assess leadership strengths and weaknesses in candidates, and minimise the risks of unsuccessful appointments.
 
However, due to increasingly high demands and expectations when making key executive appointments, coupled with challenging market factors, companies are placing much greater emphasis on the scrutiny of derailers.
 
In other words, they would rather NOT hire a candidate due to potential weaknesses (or derailers), than recruit them for their strengths.
 
Given the tremendous amount of resources – time, money, on-boarding – and collateral staff impact that accompanies the introduction of a new leader, companies are now choosing to rather hold off on an appointment if there are any concerns whatsoever regarding potentially undesirable qualities, instead of making the appointment based on the strengths of the individual.
 
This suggests a greater aversion to risk and an unwillingness to ‘clean up the mess’ if something goes awry.
 
Simplistically put, derailers are a list of 10 qualities which could become problematic for a leader and the employer, if one or more are too dominant. In summary, these qualities assess whether a leader is:
 
•         EXCITABLE: Moody, easily annoyed, hard to please, emotionally volatile
•         DILIGENT: Perfectionistic, hard to please, micromanaging
•         BOLD: Overly self-confident, arrogant, with inflated feelings of self-worth
•         RESERVED: Aloof, indifferent to feelings of others, uncommunicative
•         SCEPTICAL: Distrustful, cynical, sensitive to criticism, focused on the negative
•         COLOURFUL: Dramatic, attention-seeking, interruptive, poor listening skills
•         MISCHIEVOUS: Charming, risk-taking, limit-testing, excitement-seeking
•         CAUTIOUS: Unassertive, resistant to change, risk averse, slow to make decisions
•         LEISURELY: Overtly cooperative, but privately irritable, stubborn, uncooperative
•         IMAGINATIVE: Creative, but thinking and acting in unusual or eccentric ways
•         DUTIFUL: Eager to please and reluctant to act independently or against popular opinion
 
It has been shown that if any of these traits are too prominent or strong in an individual, they are very likely to hold a leader back down the line.
 
Poor and ineffective managers have been proven to have a very real impact on their teams, resulting in a lack of motivation, compromised performance and even loss of top talent. Ultimately, the result is detrimental to company culture and the bottom line, so companies are hesitant to bet on these kinds of appointments.
 
On the other hand, there are companies that will choose to hire despite high derailer scores.
 
Given the relatively small pool of top leaders, some companies choose not to throw the baby out with the bathwater, but to rather use their pre-existing knowledge of potential weaknesses to develop the candidate further. Coaching can be very effective in these circumstances, in recognition of the fact that the presence of a derailer doesn’t necessarily have to lead to derailment, and that derailers can be controlled and supported under the right circumstances.
 
Further, while derailers may be evident in an assessment scorecard, reference checks with previous managers and boards may provide context and support for a leader’s actual behaviour and conduct on the job, enabling an appointment despite some concerns.
 
However, for both companies and candidates, it is crucial to recognise the presence of one or more derailers, to acknowledge the possible detrimental effect these can have on teams and a company’s bottom line, and to be pro-active about mitigating harm.
 
One of the best investments of their lives, for otherwise strong leaders who are going nowhere fast, is to identify whether a derailer shows up prominently in an assessment of their emotional makeup. And, if that is the case, to seek professional assistance from a reputable executive coach to address the chink in their armour.
 
Advaita Naidoo is a Principal at Jack Hammer.

Mercer’s Global Talent Trends Study Spills the Key to “Future-Proofing” HR

Mercer’s (www.iMercer.com) 2016 Global Talent Trends Study examines the top trends impacting today’s workforce and how organisations are responding.
The study, which incorporates the views of both employers and employees on key workplace issues and priorities, is based on the perspectives of more than 1,730 HR leaders and over 4,500 employees in all industries across 17 countries. South Africa was also a part of this global study.

