Business Day Law & Tax (October 2023)

BUSINESS LAW &TAX

OCTOBER 2023 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Be wary of clipping wings agreements may •beNoncompete considered anticompetitive Ryan Goodman, Lameez Mayet & Erykah Rantho ENSafrica

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ith competition authorities worldwide scrutinising the labour market, noncompete and nopoaching agreements between employers and employees may be regarded as anticompetitive under certain competition laws and regulations.

Given the additional public interest and employment focus of the SA Competition Act, 1998 (as amended), the competition authorities could soon turn their attention to tackling practices affecting SA labour markets.

Employers should therefore make sure their labour practices align with competition imperatives.

Noncompete agreements are entered into between an employer and the employee.

They prevent employees from competing with their former employer either by accepting employment with the employer’s competitors or by entering into the same or similar business, for a specific period or within a specific geographic area after

their employment ends.

Traditionally, noncompete agreements may serve a legitimate purpose in protecting the proprietary interests of an employer and may work to encourage employers to invest in employees.

No-poaching agreements are entered into between two or more employers to prevent an employer from poaching the employees of another employer.

The agreements may be entered into with or without the knowledge of affected employees and may entail employers agreeing not to hire the other’s former employees for a set time even after the termination of their employment contract.

The first half of 2023 has seen competition authorities across the globe focus their attention on the impact and regulation of labour practices, including not only noncompete and no-poaching agreements but also wage-setting and the sharing of relevant employee/employment information.

NONCOMPETE AND NO-POACHING AGREEMENTS IN SA In SA, there are no express provisions in the Competition Act which specifically pro-

RESTRAINT OF TRADE

instance, an agreement entered into between employers to fix salaries and wages, benefits or terms and conditions may be considered to be price-fixing in terms of the Competition Act. A finding that a firm engaged in a prohibited

THE SA COMPETITION ACT PLACES RESPONSIBILITY ON THE COMPETITION AUTHORITIES TO CONSIDER THE PUBLIC INTEREST hibit noncompete and/or no-poaching agreements between employers.

In respect of noncompete agreements the general principle, as developed by the common law, is that a noncompete agreement or restraint of trade is only enforceable if: ● The employer has a legitimate proprietary interest worth protecting; ● The restraint is reasonable with respect to the geographical area and duration; and ● The restraint is clear in its meaning and application.

COMPETITION LAWS However, there is no set guideline in respect of how long a restraint of trade or agreement noncompete

should apply as that can only be determined by considering the particular circumstances of each case.

While historically, noncompete agreements have been viewed to fall within the ambit of labour law, there are definite competition implications of such agreements and they may fall to be considered in terms of relevant competition laws.

DETRIMENTAL EFFECT Specifically, a noncompete agreement may be considered as an agreement to not compete between actual and/or potential competitors (where the employee is prohibited from starting a business in competition with their employer), or as a pro-

hibited vertical arrangement or abuse of dominance (where the employer is dominant) that substantially lessens or prevents competition in the labour market, or forecloses or excludes the employer’s competitors from accessing employees, consequently having a detrimental effect on employees who are seeking employment, especially where such an agreement is broad.

No-poaching agreements (or wage-fixing agreements) may be treated as per se contraventions under the cartel-prohibiting provisions of the Competition Act, as employers that compete for the same employees may be considered to be competitors in the job market. For

practice in terms of the Competition Act has serious consequences.

These include the payment of hefty administrative penalties, reputational damage and, in the case of cartel conduct, potential criminal liability for directors and senior management.

Over and above the competition considerations, the SA Competition Act places a somewhat unique responsibility on the competition authorities to consider the public interest, including the effect on employment, with one of the purposes of the act being to “promote the employment and advance the CONTINUED ON PAGE 2

BusinessDay www.businessday.co.za October 2023

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BUSINESS LAW & TAX Be wary of clipping wings

To trust or not to trust?

CONTINUED FROM PAGE 1

Trust law is •complex and

social and economic welfare of South Africans”.

As a result, the competition authorities are very intentional about ensuring that public interest considerations under the Competition Act, including employment, are not detrimentally affected.

It is therefore possible that the SA competition authorities will follow other global authorities and focus their attention on competition in labour markets, while at the same time closely assessing the potential public interest implications of noncompete and/or no-poaching agreements.

For example, the effect of noncompete and/or nopoaching agreements on the opportunity of employees — particularly in relation to historically disadvantaged employees, to obtain employment or better employment or to contribute to the growth of the economy by starting their own businesses — will most certainly come into consideration.

WHAT SHOULD EMPLOYERS DO? It is important that any business operating in, into or from SA is aware of and complies with SA’s competition laws. While the competition law focus may traditionally have been on ensuring that engagements and agreements with customers and suppliers are compliant, employees involved in human resources must also be trained in competition laws and employers must ensure that their employment agreements and labour practices continue to keep up with the latest developments from a competition law compliance perspective.

Employers need to ensure they avoid entering into any anticompetitive no-poaching agreements with any of their actual and/or potential competitors and should seek the advice of their internal legal advisers or external competition law experts to ensure their existing (or about to be concluded) noncompete agreements with employees continue to stand or will pass muster from a competition law compliance perspective.

IT IS IMPORTANT THAT ANY BUSINESS OPERATING IN, INTO OR FROM SA IS AWARE OF AND COMPLIES WITH SA’S COMPETITION LAWS

LATERAL THINKING

pertaining to the trusts and Hotdog.

Hotdog’s shareholders agreement evinced a desire by the shareholders to keep the shareholding in Hotdog within a limited circle of shareholders. This was further advanced in a later agreement between the two trusts with the title “buy and sell agreement”. The limited circle of shareholders consisted, in the first instance, of the existing shareholders.

can sometimes be as clear as mud Evan Pickworth BD Law & Tax Editor

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e have covered in some depth the shifting sands for trusts on these pages in recent editions. Not least among the new changes is that trusts must disclose beneficial ownership of assets effective from April 1 2023, which effectively make trustees third-party providers of data for the SA Revenue Service.

We highlighted how the expectations may exceed reality on the ground for many smaller, family-owned trusts to comply. The proof of the pudding will be in the eating come tax reporting season, but there is little doubt many trusts will struggle to keep up with the stringent reporting.

While still a clerk, I remember rather fondly a matter where the daughter beneficiary and trustee of a family trust came into the office in a state of flux. She wanted to draw some money from the trust but did not know how to go about this as it was not linked to her personal bank card.

It was, of course, the rather simple matter of a trust, being a different legal entity from trustees and beneficiaries, needing a bank account in its name and not that of an individual. Money could only flow after appropriate trustee resolutions had been passed too. So the problem was quickly resolved at the bank rather than the legal office when the beneficiary received the bank details.

While many may be of the view a trust does not need a bank account (they are only right that it does not need one to form a trust), the point is that trustees are legally obliged to administer trust assets separately from personal assets. It flows from that that any conflicts of interest should never enter the equation, but clearly do often due to ignorance of the law, or for nefarious purposes.

Section 11 of the Trust Property Control Act requires the separate identification of trust assets. Any bank account or investment at any financial institution should be identifiable as a trust bank account or investment.

With these matters still coming before the courts, especially where money is fraudulently transferred by trustees, more certain thought should go into providing proper authorisation to which trustee can authorise bank transactions.

Problems in practice most often arise when a founder of a trust dies and family trustees seek more control.

This can lead to squabbles and even fraudulent withdrawals from the account.

Moving now into the realm of business trusts, but to still to give a good example of problems that can arise after the death of a decisionmaker trustee, the recent Steenbokpan Trust case before the high court in Pretoria is illuminating.

Two trusts, Steenbokpan and Trout, were the sole shareholders in a company Hotdog Café (Pty) Ltd. The first applicant, Booysen Junior, and the deceased, were, in practice, the individuals and office-bearers who made all relevant decisions

‘DEEMED SALE’

The two aforementioned agreements, (ie the shareholders’ agreement and the buy and sell agreement), provided for situations where either the first applicant or the deceased might become disabled or die and did so by stipulating that upon the occurrence of one of these fortuitous events a so-called “deemed sale” of shares in Hotdog (of the disabled or deceased first applicant or the deceased), would occur in terms of prescribed value determinations.

The buy and sell agreement was intended to provide for funds to any shareholder constrained to purchase any other shareholder’s shares should the lastmentioned shareholder be constrained, by the deeming provision, to “retire” and transfer his shares to the remaining shareholder.

The deceased sadly suffered a stroke which disabled him. A disability claim was made in terms of his disability policy. Hollard Insurance paid an amount of R2m to

Steenbokpan due to the deceased’s disability. When the deceased died, an Old Mutual policy paid an amount of R3m to Steenbokpan due to the deceased’s demise. A Hollard policy on the deceased's life paid an amount of R2,019,829.68 to Steenbokpan. Trout claimed the proceeds of the policies and initiated dispute resolution proceedings before the expert. The expert informed the parties that he did not see the necessity for oral argument and published his determination, upholding Trout’s claims.

The bone of contention about the status of the policies is also at the heart of Steenbokpan’s contention that the expert breached his

PROBLEMS MOST OFTEN ARISE WHEN A FOUNDER OF A TRUST DIES AND FAMILY TRUSTEES SEEK MORE CONTROL mandate in deciding the disputes between the two trusts, acted irregularly in deciding the disputes as he did and consequently his determination falls to be reviewed and set aside.

An application was launched to review and set aside the determination of the expert. The bone of contention about the status of the policies is at the heart of Steenbokpan’s contention

that the expert breached his mandate in deciding the disputes between the two trusts, acted irregularly in deciding the disputes as he did and consequently his determination falls to be reviewed and set aside.

The court highlighted that the agreement includes clause 10 which gives the expert the power to deal with the dispute in the manner he deems necessary.

The applicant should therefore have been fully aware of this clause and the powers afforded to the expert and considering that the applicants agreed not to lead oral evidence, it should have in consideration of clause 10 understood the consequence of agreeing to same.

Only the agreement was required to be considered by the expert and not the factual matrix to determine the intention of the parties.