With tightening labour markets, increased sophistication in hiring for best fit, and a more demanding employee population, the key to achieving business growth is radically redefining how talent is managed, developed, and incentivised. According to Mercer’s study, the first study to take into account the perspective of both employers and employees – a lack of development, outdated processes, and discontent with the role of managers are the main drivers of workforce dissatisfaction. Astonishingly, 85% of organisations report that their talent management programmes and policies need an overhaul. Managing these changes requires support from leadership; however only 4% of HR professionals report that the HR function is viewed as a strategic business partner within their organisations.

Additionally, Mercer’s study finds nine out of 10 organisations anticipate that the competition for talent will increase in 2016 and more than one-third expect this increase to be significant. However, despite 70% of organisations reporting they are confident about filling critical roles with internal candidates, 28% of employees say they plan to leave in the next 12 months even though they are satisfied with their current role.

Workforce trends and top priorities

In today’s global environment, successful talent strategies depend on an organisation’s ability to engage, inspire, and retain employees of different genders, ages, races, and backgrounds. According to Mercer’s study, leveraging an increasingly diverse labour pool is the third most important workforce trend impacting business, following the rising competition for talent from emerging economies and talent scarcity.

The importance that organisations have placed on developing a diverse workforce has not translated into actions that are visible to employees. While 73% of companies are working towards diverse leadership teams, only 54% of employees say their organisation has effective programmes in place to do so.

Bridging the gap between employee and employer views will require substantial changes from HR. This includes improved operational capabilities around talent sourcing, enhanced tools and managerial capabilities to deliver a compelling career proposition, and proficiency in workforce analytics for a data-driven approach to managing talent flows.

In tackling talent issues, employers need to make sure that their efforts to build the workplace of the future will have a material impact on attraction and productivity. Mercer’s study identified five priorities for organisations to address this year: 1) Build diverse talent pools, 2) Embrace the new work equation,3) Architect compelling career, 4) Simplify talent processes, 5) Redefine the value of HR. While these priorities are consistent across organisations and regions, they are viewed differently by employees and employers.

Regions:

Europe

Only half of employees in Europe (51%) report that their leaders are engaged in championing development programmes. Additionally, fewer European organisations plan to make changes to their performance management programmes in 2016 (53% compared to 57% globally). Competition for the right talent is just as intense in Europe as it is globally. As well as competing for talent, employers need to nurture the talent in their organisations.

North America

Employees in North America are most likely to say that they have the resources they need to be more productive; 73% report that they have the right tools and technology, and 69% report that they have creative training available. Additionally, 58% of organisations in North America plan to make changes to their performance management programmes, with nearly 30% planning to eliminate ratings in 2016, compared to 22% globally.

Asia

Employees in Asia are the least likely to report that flexible work schedules would improve their work situation (38% compared to 46% globally). Notably, organisations in Asia recognise the importance of HR skills and are more likely to invest in upskilling; 44% in the region and 53% in China have plans in place to build this capability in 2016 (compared to 36% globally).

Australia

Big data management is a trend that is influencing the people agenda in Australia more than any other region (it is one of the three top trends influencing talent plans in 2016).

Additionally, more than three-quarters (79%) of employers in Australia are focused on developing local leaders in emerging economies, compared to 62% globally. Yet transparency with pay is an area of contention; the findings show just 81% of organisations report they are transparent compared to just 58% of employees.

Latin America

Despite high levels of confidence in development efforts by employers, only half (56%)of employees in Latin America report that their leaders are engaged in championing development programmes. Latin America is the only region where managing a contingent workforce is a workforce trend impacting talent management plans this year. Additionally, 62% of companies in Latin America plan to make changes to their performance management programmes in 2016 compared to 57% globally.