The applicants concur that the expert’s contractual obligations are found in clause 10, which gives him the discretion to deal with the procedure and manner to be followed, and clearly states that he does not have to follow strict principles of law.

The applicants then state that he failed to consider the factual matrix and this is a gross irregularity. The applicants are clearly bound by clause 10 and cannot on the predication of a broadly based gross irregularity attempt to escape the agreement and its contractual obligations to be bound by same.

Trust law is complex and sometimes as clear as mud.

/123RF — MEGAFLOPP

BusinessDay www.businessday.co.za October 2023

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BUSINESS LAW & TAX

Noncompete agreements in the spotlight

ABOUT TIME

UK proposes limiting noncompete agreements in •employment contracts to just three months /123RF — BACHO12345 Ryan Goodman, Lameez Mayet & Erykah Rantho ENSafrica

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n February 2023, the UK’s Competition and Markets Authority (CMA) published guidance to employers highlighting the anticompetitive nature of no-poaching agreements, wage-fixing agreements and information sharing, which it noted may constitute business cartels.

The guidance further included advice for businesses to understand competition law and not to enter into such agreements and to seek leniency from the CMA where such agreements have been concluded.

The law on noncompete clauses in the UK has historically been developed in terms of the common law and the general practice has been to allow the enforcement of noncompete agreements for up to 12 months, depending on what is reasonably necessary to protect the employer’s legitimate business interests.

However, in May 2023 the UK government published a policy paper titled “Smarter Regulation to Grow the Econ-

omy”, where it proposed to limit the duration of noncompete clauses in employment contracts to just three months. As we understand it, the UK has adopted this stance on the basis that there are economic benefits to limiting noncompete agreements because their limitation makes it easier for people

THEIR LIMITATION MAKES IT EASIER FOR PEOPLE TO START THEIR BUSINESSES OR FIND EMPLOYMENT ELSEWHERE to start their businesses or find employment elsewhere, which is beneficial for the overall economy and has the potential to drive economic growth through greater competition and innovation.

While in the US, the Federal Trade Commission (FTC) and the department of justice (DoJ) have been tackling the competitive effect of these types of labour practices for more than a decade, in January 2023 the FTC proposed

a specific law that would, subject to a few specific exceptions, prohibit firms from requiring their employees to sign noncompete agreements as they constitute unfair methods of competition in violation of section 5 of the Federal Trade Commission Act (FTC Act). The proposal from the commission is being reviewed for public comment and a vote on the ban is, as we understand, likely to take place in the first quarter of 2024.

More specifically, it is noteworthy that, as recently as July 1 2023 the state of Minnesota has implemented prohibiting legislation employers from entering into noncompete agreements with employees or independent contractors and the state of New York has also recently passed a bill to prohibit noncompete agreements in New York and to allow individuals covered under the bill to bring a civil action against employers.

An example of how the above approach has been adopted by the FTC is in the matters of O-I Glass and Ardagh Group SA, Ardagh Glass Inc and Ardagh Glass Packaging Inc (the respon-

dents), which were decided in February 2023. In these matters, the respondents were manufacturers and sellers of glass containers used for food and beverage packaging and required employees in different positions in the corporation to enter into noncompete agreements to prohibit workers from directly or indirectly being employed by or associating with any business that sells products and services in the US that are the same or substantially similar to those of the respondents, without the respondents’ prior written consent.

The respondents’ conduct was described as having the likely effect of harming competition, consumers and workers in the glass containreducing er industry, employee mobility, salaries and wages, benefits and overall resulting in less favourable conditions for employees. It was alleged the respondents’ conduct constituted an unfair method of competition and contravened Section 5 of the FTC Act. As a result, the respondents entered into consent orders with the FTC in terms

of which the respondents would cancel and release current and former employees in jobs identified in the orders from all noncompete agreements and would stop entering into noncompete agreements with employees in those positions.

With regard to no-poaching agreements, the FTC and DoJ Antitrust Division published their Antitrust Guidance For Human Resource Professionals (paper) in 2016.

In the paper, it was stated that agreements among employers to not recruit certain employees or not to compete on terms of compensation are illegal. The paper advised HR professionals to avoid entering into agreements concerning terms and conditions with other firms and agreements about fixing employees’ salaries and

HR PROFESSIONALS ENTERING INTO SUCH AGREEMENTS WOULD BE FOUND TO HAVE CONTRAVENED ANTI-TRUST LAWS

wages or other terms of compensation with firms that compete for employees.

HR professionals entering into such agreements would be found to have contravened anti-trust laws. The conduct was then criminalised in 2018 with the first DOJ case involving no-poach agreements being brought in 2020.

Since then, multiple cases have been brought under the Sherman Antitrust Act. In Canada, the Competition Bureau published its Enforcement Guidelines on wage-fixing and no-poaching agreements at the end of May 2023 (which came into effect on June 23 2023). In future, Canadian law will criminalise reciprocal agreements between unaffiliated employers to fix wages and/or not solicit each other’s employees.

In Peru, the National Institute for the Defence of Free Competition and the Protection of Intellectual Property issued its first-ever no-poach infringement decision in May 2023 against six construction companies for agreeing not to hire their rivals’ workers. The construction companies and their executives were heavily fined for their conduct.

Exchange control not just for cross-border deals Bright Tibane Bowmans Exchange controls are generally aimed at governing cross-border transactions (including forex [FX] activities and arrangements between residents and nonresidents) in a particular jurisdiction.

Investors would be well advised to note that, in SA, exchange controls apply beyond this.

The country’s exchange controls, which are restrictive in nature, are mainly provided for in the Exchange Control Regulations issued under the Currency and Exchanges Act 9 of 1933 (Exchange Control Regulations).

Under its authority delegated by the National Trea-

sury, the Financial Surveillance Department (FinSurv) of the SA Reserve Bank has issued various regulatory instruments relaxing the restrictions of the Exchange Control Regulations.

These include the Currency and Exchanges Manual for Authorised Dealers (Authorised Dealers Manual), which contains permissions and conditions applicable to transactions or activities that may be undertaken by authorised dealers (approved commercial banks) and/or clients of authorised dealers without reference to or the approval of FinSurv.

The Authorised Dealers Manual also contains restrictions.

There is, for example, section H(A) which provides as

follows: “(i) Instruments that offer South African investors exposure to foreign referenced assets in rand terms must be listed on a South African exchange. The types of instruments include equity, debt and derivatives. (ii) These instruments may only be denominated in rand. (iii) These foreign referenced instruments may not

IF ISSUED BY AN SA ISSUER TO SA INVESTORS, ONE WOULD NOT EXPECT THE INSTRUMENTS TO BE SUBJECT TO EXCHANGE CONTROLS

be offered to South African investors on an over-thecounter basis. (iv) The listing of all instruments referencing foreign assets will require specific prior approval of the Financial Surveillance Department.”

These provisions technically extend SA’s exchange controls to transactions that are not cross-border, do not involve FX and do not involve non-SA residents, but that derive value from foreign assets, thereby giving SA investors in those financial instruments’ indirect exposure to foreign assets.

Technically, these instruments are domestic in nature.

If issued by an SA issuer to SA investors, one would typically not expect the instruments

to be subject to exchange controls.

However, FinSurv strictly applies the above provisions of the Authorised Dealers Manual to such instruments.

The over-the-counter (OTC) derivatives market is greatly impacted by these restrictions.

Players in this market solely focus on OTC trades and they have no intent to have their instruments listed on any exchange.

SA OTC derivative providers are bound to offer instruments that only reference local assets. It is for this reason that SA’s OTC derivatives market is not attractive to foreign investors (foreign OTC derivatives providers).

The reasoning behind the restrictions of section H(A) of

the Authorised Dealers Manual is unclear, leaving stakeholders questioning whether it is aligned with the objectives of SA’s exchange controls.

On its website, FinSurv explains the purposes of exchange controls as follows: “Prevent the loss of foreign currency resources through the transfer abroad of real or financial capital assets held in SA; effectively control the movement of financial and real assets into and out of SA; and avoid interfering with the efficient operation of the commercial, industrial, and financial system.”

One can only guess that the restrictions of section H(A) of the Authorised Dealers Manual are informed by the third purpose.

BusinessDay www.businessday.co.za October 2023

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BUSINESS LAW & TAX

China to boost access for SA products companies recently signed 20 deals to •buyChinese products worth about R41bn from top SA firms Virusha Subban Baker McKenzie

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rade between China and SA is set to grow further after several announcements on trade were made at the Brics summit, held in SA in August.

At the summit, the countries agreed to narrow the trade deficit by increasing access to Chinese markets for SA products. In this regard, China has recently begun importing SA beef after a block on the product (due to foot and mouth disease) was lifted. The two countries also agreed to allow avocados to be exported from SA to China.

China also announced it would donate energy equipment worth about R167m ($8.97m) and a grant valued at about R500m ($26.9m) to SA to assist with its energy crisis, though no deadlines were given.

In August, the countries jointly announced that Chinese companies had signed 20 deals to buy products

worth about R41bn ($2.2bn) from major SA companies.

Trade, industry & competition minister Ebrahim Patel said at the signing ceremony that the deals would help SA create jobs and grow the economy.

CHINA ALSO ANNOUNCED IT WOULD DONATE ENERGY EQUIPMENT WORTH R167M AND A GRANT OF R500M TO SA TO ASSIST WITH ITS ENERGY CRISIS It was also noted at the signing that two-way trade between China and SA amounted to $47bn in 2022 and that both countries were committed to strengthening the relationship.

Chinese minister of commerce Wang Wentao noted at the summit that there was a prospect of even greater growth in trade, not only with

SA but with other African countries Across Africa, China is increasingly importing agricultural products and manufacturing goods on the continent, in addition to its strong focus on oil, critical minerals and metals. African imports from China mainly focus on manufactured goods such as electronics, clothing, appliances and technology.

Recent data from the Chinese ministry revealed that over the past two decades, China’s trade with Africa as a whole has risen 20-fold, showing that China is one of Africa’s biggest bilateral trading partners. To balance the trade gap, China pledged in 2021 to import $300bn of African products by 2025.