South Africa highlights from the survey:

Almost one third (31%) of South African companies report HR process simplification as a top talent management priority in 2016. South Africa reported the highest score on this amongst all countries that contributed to the survey. Additionally a very high percentage of 83% of the companies state that their work environment (workplace design, layout and amenities) supports employee productivity. Furthermore, 83% of companies are stating that their leaders are being held accountable for attracting and supporting diverse, inclusive teams. For performance management ratings, more than one-half (55%) of South African companies did not make any changes to their ratings in 2015. However, almost one-third (31%) of South African companies did eliminate ratings in 2015.  This is the second highest percent across all countries .Finally four in ten (41%) South African companies report that a change plan has been approved to implement workforce training in 2016.

Anne-Magriet Schoeman – Mercer Africa Talent Leader said “This study shows that the workforce of today is forcing a new level of transparency between employers and employees. Successful companies will navigate these changes by not only challenging how work has been done in the past, but by actively considering how it could, and might, be done tomorrow.”

Distributed by APO on behalf of Mercer LLC.

On the job training and work experience trumps a degree

According to the 2016 IMF Working Paper on South Africa’s Labour Market Dynamics and Inequality, large skill mismatches, poor educational outcomes, and the apartheid legacies have hurt South Africa’s job growth and have perpetuated inequality.
Unemployment, especially amongst South Africa’s youth, women and black population, remains unacceptably high.

The research states that while improving the quality of education is key to addressing the long-term unemployment challenge, more must be done to provide experience to young, first-time entrants to the workforce.

Providing necessary on-the-job training and formal or informal work experience to South Africa’s youth is a win win, and should be seen as a pressing priority. Employers will benefit by receiving an Employment Tax Incentive and young job-seekers will benefit by gaining the skills or experience needed to drive the economy forward. In my opinion, this is the key to reducing unemployment.

According to the IMF Working Paper, those with prior work-experience have almost 50% higher job-finding rate than those without experience. With this in mind, the following advice is offered to employers:

• Job specs need to be looked at – Employers should allow candidates to interview for positions even though they may not have a related academic degree.
• Unofficial job experience counts – Has the person worked within the industry previously but in an unofficial capacity or volunteered for a charity organisation? Six years’ experience (even if voluntary) counts for a lot.
• Learning on the job – Investing in someone even though they lack qualifications means that they can be trained on the job. If a quick, willing learner and hard worker, they can gain the skills needed for your company.
• Ask important questions – How entrepreneurial is the candidate? How willing are they to take the initiative? Have they worked hard at anything in their life? How high is their EQ? All of these qualities can be crucial predictors of success, sometimes even more than a degree.
• Think out of the box – When seeking the right people for your organisation, really think about what you want them to be like instead of only relying on academic degrees and qualifications to help make your decision.

While having a degree might help candidates excel in their careers, it does not guarantee it. Putting work readiness plans in place is essential to boost employment rates.

KC Makhubele is the President of the Federation of African Professional Staffing Organisations (APSO).

Recent changes to the BEE landscape

There have been several changes to the BEE regulatory landscape in the past 24 months or so. This document summarises the key changes.
Amendments to the Broad-Based Black Economic Empowerment Act, No 53 of 2003 (BBBEE Act) became effective from October 2014 and amendments to the Codes of Good Practice on Black Economic Empowerment (BBBEE Codes), originally gazetted in 2013, became effective in May 2015. The Black Industrialists Policy was released and regulations were issued under the BBBEE Act. Draft regulations to the Preferential Procurement Policy Framework Act, No 5 of 2000 have been issued for comment and a draft new Mining Charter has also been published.

BBBEE Act

Significant changes to the BBBEE Act include:

A compulsory obligation on the part of organs of state and public entities to apply the BBBEE Codes or relevant sector codes of good practice gazetted in terms of the BBBEE Act (Sector Code) when awarding licences and authorisation, and procuring goods and services. Previously this was not cast as an absolute obligation, and now seeks to remove any discretion on the part of such entities as to whether or not, or in what form, to apply BEE codes of good practice.