The country has also increased the number of products that can be exported to China tariff-free.

A recent report by Economist Corporate Network, supported by Baker McKenzie and Silk Road Associates, “BRI Beyond 2020”, showed how these strengthening trade links are,

PARTNERSHIP

in part, a result of favourable financial incentives offered to African jurisdictions by China. According to the report, 33 of the poorest jurisdictions in Africa export 97% of their exports to China with no tariffs or customs duties. This report noted that bilateral trade was still heavily centred on China’s import of Africa’s natural resources.

However, in recent years, China has increased its imports of manufacturing products from more diversified economies, such as SA. At an official session of the joint economic and trade committee held at the Brics summit, Patel said the aim was for SA to export more manufactured and valueadded products to China.

A Baker McKenzie report with Oxford Economics, “AfCFTA: A Three Trillion Dollar Opportunity” revealed that more than 75% of African exports to the rest of the world were still heavily focused on natural resources.

However, on the import side, manufactured goods accounted for more than half the total volume of imports into African jurisdictions.

Africa’s most important sup-

pliers of manufactured goods were listed as Europe (35%), China (16%) and the rest of Asia, including India (14%).

The Economist Corporate Network report pointed out that political and policy commitments between China and Africa have strengthened and expanded in scope in recent years. Since its launch in 2000, the Forum on ChinaAfrica Trade Cooperation (Focac) has focused on forming closer relationships between China and Africa.

At Focac’s last conference, held at the end of 2021, China announced it would move away from state-backed projects in Africa, partly due to the effect of Covid-19.

Instead, the focus would be on increasing reciprocal China-Africa trade, incentivising private firm investments from China into Africa and strengthening cooperation between the two regions.

At Chinese foreign ministry spokesperson Wang Wenbin’s regular press conference in August 2023 it was noted that Chinese companies were growing in confidence in the African market, with 3,000 Chinese enter-

prises, of which more than 70% are private, now invested in Africa.

It was also noted that the progress of the African Continental Free Trade Area (AfCFTA) meant that Chinese investors would find more opportunities to invest in the African market.

Successful pan-African trade under AfCFTA will connect the region’s wealthier and poorer nations, promote the growth of value chains and lay the foundations for increased international trade in the process.

As Africa reduces its overdependence on natural resources and increases its manufacturing capacity, it must also ensure it develops other industries in a sustainable way.

To this end, the Economist Corporate Network report outlined how China and Africa have agreed to work together on improving Africa’s capacity for green, low-carbon and sustainable development, and to roll out more than 50 projects on clean energy, wildlife protection, environment-friendly agriculture and low-carbon development.

The trade in sustainable goods and services is also expected to reap benefits for the African continent in future years.

A joint statement issues by the two countries in August 2023 acknowledged “the need to defend, promote and strengthen the multilateral response to climate change and undertake to work together for a successful outcome of the 28th Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC COP28) in the United Arab Emirates in December 2023”.

CONSUMER BILLS

SA’s mixed legal system is the envy of many

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hile not unique (Scotland can make similar claims), the SA legal system is a rare and leading example of a mixed legal system effectively combining civil law and common (uncodified) law, which is the product of our sociopolitical history.

The major and enduring influence of Roman-Dutch law is envied by many European scholars who work under continental legal systems that have been codified with as many legal systems as national states.

The history of private law in SA was developed within the context of colonialism and discrimination and there is little indigenous law influence on the formal legal system. From a jurisprudence point of view, it is nonetheless a system

PATRICK BRACHER which is envied by many worldwide as a source of European legal tradition based on original Roman and Dutch sources.

The history of conquest of SA grafted English law on top of the Roman-Dutch principles, and the battle to embed traditional RomanDutch law has been a long and not always easy one.

The early judges in the Cape were English-trained and saw it as their job to impose English law on the country as part of their duty to their Victorian queen. One

early Roman-Dutch scholar cynically, but probably correctly, observed that the reason English law dominated was because the English-trained judges could read neither Latin nor Dutch.

From the 1960s, the battle between the Roman-Dutch purists and what they labelled as the pollutionists was a hard-fought personal and complex battle between the different schools of thought.

The best of the purists did not reject English law, particularly in relation to its influence on commercial issues. The battle to preserve contract law and the law of delict from English influence has steadily been won.

Lawyers worldwide look with envy on the extent to which our common law still draws heavily on Roman law in many important fields, especially in consumer law

fields such as contract, agency, purchase and sale, the law of indemnity (suretyship and insurance), ownership and possession.

These branches of law have the benefit of the flexibility of Roman-Dutch law enabling them to adapt to the times, including currently artificial intelligence, by applying principles rather than precedent to reach conclusions.

INTERNATIONAL A recent Supreme Court of Appeal judgment that said an insurance policy is a contract like any other contract has significantly put to bed many of the English law specific rules of insurance adopted by early English-influenced writers.

The international role of SA law and its particular development going back to

Roman law dating from more than 2,000 years ago as a basis for modern legal systems has had an impact across many jurisdictions and legal cultures.

The published works of the German academic Reinhard Zimmermann (who began his career in SA) leads the field. This international exposure has enabled people in many jurisdictions to focus on what legal systems have in common rather than what is different about them.

SA law is now enhanced by the constitution, which applies a flexible human

THE EARLY JUDGES IN THE CAPE … SAW IT AS THEIR JOB TO IMPOSE ENGLISH LAW ON THE COUNTRY

rights context and purpose to the interpretation and application of law and has put an end to many legacies of the discriminatory legal regime.

What we have therefore is an enviable amalgamation of consumer-related civil law and common law unconstrained by codification. Legal scholars worldwide look to SA when seeking to understand the flexible principles of the common law dating back to Roman times as the basis for revealing how legal systems do not develop in isolation.

Comparative law has a role when applying the law, even in codified jurisdictions, and there is no better starting point than SA law. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za October 2023

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BUSINESS LAW & TAX

Delivery scooter crash risks court cases show that scooter drivers •areMany among the most vulnerable road users Mpumelelo Ndlela Adams & Adams

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oad accidents involving food delivery drivers are far more common than you can imagine, with most cases reported to have resulted in serious injuries and death.

After the Covid-19 pandemic, with most people choosing to stay indoors, the food delivery industry expanded and presented more opportunities for players in the industry.

It alsocreated job opportunities in SA for both locals and immigrants. However, the successes in the industry

have come with a surge in road accident statistics in the country.

It is trite that the function of the Road Accident Fund (RAF) is to compensate for loss or damage wrongfully caused by the driving of motor vehicles (section 3 of the Road Accident Fund Act 56 of 1996. If you were injured in a road accident

SUCCESSES IN THE FOOD DELIVERY INDUSTRY HAVE COME WITH A SURGE IN ROAD ACCIDENT STATISTICS IN SA

ON YOUR BIKE

while working as a food delivery driver, and the accident was not your fault, you can lodge a claim with the RAF. This is crucial as due to the nature of their work, many scooter drivers struggle with insurance claims and compensation enjoyed by other employers if they are involved in accidents.

The courts have adjudicated on many cases involving scooter drivers’ accidents and such cases have proven that scooter drivers are among the most vulnerable road users.

For example, a plaintiff scooter driver testified that “he was on route to deliver a pizza on his scooter on the date of the accident ... as he

was nearing a slight curve in the road, he heard the engine of a vehicle roaring behind him. In the curve, the vehicle sped past him, forcing him to move further to the left of the road … he had no choice but to steer his scooter onto the gravel verge of the road … the plaintiff pushed out his right

foot at which point the scooter went over him.” (Taylor v the Road Accident Fund 2021 JDR 2393 (ECG)).

The reverse is also possible for victims of accidents caused by scooter drivers.

Scooter drivers can also be negligent by distracting other drivers and causing them to

lose control of their vehicles or collide with pedestrians.

From the definition of the term “motor vehicle” for the purposes of third-party litigation under the RAF Act, it is apparent that a motorcycle or a scooter qualifies as a motor vehicle. The definition of a motor vehicle accident in section 1 of the act is defined as any vehicle designed or adapted for propulsion or haulage on a road by means of fuel, gas or electricity.

Depending on the nature of the claim, both the scooter drivers and other road users can claim from the RAF for general damages for pain and suffering; past and future hospital and medical expenses; past and future loss of income/earnings capacity.

Dependants of deceased victims can claim for past and future loss of support and funeral expenses.

LEGAL SCOOP

Can a supplier unilaterally change credit terms?

Jonathan Shafir Fluxmans

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n many instances where a seller or a supplier sells goods to their customers on credit, the contract between the parties or the terms of the credit application may stipulate that the credit facilities are granted by the seller to the purchaser at the seller’s discretion and that the seller may, without notice and at any time, vary or terminate the credit facilities.

This kind of provision may have severe consequences for the purchaser. The seller can suddenly, without any notice, reduce a customer’s credit terms or terminate the credit facilities altogether, leaving its customer stranded and severely disrupting or harming the customer’s business. The seller, on the other hand, would argue that this provision is essential in order to protect its position, in the event that a customer defaults or where a customer’s creditworthiness is in doubt.

Customers or purchasers who find themselves on the receiving end of this kind of provision would question whether in commercial law the contractual right to unilaterally amend or terminate credit terms is legally enforceable and whether there are any legal limitations to such a contractual right.

This question, among other issues, was revisited in an appeal to a full bench of

LEGAL SCOOP three judges in the KwaZuluNatal High Court in Pietermaritzburg in the matter of Spar Group Limited and Others vs Twelve Gods Supermarket (Pty) Ltd and Others (AR 31 of 2021, AR 32 of 2021) [2022] ZAKZPHC 29 (July 7 2022).

The appeal to the KwaZulu-Natal full bench related to three issues, one of which was the unilateral amendment of credit terms.

Here we focus only on the decision of the Appeal Court regarding the unilateral variation of credit terms.

The first to 13th respondents in the KwaZuluNatal full bench appeal make up a group of companies which are Spar retailers. This group of companies owns and operate various Spar supermarkets and Tops liquor stores situated in Gauteng, the North West and KwaZulu-Natal. The 14th to 17th respondents in the appeal are members of the family which indirectly own and manage this group of Spar and Tops stores.

These family-owned companies (the respondent companies), as well as all other entities which own and operate Spar-branded stores, are effectively Spar franchisees. Spar, however,

prefers not to characterise them as “franchisees”.

Instead, Spar has adopted a “guild” structure. This structure entails that, in order for a person or company to trade under the Spar banner, that person or entity is required to become a “retailer member” of a nonprofit company called the Spar Guild of Southern Africa NPC. Each Spar store is required to have its own separate Spar Guild membership in relation to that store.

The Spar Group is a company listed on the JSE. Its main business is to supply wholesale goods to Spar retailers/franchisees from six distribution centres which it operates in six different regions of SA. These distribution centre goods are, generally, supplied to Spar retailers/franchisees on 19 days’ credit.

In addition to supplying Spar retailers/franchisees directly from its distribution centres, Spar Group also facilitates the supply of goods to Spar retailers/franchisees from third-party suppliers, known as “drop shipment” suppliers. These drop shipment suppliers supply basic and high-volume goods such as bread, milk, snacks and various Coca-Cola beverages. Spar retailers purchase these drop shipment supplies through the Spar Group, usually on 30 days’ credit.

To be eligible to purchase wholesale goods and drop shipment goods on credit, Spar retailers must be

members of the Spar Guild and are required to agree to Spar Group’s standard written credit agreement for the purchase of distribution centre goods and drop shipment goods.

Clause 5 of the credit agreement entered into by Spar Group and the respondent companies provides as follows: “Credit facilities are granted by the seller to the applicant, at the seller’s discretion, and the seller may, without notice, at any time vary or terminate such facilities.”

SECRET HEARING On October 15 2019 Spar Guild, at a secret hearing of its directors at which the respondent companies were not represented, invalidly purported to terminate the retailer memberships of the respondent companies.

The following day, Spar Group implemented these invalid terminations by obtaining ex parte orders (orders obtained without notice) in the Pretoria high court and Pietermaritzburg high court for perfection of notarial bonds over the respondents’ stores.

These ex parte perfection orders were set aside two days later by both courts, after the respondent companies brought urgent applications to set aside the perfection orders.

Later in October 2019, after the perfection orders were set aside, Spar Group unilaterally amended the respondent companies’ credit terms by drastically

reducing the time periods in which the respondent companies were required to pay for goods sold by the Spar Group distribution centres and goods purchased from drop shipment suppliers. The time period for payment for distribution centre goods was reduced from 19 to seven days, and the time period for payment for drop shipment goods was reduced from 30 to seven days.

The respondent companies, represented by Fluxmans Attorneys, then instituted two related applications in the Pietermaritzburg high court.

In the termination application, the issue was whether the Spar Guild had validly terminated the respondent companies’ Spar Guild memberships, and whether the Spar Group had validly amended the respondent companies’ credit terms by reducing the time allowed for repayment.

In the drop shipment application, the issue was whether the imposition of limits on the quantity of goods the respondent companies could purchase

THE SELLER CAN SUDDENLY, WITHOUT ANY NOTICE, REDUCE A CUSTOMER’S CREDIT TERMS OR TERMINATE THE CREDIT FACILITIES ALTOGETHER

from the Spar Group and its drop shipment suppliers was valid and reasonable and in accordance with the approved credit agreement.

The two applications were heard together by Mr Justice Barnard, an acting judge in the Pietermaritzburg high court. Judgments in both applications were delivered on July 17 2020. Barnard granted both applications.

Barnard found that the terminations of the respondent companies’ retailer memberships of Spar Guild were invalid.

In respect of the unilateral amendment to the terms of credit granted to the respondents, Barnard found that, despite the provisions of clause 5 of the credit agreement allowing “Spar to amend the credit terms if need be”, the amendment of the credit terms was invalid as it was not done in good faith and was unfair due to the lack of consultation with the affected respondent companies.

In his judgment in the drop shipment application, Barnard determined that the limitation on the quantity of drop shipment supplies which the respondent companies could order, which was imposed by Spar Group, similarly lacked honesty and good faith. He held that the respondent companies were entitled to purchase goods sufficient for their usual trade requirements. ● Next month’s article will consider the appeal in this and related matters.

BusinessDay www.businessday.co.za October 2023

7

BUSINESS LAW & TAX

New trust rules proposed But amendments that have been suggested could •pose significant problems if applied to foreign trusts Adelle du Plessis Werksmans

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ncome arising in a South African trust that is distributed to a beneficiary in the same tax year is treated at present as the income of the beneficiary, irrespective of their tax residence. Effectively, the trust is disregarded.

It is now proposed to forgo this regime in the event that the income is awarded to a foreign beneficiary.

The rationale is to strike a balance between SA tax resident and nonresident beneficiaries of SA trusts.

As a general principle, any amount of an income nature (dividends, interest, rentals, trading income and so on) received by a SA trust and onward distributed to the beneficiaries, regardless of the beneficiaries’ country of residence, in the same tax year will be taxed in the beneficiaries’ hands. If it is not distributed in the same year the trust is taxed. The trust is treated as a vehicle through which the amount “flows” and such amount retains its nature.

As to amounts representing capital gains, the difference is that the SA Revenue Service (Sars) treats such capital awards to a beneficiary during the same tax year as taxable in the beneficiary’s hands if they are SA tax resident, alternatively taxable in the trust if they are nonresident. This is the “disparity” that the proposal seeks to

correct. A “beneficial owner” of a cash dividend is liable for the dividends withholding tax, currently at a rate of 20%, that is withheld and paid by the declaring company.

A “beneficial owner” is defined as the person entitled to the benefit of a dividend. It is trite that the registered owner of shares is not necessarily the beneficial owner of a dividend paid in respect of such shares.

At present, Sars accepts that the beneficial owner of a dividend is the person who receives the dividend for their own use and enjoyment and assumes the risk and control of the dividend received. Thus a beneficiary of a discre-

SARS ACCEPTS THE BENEFICIAL OWNER OF A DIVIDEND IS THE PERSON WHO RECEIVES THE DIVIDEND FOR THEIR OWN USE tionary trust with a vested right in a dividend, arising from a distribution by the trustees, is regarded as the beneficial owner of the dividend.

With the present “flowthrough” rules, on distribution the tax treatment of the income being that it accrues for the benefit of the beneficiary coincides with the principle that the recipient beneficiary is considered the

“beneficial owner” of the cash dividend and therefore is liable for the tax.

The proposed amendment would cause the dividend to accrue to the trust for its own benefit. Essentially, the accrual of the dividend no longer “flows through” to the foreign beneficiary but is trapped and treated as taxable in the hands of the trust.

Potentially, the trust itself could be considered the “beneficial owner” of the dividends. This creates disparity between who Sars accepts as the beneficial owner of a dividend and for whose benefit the dividend accrues.

A few issues arise in this regard: (i) in the case of a foreign beneficiary the same amount of dividends taxed in the trust’s hands will potentially be taxed in the beneficiary’s hands in their country of residence under domestic tax laws without a credit for the SA tax being given, on the basis the beneficiary did not bear the dividends tax here; (ii) the foreign beneficiary could potentially, on that interpretation, not be able to claim a reduced rate of witholding tax under an applicable treaty (that is in terms of the SA/UK double tax treaty reducing the withholding tax rate from 20% to 10%); and (iii) trapping the income in the trust could create uncertainty as to the nature of the receipt from the trust by the foreign beneficiary.

An even more jarring consideration is the treatment of interest income received by a

TO THE LETTER

/123RF — MAWARDIBAHAR trust and onward-distributed to the foreign beneficiaries in the same tax year. SA taxresident beneficiaries will be subject to tax on the interest at their marginal rate of tax up to a maximum of 45%.

With respect to payment of interest to nonresidents (“foreign person”), there is a levy of withholding tax at a rate of 15%. The payer of the interest must withhold the tax but the nonresident bears the liability.

APPLICATION OF TAX TREATIES On the present proposed amendments, (i) the interest income will accrue to the trust and no longer to the foreign beneficiary making the trust liable for the tax on the interest income at the flat rate of 45%; and (ii) the same issues as relate to dividends will apply here too, that is potentially no foreign tax credit for the beneficiary, inability to rely on the reduced rate of withholding tax (or even the 15% imposed under our law) and uncertainty as to the nature of the

receipt.

Effectively, the proposed amendments could have the effect of subjecting the same income to double tax, that is in the hands of the trust and in the hands of the foreign beneficiary potentially without any relief in the domestic jurisdiction of the foreign beneficiary.

Tax treaties apply mainly to prevent double taxation (that is juridical double taxation where one taxpayer is being taxed on the same amount in two different jurisdictions). In this regard, treaty relief may be claimed by the taxpayer who is the beneficial owner of a particular income stream.

This comes into consideration as both jurisdictions may want to tax the amount with respect to that taxpayer, the one on a source basis and the other on a residence basis. The treaty would apply to either allocate or limit taxing rights.

With regard to dividends, if the trust is considered the beneficial owner and therefore liable for the withholding

tax, the foreign beneficiary may not be able to rely on treaty relief in terms of the article dealing with taxation of dividends because they are seen as not bearing the liability for the withholding tax.

Alternatively, the foreign beneficiary could rely on the general elimination of double taxation article available in treaties. But this would require that they prove the income on which the trust paid the tax is the same income that had been subject to withholding tax. Relief on this basis is uncommon and much less certain compared to relying on the specific article dealing with the relevant stream of income.

FOREIGN TRUSTS The proposed new rules make no distinction between SA and foreign trusts, and there are going to be significant problems if the proposed legislation will have to apply to foreign trusts in the same way.

The extent of the potential impact of the proposed amendments (were they to be enacted in their current form) on the liability for withholding taxes and the available relief to the foreign recipient are yet to be observed in practice.