Provisions which require a public entity or organ of state to apply for the approval of or an exemption from the Minister of Trade and Industry should they wish to exceed the qualification criteria set out in any Sector Code or the BBBEE Codes or deviate from or be exempt from the application of any of the requirements of the BBBEE Act, any Sector Code or the BBBEE Codes.

The so-called “trumping provision” came into force and effect on 24 October 2015. The trumping provision states that in the event of any conflict between the BBBEE Act and any other law in force immediately prior to the date of commencement of the BBBEE Act, as amended, the BBBEE Act will prevail if the conflict relates to a matter dealt with in the BBBEE Act. In November 2015, the Minister of Trade and Industry granted an exemption of one year to the Department of Mineral Resources and the mining industry from compliance with the BBBEE Act;

The codification of fronting as an offence and the introduction of penalties in relation thereto. The term “fronting” is very broadly defined in the BBBEE Act and would include any conduct which is designed to circumvent the objective of the BBBEE Act. Penalties include fines and imprisonment, and where the offender is a company, the fine can be as much as 10% of turnover. This provision has caused more companies to apply greater scrutiny to the way in which they undertake their BEE compliance, particularly with regard to BEE ownership transactions. We expect to see more of this kind of scrutiny in time. In addition, because there are consequences for verification agencies as well, the verification process is also likely to become more stringent.

The establishment of a BEE Commission which has the power, amongst other things, to oversee, supervise and promote adherence to the BBBEE Act; to receive and investigate complaints relating to BEE; and to maintain a registry of major BEE transactions. The Commission has recently been set up and new regulations have been promulgated under the BBBEE Act which give clarity on the Commission’s functions. The Commission will have greater direct involvement in the implementation of BEE processes and a greater oversight role.

Regulations to the BBBEE Act

On 6 June 2016, final regulations were issued under the BBBEE Act, which have key implications, including the following:

The parties to a “major broad-based black economic empowerment transaction” must submit the transaction to the BEE Commission for registration with 15 business days after concluding the transaction. A major broad-based black economic empowerment transaction will be classified in terms of a threshold determined by the Minister of Trade and Industry by notice in the government gazette (no such threshold has been determined as yet). While the regulations specify that the requirement to register is not a requirement to obtain the BEE Commission’s approval, the regulations nevertheless provide that the Commission can advise the parties of any concerns it has regarding the transaction, and that the parties must then take steps to address the Commission’s concerns. If adequate steps are not taken, the Commission can then initiate an investigation into the transaction in terms of the BBBEE Act. The exercise of such powers may have the effect of delaying the finalisation of such major BEE transactions.

Forms and processes to be followed by JSE-listed companies to report on their BEE compliance to the BEE Commission annually after the end their financial years.

Forms and processes to be followed by organs of state and public entities should they wish to make application for an exemption or deviation from the application of any of the provisions of the BBBEE Act, any Sector Codes or the BBBEE Codes to the conduct of particular activities.

BBBEE Codes

The changes to the BBBEE Codes have been discussed a fair amount since they were finally gazetted in 2013. Generally, the compliance targets and weightings have been increased; there are three priority elements that set minimum thresholds with which a company must comply failing which its BEE compliance level will be reduced by one level; and new measurement criteria have been added to the skills development, preferential procurement and supplier development elements. Good compliance will be more difficult to achieve and to maintain under the BBBEE Codes.

The various Sector Codes are undergoing changes to align with the BBBEE Codes. This has been an ongoing exercise since 2014 but a number of sector codes have been gazetted for final comment and should be finalised in this year. Notably, the Construction Sector Codes and the Accountancy Sector Codes have been repealed. However a new draft of the Construction Sector Codes is expected to be released soon for public comment.

Black Industrialist Policy

The government released its Black Industrialists Policy in 2016. The objective of the policy is to promote and support the participation and long term sustainability of black industrialists in the industrial sectors of the economy.