While the proposed changes are geared toward protecting SA’s tax base and the ease of revenue collection for the fiscus, it will result in nonresidents having less certainty as to the taxation of dividends and interest received from a trust. ● Reviewed by Ernest Mazansky, tax director at Werksmans.

Regulations for finance in the digital age Christoff Pienaar, Analisa Ndebele & Shannon ’O Brien Webber Wentzel The explosion of new products in the fintech industry is enabling financial institutions to reach a wider customer base, helping to achieve the objective of financial inclusion in SA, where an estimated 20% of the population is excluded from the formal banking system.

More so, of the 80% that do have a bank account, many still do not have access to life-simplifying and economic activity-enhancing payment products and services and remain underserved.

The main issue around these burgeoning technologies — and the new participants introduced into the

national payment and financial system as a result — is the need for a regulatory regime that is fit for the digital age and one that stimulates wider participation.

Crypto assets are an area of interest where there have been several regulatory developments in the past year.

Regulators have responded speedily to the risks of investors losing their money.

The Financial Sector Con(FSCA) duct Authority declared crypto assets to be a financial product in terms of section 1(h) of the Financial Advisory and Intermediary Services Act (Fais Act) with effect from October 19 2022.

This development means that businesses providing advice or rendering intermediary services relating to crypto assets must be licensed by

November 1 2023. Crypto asset providers that are now subject to licensing requirements will be required to comply with certain AML/CFT obligations under the Financial Intelligence Centre Act, which has been strengthened as a result of SA’s greylisting.

Laws to regulate the fastevolving world of open finance are still at a relatively early stage. There is no clearly defined open finance legal regime because the regulators are still trying to understand industry use cases and developments. In June 2023, the FSCA published a Draft Position Paper on Open Finance, outlining all the regulatory approaches it is considering.

Among these proposals is the proposed imposition of

licensing requirements on fintechs that use application programming interfaces to access customer data to provide tailored financial products. At present, , these fintechs are not licensed and there is no oversight on their activities, and the proposed regime intends to bring them into the regulatory net.

Open finance is a new, fast-developing area, and there is a need for a proactive and balanced regulatory

CRYPTO ASSETS ARE AN AREA OF INTEREST … THERE HAVE BEEN SEVERAL REGULATORY DEVELOPMENTS IN THE PAST YEAR

approach that ensures a financial regulatory regime that is fit for a digital world while allowing regulators to understand financial innovations and examine their implications before they can make appropriate legislation.

The FSCA acknowledges that certain legislation that would regulate open finance activities already exists. For example, the Protection of Personal Information Act (Popia) governs the processing, collection and retention of personal information.

Popia prescribes the consent requirements that must be adhered to by open finance participants that require the use of customer data, including that consent must be obtained from customers (who are the owners of the data) in a voluntary, specific

and informed manner.

Where no legislation exists to regulate aspects of open finance activities, the FSCA intends to adapt existing legislation to address risks specific to open finance.

There will be collaboration between the various regulators to understand the industry’s risks arising from open finance.

The draft position paper was circulated for public comment and the regulator’s response is awaited.

Another notable development includes the launch of SA’s first rapid payments programme, PayShap, and with it the renewed focus on the SA Reserve Bank’s Vision 2025 strategy to reform the country’s national payment system and enhance financial inclusion.

BusinessDay www.businessday.co.za October 2023

8

BUSINESS LAW & TAX

E-mobility revolution is here Many challenges need to be overcome but the •trends towards electric vehicles look irreversible Yael Shafrir Webber Wentzel

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he fast-evolving e-mobility sector presents a significant opportunity for sustainable growth and job creation in Africa, but some constraints need to be overcome.

Many South Africans who struggle every day to reach their places of work using minibus taxis or cars on congested freeways may find it hard to believe that an emobility revolution is about to happen. But there are a number of trends moving in that direction.

E-mobility refers to electric vehicles (EVs, ideally powered by renewable energy sources, which may range from two- and three-wheel vehicles to cars and buses.

Some recent developments are under way in SA which are laying the foundation of the future e-mobility revolution. This will help the country to meet its carbon reduction commitments under the Paris Agreement.

Promising moves include the recent publication of the SA Renewable Energy Masterplan, which embraces battery

storage and renewable energy. Work is under way on an EV Masterplan and a Critical Minerals Masterplan, which will have input from the department of trade, industry & competition and the department of mineral resources & energy, among others.

In the private sector, BMW announced in June 2023 that it will be manufacturing the BMW X3 as a plug-

CRITICAL MINERALS AND RENEWABLE ENERGY ARE ALSO LIKELY TO BECOME PRIORITY SECTORS ACROSS THE CONTINENT in hybrid for global export at its plant in Tshwane, SA. In the past couple of years, there has been a significant increase in the importation of electric and solar batteries into SA, as well as the growth of battery assembly in the country, especially in the Western Cape.

These local events are happening in parallel with Africa-wide initiatives. The

African Continental Free Trade Agreement (AfCFTA) has prioritised the automotive sector and transport/ logistics value chains.

The African Association of Automotive Manufacturers (AAAM) is working with original equipment manufacturers (OEMs) on a continentwide strategy. Afreximbank is supporting investments in the automotive sector with various programmes. Critical minerals and renewable energy are also likely to become priority sectors across the continent.

Certain African jurisdictions are incentivising EV and e-mobility development.

Rwanda has plans to phase in electric buses, cars and motorcycles, while the recent steps taken by Kenya are particularly noteworthy. Kenya has established an E-mobility Taskforce, whose main objective will be to develop a “national electric mobility policy” covering all modes of transport (road, air, rail and maritime) and drive uptake of e-mobility, create an enabling environment, recommend fiscal and nonfiscal incentives to promote import, local manufacture and assembly, provide a framework for the

DRIVING INTO THE FUTURE

end of life and disposal, a framework for the development of carbon credits, creation of standards and measurement of impact on the economy and the environment.

Initially, EVs or e-mobility are more likely to find traction in public transport and two- to three-wheelers before wide adoption by the automotive sector. The evolution will be different in each African jurisdiction. For example, Kenya, Nigeria and Uganda have more two- and three-wheelers than SA, so they are likely to prioritise electrification of those modes of transport. In SA, there may be greater potential in starting e-mobility in the public transport sector/delivery sector, to close a significant gap in the market.

There is a real opportunity

for SA to help lead the emobility revolution in Africa, for several reasons. The continent urgently needs affordable and sustainable mobility solutions. The need for lithium battery cells could be met through local manufacturing since the continent possesses many of the necessary raw materials.

SA has a mature automotive sector, including OEMs that export around the world, and it has signed various trade agreements that facilitate exports to Europe, such as the European Partnership Agreement (with the Southern African Development Ccommunity) and is a beneficiary of the African Growth and Opportunity Act (Agoa).

In creating an EV export industry, SA can take advantage of the AfCFTA’s rules of origin, where 40% of local

content from Africa is under discussion.

By developing a multifaceted e-mobility manufacturing sector, SA would help to speed its own transition to a greener future and meet its climate change goals; promote industrialisation in line with Africa’s Agenda 2063 (the continent’s blueprint for inclusive and sustainable development over 50 years, with an emphasis on youth and women); and create jobs.

As SA transitions away from internal combustion engine (ICE) vehicles, it would be able to participate in other parts of the value chain beyond car manufacture. There is an opportunity to manufacture the cells or batteries needed for EVs, and battery factories can stimulate local and regional economic growth. Battery factories could help to develop skills in engineering and attract talent to different regions where manufacturing takes place.

Of course, there are constraints on these plans. The most obvious in SA is the lack of access to uninterrupted energy sources. Another constraint is that it is difficult to raise seed capital for projects related to environmental, social and governance improvement. More funding is needed in SA to support innovative start-ups.

VIEWPOINT AFRICA

Nairobi Declaration boosts climate change fight Binti Shah, Nkatha Murungi Omondi, Jean Makaka & Minna Mumma ENSafrica

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he inaugural Africa Climate Summit (ACS) held in Nairobi earlier this month culminated with the adoption of the “African Leaders Nairobi Declaration on Climate Change and Call to Action” (Nairobi Declaration). The Nairobi Declaration will serve as Africa’s common position on climate change leading up to COP28 and beyond.

The Nairobi Declaration recognises that the world is off-track in meeting the 1.5°C limit agreed upon in the Paris Agreement and that global emissions must be cut by 45% in this decade. It also notes that Africa is warming up faster than the rest of the world, and if this is not addressed, it will continue to have unfavourable effects on African economies and hamper Africa’s growth and wellbeing.

The Nairobi Declaration highlights Africa’s unique

VIEWPOINT AFRICA position in the war against climate change: Africa disproportionately bears the brunt of climate-related adversities despite historically not being responsible for global warming.

The rapid urbanisation of African cities, coupled with severe poverty and inequality, limits planning capacities and increases people’s exposure and vulnerability to climate hazards, ultimately turning African cities into natural disaster hotspots, and Africa possesses the potential to play a pivotal role in the global efforts to combat climate change by forging a climate-positive trajectory.

This can be achieved by harnessing its vast, untapped

renewable energy resources, leveraging its youthful and rapidly expanding workforce, capitalising on its abundant natural assets and embracing the entrepreneurial spirit of its people to establish a thriving and cost-competitive industrial hub.

AFRICAN STATES’ COMMITMENTS The African Heads of State and Government committed inter alia to: ● Develop and implement policies, regulations and incentives to attract local, regional, and international investment in green growth and inclusive economies; ● Propel Africa’s economic growth and job creation in a manner that limits emissions from Africa to aid global decarbonisation efforts and foster green production and supply chains; ● Strengthen collaboration and further accelerate the operationalisation of the Africa Continental Free Trade Area Agreement (AfCFTA); ● Lead the development of

global standards and metrics to accurately value and compensate for the protection of nature, biodiversity, socioeconomic co-benefits, and the provision of climate services; Finalise and implement the draft African Biodiversity Strategy and Action Plan, with the view to realise the 2050 vision of living in harmony with nature; ● Accelerate implementation of the African Union Climate Change and Resilient Development Strategy and Action Plan (2022-32); and ● Identify, prioritise and adapt development policymaking and planning, including in the context of national plans and Nationally Determined Contributions (NDCs).

initiatives to reform the multilateral financial system and global financial architecture, including: ● The Bridgetown Initiative, ● The Accra-Marrakech Agenda, ● The UN secretary general’s SDG Stimulus Proposal; and ● The Paris Summit for a New Global Financing Pact.

To refine the G20 Common Framework for Debt Treatments in an adequate and timely manner. ● To provide a comprehensive and systemic response to the incipient debt crisis outside default frameworks to create the fiscal space that all developing countries need to finance development and climate action. ● For the establishment of a

GLOBAL CALL TO ACTION

THE NAIROBI DECLARATION NOTES THAT AFRICA IS WARMING UP FASTER THAN THE REST OF THE WORLD

The Nairobi Declaration calls on world leaders and development partners from both the global south and north: ● To accelerate the ongoing

new financing architecture that is responsive to Africa’s needs, including debt restructuring, debt relief, and the development of a new Global Climate Finance Charter through UNGA and COP processes by 2025; and ● To rally behind a global carbon tax on fossil fuels trade, aviation, and maritime transport Implement a global financial transaction tax to provide dedicated, accessible, and affordable finance for climate-positive investments.

The Nairobi Declaration gives one voice to the African continent regarding the climate change crisis and, on its implementation, will result in changes in the regulation of climate and sustainability finance in African States. ● Binti Shah, Nkatha Murungi Omondi, Jean Makaka and Minna Mumma are from the ENSafrica Projects, Energy, Banking and Finance practice.

BusinessDay www.businessday.co.za October 2023

9

BUSINESS LAW & TAX

Courts wary of enforcing notice periods

TIME TO LEAVE

Policy considerations include disapproval of forced •labour and reluctance to infringe on a person’s rights /123RF — MAURICE98 Nomampondo Banzi ENSafrica

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hen parties conclude a contract, obligations and rights arise.

Should one party fail to fulfil their contractual obligations, this constitutes a breach of contract. The aggrieved party then has various remedies available.

For instance, they might seek to recover losses resulting from the breach through a damages claim. Importantly, the aggrieved party can also enforce the contract by seeking an order for specific performance against the party in breach.

However, this doesn’t seamlessly apply to the employment context, particularly concerning the enforcement of notice

periods. Courts, while retaining a discretion in granting orders of specific performance, are usually reluctant to enforce notice periods that employees are required to fulfil.

The court in Santos Professional Football Club (Pty) Ltd v Igesund and Another rationalised this stance based on various policy considerations. These include disapproval of forced labour, the availability of damages as a remedy for employers, and a hesitance to infringe on an

THE EMPLOYEE’S SHORT TENURE OF UNDER TWO MONTHS (DURING WHICH SHE TOOK 16 DAYS OF LEAVE) ALSO AFFECTED THE COURT’S DECISION

employee’s rights to freely exercise their profession, as well as their rights to movement and dignity. However, in Nationwide Airlines (Pty) Ltd v Roediger and Another, the court stated that specific performance might sometimes be ordered.

Recently, in Bidventure Consulting (Pty) Ltd v Karina Smit, the labour court had to consider a case where an employee, having found another job, resigned by giving only seven days’ notice, instead of the 60 days’ notice provided for in their employment contract. Despite the employer’s objection, the employee persisted in the breach. In response, the employer sought an urgent court order of specific performance to enforce the full notice period.

Although the court agreed with the urgency of the matter, it wasn’t convinced that

the order was justifiable.

The employer justified its application for specific performance by arguing that the 60-day notice was crucial for finding a replacement and ensuring that a handover and continuation of duties take place. Noncompliance with the notice period, the employer claimed, could lead to it breaching its contractual obligations towards its clients, and risking potential damages claims and reputational harm.

Considering the specifics of the case, the court was not persuaded by the plea for specific performance. Given the industry in which the employer operated in, the likelihood of securing a replacement within 60 days was slim.

The employee’s short tenure of under two months (during which she took 16

days of leave) also affected the court’s decision. The court deemed the risks claimed by the employer as “minimal or nonexistent”. The employee, it was established, had minimal insight into the employer’s projects and others had managed her duties before her employment.

THE EMPLOYEE CLAIMED TO HAVE COMPLETED THE HANDOVER — A FACT WHICH WAS NOT DISPUTED She claimed to have completed the handover — a fact which was not disputed and thus accepted by the court.

The disagreement about the employee’s duties between the parties further

dissuaded the court from granting an order for specific performance.

The takeaway from this judgment is: forced labour being outlawed, along with everyone’s right to freedom of movement and choice of profession, makes courts wary of enforcing employees’ notice periods through specific performance.

However, as there’s no hard and fast rule against orders of specific performance related to employment contracts, its granting depends on the unique facts of each case and the court’s discretion.

Employers should be careful in their communications after receiving resignation notices in contravention of employment contracts.

In the Bidventure case, the court found the employer’s real motive was not so much about the principle of enforcing a contractual obligation “in general” but rather to compel the employee to work the notice period to the advantage of the employer.

The employer had told the employee that she must simply perform her duties and it was immaterial if she performed them in terms of the required standards.

If an employee resigns in contravention of their notice period, employers may have grounds for a damages claim, but the standard requirements for such a claim would still apply. ● Reviewed by Peter le Roux, an executive consultant in ENSafrica’s employment practice.

Retrenchment alternatives: a reasonable offer?

Jonathan Goldberg & Grant Wilkinson Global Business Solutions In the case of Reeflords Property Development (Pty) Ltd vs Almeida (JA72/2020) [2022] ZALAC 8 (March 16 2022), after an employee returned from maternity leave, she was called to a meeting with three senior colleagues to discuss a transfer.

She was given until October 5 2016 to consider their proposal that she be moved out of the sales department into the employer’s development department where she would be taking on a marketing function.

The employee indicated she would not accept the proposal as she did not have marketing experience. At subsequent meetings, she was informed that, despite her lack of marketing experience, she was to be removed from operations to undertake marketing functions.

In response to this outcome, the employee lodged a grievance as she believed the change was in essence a

demotion. However, her grievance was not resolved.

Following the grievance, the employer gave the employee notice in terms of section 189(3) of the Labour Relations Act 66 of 1995 of her possible dismissal based on its operational requirements. The reasons were that given the restructuring of the business, her position was redundant.

She was informed that acceptance of the marketing position would mean that retrenchment would be avoided. After consultations, a contract of employment for the new position was given to the employee.

The employee then took sick leave and, on her return, told her employer she could not accept the contract.

After a final consultation meeting, the employee was informed she was to be retrenched and was not required to serve a notice period. Aggrieved by the outcome of the consultations, the employee approached the labour court.

The court found that the

employer should have embarked on consultations before transferring the employee, removing her duties in the sales department and making her post redundant.

Although the entire process was not a sham, as the alternative position was a genuine position that was occupied by others after the dismissal of the employee, the labour court was of the view that there was no effective joint consensusseeking process.

UNFAIR It found that, on the probabilities, if the training and travel rate had been included in the written terms and conditions of the marketing executive post offered, it would not have been rejected as an alternative to retrenchment and there would have been no need to retrench the employee.

Furthermore, the court found that the employee’s retrenchment was substantively unfair in that the employer had failed to estab-

lish that she had unreasonably refused to accept an offer of alternative employment.

The court was of the view that her dismissal could have been avoided. It found that to be meaningful, consultation in the context of a contemplated retrenchment must be genuine and engaged in with the purpose of seeking alternatives to avoid dismissal.

At the second consultation meeting, the employer presented an alternative. This was accepted by the employee, on the condition that training was provided and the Automobile Association rate for travel was paid. If this position had been offered to the employee, it would have constituted a reasonable alternative to retrenchment.

Inexplicably, when the contract of employment — in respect of the alternative position — was given to the employee, the issue of training and the payment of AA rates were both omitted.

This was despite the known fact that it was on the basis of their inclusion that the alternative position was

acceptable to the employee.

No explanation was provided by the employer about why it had backtracked from its offer made at the second consultation meeting. The employer also elected not to respond to the letter and provided no satisfactory reason for its failure to do so.

The employer adopted the same stance at the third consultation meeting when it made no offer to correct the terms of the contract provided to the employee to reflect the terms of the agreement reached by the parties at the second meeting.

Since the employee did not seek reinstatement, the labour court ordered the employer to pay the employee six months’ remuneration, amounting to R132,000 with costs.

On appeal, the labour appeal court found that in refusing to adhere to the terms of the agreement previously reached concerning the terms on which the alternative position would be offered, the employer acted both in bad faith and unfairly.

The offer of the alternative position, without training, was not reasonable. The labour appeal court found that the labour court could not be faulted for finding the dismissal of the employee both procedurally and substantively unfair.

The labour court found that the employer should pay the employee’s costs. However, the appeal court held that in the absence of clear justification for such an order this was not in keeping with the ordinary rule of costs that applies in labour matters. The costs order was consequently set aside on appeal.

An alternative offer to retrenchment is looked at from both sides. Is the offer reasonable in the circumstances and is the employee’s refusal reasonable in the circumstances?

Before refusing severance pay, consider the employee’s reasons for refusal to prevent the risk of a dispute. Negotiation is an important part of this process. Employers need to be open minded and look for objective solutions.

BusinessDay www.businessday.co.za October 2023

10

BUSINESS LAW & TAX

Zaronia expected by 2025 New national benchmark interest rate will have •many legal, operations, tax and accounting effects Deborah Carmichael & Kelle Gagné Allen & Overy

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A’s corporate treasurers who have not yet started planning for the monumental changeover to a new national benchmark interest rate need to inform themselves — for the sakes of the companies and the stability of SA’s financial markets.

Some local corporates are still transitioning the rates on their overseas borrowings away from the formerly internationally dominant London Interbank Offered Rate (Libor), and by now should know that the same needs will need to be undertaken domestically in respect of the Johannesburg Interbank Average Rate (Jibar). The time to start planning is now.