The Black Industrialists Policy aims to leverage the state’s capacity to unlock the industrial potential that exists within black-owned and managed businesses that operate within the South African economy through deliberate, targeted and well-defined financial and non-financial interventions as described in the Industrial Policy Action Plan (IPAP) and other government policies.

The policy defines black industrialists as natural persons who are black people, or juristic persons owned by black people, who create and own value-adding industrial capacity and provide long-term strategic and operational leadership to a business. The policy also provides that the following are characteristics of a black industrialist:

  • provides strategic and operational leadership to the business;
  • has a high level of ownership (>50%) and/or exercises control over the business;
  • identifies opportunities and develops business to take advantage of these opportunities (entrepreneurial);
  • takes personal risk in the business;
  • does business in the manufacturing sector, with particular reference to IPAP focus areas; and
  • makes a long-term commitment to the business and is a medium to long-term investor.

The policy targets entities that have extensive experience, operations and track records in their respective or envisaged industrial sectors and value chains. It is expected that the entities supported will:

  • expand their current operations or businesses to become major players in the domestic and/or global markets within 10 years of being in the programme;
  • start a new operation or business that will enable them to become major players in the domestic and/or global markets within 10 years of being in the programme; and
  • acquire an existing or new business that will enable them to become major players in the domestic and/or global markets within a specified period.

Such entities should be operating in the manufacturing sectors of the economy in line with the industrialisation path as articulated in the IPAP as follows:

  • blue/ocean economy, including vessel building and repair;
  • oil and gas;
  • clean technology and energy;
  • mineral beneficiation;
  • aerospace, rail and automotive components;
  • industrial infrastructure;
  • information communication technologies;
  • agro-processing;
  • clothing, textiles/leather and footwear;
  • pulp, paper and furniture;
  • chemicals, pharmaceutical and plastics;
  • nuclear;
  • manufacturing-related logistics; and
  • designated sectors for localisation.

The State envisages that black industrialists will contribute towards South Africa’s developmental objectives, such as job creation, exports, skills development, supplier development, industrial decentralisation and localisation. Particular focus will be given to assisting entities owned by women, youth, small business and co-operatives, people with disabilities and those based in historically disadvantaged regions.

The policy also sets out the ways in which the state and state-owned institutions will provide financial support and market access to black industrialists.

The Black Industrialists Programme was also launched by the DTI and intends to provide up to R50 million of financial support to successful applicants who are black industrialists who present projects that require at least R30 million of investment.

Draft PPPFA Regulations

The draft regulations to the Preferential Procurement Policy Framework Act, No 5 of 2000, published for comment on 14 June 2016, contain several BBBEE provisions. These include:

  • Clarity on the use of BBBEE compliance levels when awarding points to a tenderer for BBBEE compliance during the tender adjudication process. Where, for example, the particular tender carries a total of 10 points for BBBEE compliance, entities that have a BBBEE compliance level of 1 will score 10 points and those with a BBBEE compliance level of 8 will score 1 point;
  • Provisions which favour tenders that will benefit black-owned or black-women owned companies. An example of this is the proposed regulation that a tender can be awarded to a tenderer that has not scored the highest points in the tender adjudication process but that has committed to subcontract a minimum 30% of the value of the contract to exempt micro enterprises or qualifying small enterprises that are black-owned or black-women owned.
  • If two or more tenderers score an equal number of points in the tender adjudication process, the tender must be awarded to the tenderer that scored the highest for BBBEE compliance; and
  • An organ of state may apply pre-qualifying criteria in the evaluation of a tender and such pre-qualification criteria may include a stipulated minimum BBBEE compliance level or that the tenderer agrees to subcontract a minimum of 30% of the value of the contract to one or more exempt micro enterprises or qualifying small enterprises that are black-owned or black-women owned.