It is expected that in 2025, the forward-looking Jibar, the benchmark interest rate that reflects the average cost of borrowing among major banks in the SA market and is the basis for most corporate lending in SA, will be replaced by the new backward-looking SA Overnight Index Average (Zaronia).

The changeover will affect corporates’ legal, operations, tax and accounting spheres and the corporate sector needs to be ready.

In addition to transitioning funding and hedge transactions away from Jibar, Zaronia preparations could

include developing new back-office processes and systems, updating treasury software, data and artificial intelligence, updating booking systems, managing creditworthiness risks, training staff to adapt to the changes, and stakeholders education.

International funding may also need to be adjusted.

WHY THE SWITCH? Much like Libor was, Jibar still is widely used as a reference rate for various financial instruments and contracts, such as corporate loans, asset financing, derivatives and floating rate notes. Both are forward-looking rates that

MUCH LIKE LIBOR WAS, JIBAR STILL IS WIDELY USED AS A REFERENCE RATE FOR FINANCIAL INSTRUMENTS AND CONTRACTS are unreliable in many respects. For instance, Jibar is derived from insufficient volumes of data provided by too few actors, while Libor was susceptible to manipulation by data providers.

According to The International Organization of Securities Commissions (Iosco), nonrepresentative interest rates such as Jibar hold a potential threat to financial stability. These issues came

to the fore in 2012 when Libor suffered a manipulation scandal and the British and international authorities had to intervene. Crucially, in 2013, Iosco published a new set of principles for more reliable and transparent financial benchmarks, now widely used to support reference rates around the world. SA responded to the G20 call for change by commencing the process to overhaul its interest rate benchmark with the introduction of Zaronia.

Zaronia is being tested and published for observation and will go live later this year. Meanwhile, abroad, Libor was phased out in all its forms on June 30 2023.

The transition away from Jibar to Zaronia affects all markets that use the Jibar benchmark. This includes the loan market, the derivatives market (hedging), floating rate notes, securitised products and other short-term instruments such as repos and commercial paper.

Zaronia will be a backward-looking measure of the average rate at which banks in SA lend each other rands on an overnight, unsecured basis. These data-producing transactions carry minimal market risk, and include only transactions concluded on an arm’s length basis and in excess of R20m. The interest rate for a Zaronia based liability can, therefore, only be set at the end of an interest period. In contrast, Jibar is a forward-looking rate that can be

NO SMALL CHANGE

/123RF — XTOCKIMAGES set at the beginning of an interest period. Over time SA’s borrowers have become accustomed to the certainty a forward-looking rate set brings to borrowing.

When the country switches to Zaronia, it won’t be possible for corporate treasurers to simply substitute the word Zaronia for Jibar in their documents. Corporate treasurers will, for example, want to ensure that hedges and loans transition in tandem and match as much as possible, because the loan and derivatives documentation conventions on the new benchmarks are not always in sync between the Loan Market Association (LMA), the International Swaps and Derivatives Association (ISDA) and the bond markets. Treasurers may require legal advice in

this regard, as every loan they manage may be affected differently.

The Reserve Bank will likely require market participants to stop entering into new Jibar linked contracts by the end of the 2024. Due to the significant complexity and volume of data that goes into calculating a synthetic rate, the Bank is unlikely to use its powers to publish a synthetic version of Jibar for any period after 2025. Therefore, parties must come to some agreement on contracts that will be difficult to remediate.

In the meantime, here is a handy treasurer’s checklist for a smooth transition: ● Identify outstanding Jibar exposures: Check the loans, derivatives, floating rate notes, securitised products

and other short-term instruments such as repos and commercial paper; ● Understand the alternative rates: Look at the differences between the alternative rates and Jibar and how they operate, for instance, conventions used in the derivatives market (under hedging arrangements) versus loan documentation or other relevant markets, and watch out for material mismatches; ● Monitor regulatory and market developments: Monitor and implement recommendations from the Reserve Bank and industry bodies.

There may be different nuanced developments in different markets; ● Engage internally: Involve a diverse range of stakeholders, gather management information and set up appropriate reporting and escalation channels; ● Engage externally: Engage timeously with all affected parties, including financiers and other credit providers; ● Create a project plan and timeline: Plan and model for different scenarios, and set key milestones and deadlines, as guided by the Reserve Bank; and ● Do an impact and risk assessment: Conduct a Jibar transition impact assessment for all areas of the business, including legal, tax, accounting and operational functions.

The changeover to Zaronia should not be taken lightly. Move fast to assess its impact and whether you need to bring in professional assistance to manage its impact on all financial instruments and affected parts of your business.

TAXING MATTERS

Laws have to keep up with VAT modernisation

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n September 8 2023, the SA Revenue Service (Sars) published a VAT modernisation discussion paper.

In the discussion paper, Sars notes (and most taxpayers would agree) that modernisation of the VAT system has largely not progressed over the past decade in comparison with other tax and customs products.

The risk that this holds for the fiscus is largely attributable to the lack of supply chain visibility, exposing the fiscus to revenue leakages, which are time-consuming to detect and require frequent audits and verifications, placing a burden on vendors and their business. As a result, many

PIETER JANSE VAN RENSBURG taxpayers have been faced with delaying the finalisation of their VAT liability or VAT refund.

To address the issue, Sars is of the view that there is an opportunity to leverage available information technologies to enable digital transmission of VAT data that will provide visibility of all parties to a transaction, that is, visibility of the whole VAT supply chain. The principle is to enable vendors to digitally

transmit VAT data via a secured channel to Sars, namely, to provide a secure flow of data between a vendor’s accounting information system and Sars’s systems. The proposal is to initially implement the digital transmission of VAT data for a segment of the VAT vendor base that contributes 80% of the total VAT revenue.

Current estimates indicate that about 20% of the VAT vendor base utilises technology-based accounting information systems. This base is generally classified as medium to large vendors.

As part of transitioning to the future state of VAT modernisation, there may be a need to modernise the VAT return to disaggregate (expand) the data input

disclosure points based on a data model that is scalable for real-time reporting and to also add new data input disclosure points, to enable more meaning disclosure of tax data.

It appears that this is a step closer to Sars moving towards a system where all information on which tax liabilities are based is gathered from third parties instead of taxpayers themselves.

While the use of technology is welcomed, the current VAT and tax administrative legislative framework does not accommodate such technological advancements, and much will be required by the legislature before any implementation is done.

Consider, for example,

section 28 of the VAT Act dealing with the filing of returns, section 20 detailing the requirements for VAT invoices and section 41 containing the rules for interest on delayed VAT refunds. These provisions are largely driven by a vendor declaration process as opposed to a third-party reporting process.

Thankfully, it appears there will be sufficient time for the legislative process to run its course.

Benchmarking and feasibility

THE PRINCIPLE IS TO ENABLE VENDORS TO DIGITALLY TRANSMIT VAT DATA VIA A SECURED CHANNEL TO SARS

studies in 11 other jurisdictions indicate that the earliest possible implementation by Sars is expected in five years. That period will most likely require significant collaboration from IT and systems experts with the National Treasury to draft appropriate rules to accommodate the new technologies. Such interactions are not new and were equally applied when eFiling was introduced back in 2007-2008.

It will be interesting to see how relatively settled (read: old!) legislation will be adapted to keep up with changing times and technologies. Comments on the discussion document can be submitted to Sars until October 31 2023.

BusinessDay www.businessday.co.za October 2023

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BUSINESS LAW & TAX

Contracting in a climate of instability

UNDER OBLIGATION

Internal alignment

are ways to mitigate risks associated with •ITThere contracts but it is not a one-size-fits-all approach Isaivan Naidoo & Kayla Casillo ENSafrica

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s the global economy grapples with instability, contracting may be daunting, especially when it comes to commercial and legal risk appetite.

This article highlights some of the main considerations companies should take into account when wanting to reduce commercial and legal risk exposure under existing contracts, or when intending to conclude IT contracts that have a lower risk profile, to accommodate any financial constraints the company may be experiencing.

If a company is looking to tailor its existing contracts to accommodate financial demands or instability, it should review the contracts and consider the following contractual mechanisms for reducing its risk exposure.

of services, performance metrics and the like). Using the change control procedure pursuant to the terms of the existing contract, the company may have the flexibility to renegotiate service or commercial-related contractual terms to accommodate any changes in demand or commercial constraints.

Termination provisions Certain contracts may contain termination for convenience provisions that enable a customer to terminate the contract without cause. Such termination is usually not without liability. Typically, parties to the contract agree on an early termination fee should termination for convenience be exercised. However, the threat of termination for convenience may have the effect of bringing the supplier to the negotiating table in order to prevent the complete loss of its projected revenue under the contract.

Benchmarking exercises Scope of services In a master or framework agreement, where multiple service schedules or statements of work are concluded, it may be possible to terminate or reduce the scope of one service without affecting the other services being provided.

Change control procedures These are mechanisms generally built into contracts which make provision for changes or amendments to the services procured (such as the pricing model, increases or reductions in charges, pricing fluctuations, the scope

the industry. Conducting a benchmarking activity may assist in reducing the charges payable to the company’s existing supplier, although this is dependent on the terms applicable to the benchmarking exercise. For instance, does the contract force the supplier to reduce the costs to align with the benchmarker’s finding?

In outsourcing agreements that hold a lengthy contractual duration, benchmarking may be necessary to ensure that the service provider is not overcharging in comparison to the charges that would be payable to competitors in

IT IS CRITICAL THE TECHNICAL, OPERATIONAL, COMMERCIAL AND LEGAL TEAMS … ARE ALIGNED ON THE COMPANY’S STRATEGY

Waivers These can be used by the customer to relinquish or reduce service levels or certain onerous provisions which may not be required.

In this case, such a reduction could lead to the supplier reducing its fee based on the reduced risk such requirements posed.

assessment, including an evaluation of the company’s financial health, and the solvency, track record and stability of the potential service provider, as well as assessing whether the service is core to the company’s requirements and needs, and the risks associated with using such services.