Draft Mining Charter

A draft new Mining Charter has also been published. It proposes various changes to the measurement of BEE as contemplated in the existing Mining Charter and attempts to align the Mining Charter with the BBBEE Codes. Notable proposals include the following:

  • No recognition for the continuing consequences of past BEE transactions.
  • Each mining right is required to have 26% black ownership through a special purpose vehicle in which employee trusts and community trusts must have a stake.
  • Pre-existing BEE ownership deals must be amended in order to align them with the requirements set out in this draft Mining Charter.
  • Increased employment equity targets for black people.
  • Increased targets for procurement of goods and services from BEE compliant suppliers.
  • Suppliers are not required to be 25.1% black-owned but must be BEE compliant in terms of the BBBEE Codes.
  • A requirement for the mining industry to invest 5% of the annual payroll on skills development and of this, 15% must be paid into a Ministerial Skills Development Trust Fund to be administered by the Minister.

The ownership, housing and living conditions and human resources development elements have been classified as ring-fenced elements which will require 100% compliance from mining companies. Any failure by a mining right holder to comply with the targets contemplated under such ring-fenced elements shall render the mining right holder in breach of, and subject to the sanction in terms of, the Mineral and Petroleum Resources Development Act, No 28 of 2002.

Verushca Pillay, Black Economic Empowerment sector and services, Cliffe Dekker Hofmeyr.

The growing need for cybercrime insurance in South Africa

Organisations are increasingly dependent on technology to run their businesses. With this reliance however comes a potential threat serious enough to cause an organisation severe reputational and financial harm.
Known as cybercrime, this threat involves illegal activities using computer systems, networks and the internet.

The global surge of cybercrime and the risks involved

In 2014 Sony Pictures Entertainment was hacked causing the release of confidential data into the public sphere. As a result of the leak, Sony had to cancel the release of its film “The Interview”. Sony also set aside USD$15 million to deal with ongoing damages from the breach. While such an occurrence may seem far removed from us, South Africa is in fact one of the foremost countries targeted for cybercrimes. According to PWC’s Global Economic Crime Survey of 2016 cybercrime was ranked as the second most reported crime internationally and ranked in fourth place in South Africa. In 2014 the Centre for Strategic and International Studies estimated that South Africa loses 0.14% of its GDP to cybercrime activities, amounting to around R5.7 billion annually.

When an organisation falls victim to cybercrime it’s exposed to a multitude of risks which Santam Limited identified as including loss of revenue, loss of data, loss of competitive advantage, industry and regulatory fines and penalties and fraud.

A standard property policy may not provide cover for these risks and in order to protect an organisation from cybercrime a comprehensive cybercrime insurance policy is required.

Inadequate cover by standard insurance policies

Aon South Africa (Pty) Ltd has identified the following gaps in standard insurance policies that could prevent organisations from claiming under their insurance policies:

General liability and property policies cover risks that damage physical assets. Since cybercrime is a relatively new risk, the loss covered under conventional property policies do not extend to incorporeal assets nor losses caused by non-physical perils such as viruses or hackers.

Professional indemnity policies cover damage resulting from a failure of the defined professional services and may not extend to losses resulting from data and privacy breaches.

Crime policies generally cover money, securities and tangible property with no coverage for third party property such as customer data.

The challenges of providing cybercrime insurance

Taking out cybercrime insurance is an increasing trend in South Africa. In 2014, Santam reported an increase of over 3000% in quote requests. Specialised cybercrime insurance typically provides for first party insurance and third party insurance. First party insurance provides cover for the insurance holder and third party insurance provides cover for losses suffered by another organisation or individual due to a security breach.

Relative to other established risks, providing cover for cybercrime can be challenging for the insurer and Jain and Kalyaman of the management consulting company Capgemini identified the following challenges in providing cybercrime insurance:

When conducting risk assessments an insurer will be required to predict the probability of cybercrime occurring in an organisation to be insured and determine its business impact. Cyber-attacks can lead to an array of business consequences and it may be difficult to quantify the financial impact.

Since cybercrime is a relatively new concept in the insurance industry insurance firms still have to develop standard methodologies and financial models to determine the appropriate price to cover cybercrime risks.    

The lack of historical data poses a problem to insurance firms when deciding the rate of an insurance policy and whether to underwrite the risk in the first place.

The lack of standard legal definitions of cyber liability across the world also impacts the insurance of cyber risks. A country’s laws are restricted by its geographical limits. This limit can create difficulties when determining which country’s laws are applicable when a cross-border cyber-attack occurs.

Electronic data and information is one of the most important assets in an organisation. Despite its importance PWC notes that most organisations in South Africa are still not adequately prepared or understand the risks inherent in cybercrime, with only 35% of organisations having a cybercrime incident response plan. It is therefore imperative that organisations obtain specialised and comprehensive cybercrime insurance to protect them in the event of a cyber-attack. In this regard, as cybercrime is a relatively new concept in the insurance industry, insurers will need to combine their knowledge of insurance and technology to ensure that they provide adequate cover.    

Bryon O’Connor and Verusha Moodley, Dispute Resolution practice and services, Cliffe Dekker Hofmeyr.

Retaining your victory after arbitration: useful tips for employers

An employer should realise that an arbitration award in its favour is not necessarily the end of the matter. Trade unions and employees may elect to review the award before the Labour Court.
Successful employers who choose to oppose any such review application will be required to demonstrate the reasonableness of the award made in their favour. Many believe opposing the review application will be a straightforward task having already achieved success before the Commission for Conciliation, Mediation and Arbitration (CCMA) or bargaining council, however certain unforeseen hurdles may arise in the process.

In a review application, the applicant is required to file a record of the proceedings with the Labour Court. From time to time documentary records and audio recordings are either lost or of such a poor quality that they cannot be used in the review proceedings. In these circumstances it may be possible for the applicant trade union or employee to have the entire case remitted back to the CCMA or bargaining council for hearing afresh, before the review has even run its course. This may happen where, among other things, the parties are unable to file a complete or reconstructed record of the arbitration proceedings and due to this failure, the applicant party successfully applies for a directive to remit the matter back to arbitration for a rehearing of the entire case.

The underlying reason for this remission is premised on the fact that the review court which is bound by and required to consider the record and evidence that was before the arbitrator, is effectively deprived of being able to determine the matter in the absence of such a record or transcript. The successful employer risks its favourable arbitration award being set aside and being forced to undertake a repeated arbitration, without the benefit of the record that may have contained important earlier concessions, admissions and issues of credibility. A second arbitration is also time-consuming and costly for the employer.

So what should employers do to mitigate the risk of their successful matters being remitted back to arbitration?

In the recent decision of Francis Baard District Municipality v Rex N.O. and Others (JR1000/2011, JA29/2015) [2016] ZALAC 33 (28 June 2016), the parties were confronted with a review application that was plagued by a missing record. To aggravate matters both the employer and the commissioner did not have any notes to reconstruct the essential portions of the record which were material to the review application. The court specifically mentioned that even though the respondent did not have the primary obligation in relation to the record, it was nevertheless also a party to the proceedings and thus could have assisted in reconstructing such crucial evidence, a fact which was overlooked by the employer. The employer was ultimately punished for this oversight and instead of remitting the matter back for hearing afresh, the review application was dismissed.

Employers who intend to defend their successful arbitration awards should ensure that they retain their own detailed records and if permitted by the commissioner, digital recordings of arbitration proceedings as a backup. Furthermore and in cases where employers bring their own review applications, it is important to ensure that every attempt is made to reconstruct the record including seeking the assistance of the commissioner and respondent parties involved, before seeking any directive or order to have the matter remitted back for re-hearing.

This way, employers will also alleviate the risks associated with a second arbitration hearing, as well as the time and costs involved therein.

Nicholas Preston and Sean Jamieson, Employment practice and services, Cliffe Dekker Hofmeyr.

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