Once the company has conducted its risk assessment and selected its preferred service provider, it should consider negotiating flexible contractual terms and low-risk positions throughout its contract to allow for flexibility, including:

Currency fluctuations Invoicing In most cases, you will find a customer will only pay a supplier 90 to 120 days after receipt of an invoice. The customer could seek to reduce this time period to ensure payment within 30 to 45 days after receipt of the invoice.

This may allow for alleviation of any cash flow on the supplier’s side and/or may lead to the supplier passing on some form of commercial benefit, such as a reduction or discount on the service fees.

On the other hand, if an unstable economy prevents the company from entering into new contracts with IT suppliers as a means to reduce costs and risk exposure then, instead of suspending the company’s contractual plans and service goals for the financial year or future, the company should first conduct a thorough risk

sanctions and embargos. This clause makes provision for the party experiencing a force majeure from under-performing, or a failure to perform, for a specified period until such time as performance is rendered impossible under the circumstances, thus generally giving rise to termination of the contract or alternative rights (such as step-in rights) being available to the other contracting party.

Currency conversions are directly affected by financially unstable economies. To mitigate this risk, companies should negotiate a fixed currency conversion or a range of currency conversions to ensure stability within the contract or, alternatively, include clauses that make provision for potential currency fluctuations.

Payment terms For purposes of ensuring the continued fulfilment of a company’s payment obligations, shorter payment terms, advance payments, interval payments or fixed-priced contracts can be negotiated.

required and not requesting “nice to haves”.

Termination clauses A well-drafted and clear termination clause may provide a legal way out of the contract if the supplier undergoes, or is likely to undergo, an event of insolvency.

These termination clauses typically allow a customer to terminate the contract without liability where the supplier is insolvent or may provisionally be insolvent.

COMPANIES SHOULD ENSURE THAT THEIR CONTRACTS IMPOSE ADEQUATE DATA SECURITY AND PROTECTION MEASURES Liability and insurance Liability clauses are one of the most material legal clauses in a contract as they could serve to expose the company to risk and liability that it would not ordinarily assume under law. The liability provisions should seek to reduce the company’s liability exposure, especially where a claim arises.

Force majeure Service levels and credits To ensure that the quality of services a company is receiving remains consistent, it will benefit from negotiating only the necessary service levels

Such clauses protect both contracting parties in the event of unforeseen or unanticipated circumstances that are beyond their control, such as an economic crisis,

To ensure the successful fulfilment of a company’s contractual obligations, it is critical that the technical, operational, commercial and legal teams of the company are aligned on the company’s strategy. Internal alignment is critical to the success of negotiating a low-risk and flexible contract that accommodates the company’s business requirements and strategy under conditions of economic instability.

Data security This is a critical issue in IT contracts, and companies should ensure that their contracts impose adequate data security and protection measures regardless of the economic environment.

Government regulations Governments may enact new regulations or policies to accommodate the country’s financial instability. Therefore, your contractual terms must be flexible enough to allow for any changes in law, regulation or policies imposed by the government or regulatory authorities.

Dispute resolution Financial instability may prevent or delay performance under a contract, which increases the likelihood of disputes. Retaining a robust dispute resolution mechanism in the contract is crucial, which could include alternative dispute resolution mechanisms such as amicable settlement, arbitration, mediation, or otherwise court litigation provisions.

While the above considerations may help to mitigate the risks associated with IT contracts in an unstable economy, there is no onesize-fits-all approach and it is more important to consider each transaction on a caseby-case basis.

Residential Communities Council proposes conduct code Peter Grealy, Wendy Tembedza, Karl Blom, Prineil Padayachy & Sanelisiwe Mthalane Webber Wentzel On September 8 2023, the Information Regulator published a notice in the Government Gazette No 49280 acknowledging receipt of a proposed code of conduct

from the Residential Communities Council (RCC Code).

The notice was published in terms of section 61(2) of the Protection of Personal Information Act, 4 of 2013 (Popia), which requires the Information Regulator to give notice that it is considering issuing a code of conduct.

PURPOSE OF THE RCC

CODE The RCC Code will, among other things: ● Promote appropriate practices by members of the RCC when processing personal information; ● Establish procedures for the submission, consideration and resolution of complaints against the RCC or its members;

● Lay down guidelines for the lawful processing of personal information by various stakeholders in the residential community industry; and ● Provide guidelines to establish a complaints handling process by RCC members.

TO WHOM IT WILL APPLY

All RCC members as it is a mandatory requirement for membership to the RCC and, where appropriate, third parties who have entered into agreements with an RCC member on the processing of personal information.

CONSEQUENCES OF NONCOMPLIANCE RCC members who do not

comply with the RCC Code may be subjected to, at the RCC’s discretion, a review of their membership by an assessor or independent adjudicator appointed by the RCC. A copy of the full draft RCC Code is available on the Information Regulator's website at https://inforegulator.org.za.

BusinessDay www.businessday.co.za October 2023

12

BUSINESS LAW & TAX

Labour law in SA not so bad for business to the common image, the country’s •lawsContrary are not among the world’s most stringent Johan Botes Baker McKenzie

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wo major considerations for international employers deciding whether to enter a market are the practical restrictions imposed by stringent, highly protective labour legislation and the efficiency and expediency of the country’s labour dispute resolution mechanisms.

SA’s employment laws are not as stringent as those of many European markets, even though they are still viewed as more rigid than those in various other developing markets. In addition, SA’s labour dispute resolution landscape is considered to be more effective than those in many other developing markets. This, overall, makes SA an attractive jurisdiction in which to employ workers, contrary to views common among local businesses.

Countries typically follow guidelines from the International Labour Organisation (ILO) when developing their labour law frameworks. It boasts membership of 186 of the 193 UN member states and sets the standards for fair workers’ rights globally, with countries voluntarily subscribing to this organisation’s guidance. Member states

adopt or ratify ILO conventions and develop or amend their labour laws to give effect to these conventions, factoring in their own social, political, economic and historical circumstances. ILO-supported employment law frameworks currently exist in Botswana, Kenya, Tanzania and SA, to name a few.

ARBITRATION AWARDS ARE FINAL AND BINDING AND, WITH ONE EXCEPTION, ARE NOT SUBJECT TO APPEAL In SA, the labour law regime includes various employee protections that provide entitlement to unemployment insurance, employee leave benefits, the national minimum wage, employment tribunal protections and the right to strike.

The Unemployment Insurance Fund is a vehicle for the payment of benefits to employees who become unemployed, take maternity or other forms of statutory unpaid leave, or qualify for various other statutory benefits covered by the fund administered by the state.

Employers and employees each contribute 1% of the value of the employee’s remuneration to the UIF monthly.

The National Minimum Wage Act came into effect in 2019. It applies to all workers and their employers, except members of the SA National Defence Force, the National Intelligence Agency, and the SA Secret Service. The national minimum wage is currently R25.42 ($1.33) per hour, with a few exceptions.

The Basic Conditions of Employment Act provides for minimum terms and conditions of employment relating to, among other things, the regulation of minimum leave, working times, particulars of employment and remuneration, notice periods and payments on termination. The minimum standard legislation creates two-tiered protection, with staff earning less than a minimum annual salary receiving additional protection in respect of an entitlement to overtime pay, minimum rest periods, maximum duty hours, and similar benefits aimed at protecting vulnerable workers.

The Commission for Conciliation, Mediation and Arbitration (CCMA) is an employment tribunal, tasked with conflict resolution, dispute management, education and dissemination of information

SOUND PRACTICE

/123RF — ARTURSZ to employers, employees and their organisations.

The CCMA may accredit bargaining councils to conduct conciliations and arbitrations in their sector. The standard dispute resolution process entails mandatory conciliation, followed by compulsory arbitration when disputes are not resolved by agreement at conciliation.

Arbitration awards are final and binding and, with one exception, are not subject to appeal, although defective awards may be reviewed and set aside by the specialist labour court. The CCMA has an exceptional percentage of resolved disputes by consent at conciliation, with typically only around a quarter of cases going to arbitration.

The rights to strike and bargain collectively are entrenched in the constitution and given effect in the Labour Relations Act. The act sets out procedural and substantive limitations on the right to strike, such as requiring employees to declare a dispute with the employment tribunal, subject the dispute to conciliation and provide prior notice of the strike.

The right is further limited in that employees may not strike where they have agreed not to or where the dispute may be adjudicated by a court or tribunal, for instance. While the legislation provides the statutory framework for union representa-

tion and collective bargaining, trade unionism is on the wane in SA — as is the case in most jurisdictions — with collective bargaining not prescribed as a matter of law. As a general proposition, employers and trade unions have to agree to bargain collectively, with employers able to agree with whom they engage in collective bargaining, if at all.

However, in the face of rising labour costs and an uncertain global economy, various businesses will continue to look beyond the direct employer-employee model to satisfy their work requirements, with some opting to increase their reliance on third parties and independent contractors.

In the current economic climate, almost all global businesses are subject to stringent requirements relating to increases in headcount.

Businesses in need of growing capacity without the ability to hire more staff often consider independent contractors and temporary workers as (short-term) measure to manage restrictions.

Employee misclassification is a risk faced by businesses in most jurisdictions, where courts and tribunals will consider the true nature of a work arrangement to determine whether an independent contractor is indeed a party to a purely commercial arrangement or is a dis-

guised employee entitled to protection under the employment laws.

Several countries, including SA, have further implemented protective laws that govern aspects of temporary workers’ employment relationships in an effort to provide greater protection against potentially abusive practices. For the average global or multinational company seeking to do business in SA, these laws and protections are nothing new and certainly not draconian. Global businesses are typically well aware of prohibitive employment practices and manage their businesses in line with commonly accepted legal requirements.

Those seeking a safe haven for exploitative practices would be disappointed to find that they would not be able to do things here that are considered wrong in most other countries as well, but those businesses with typical sound employment practices will find this jurisdiction to be surprisingly welcoming to employers.

SA is a relatively straightforward jurisdiction in which to be an employer, with highly regarded dispute resolution institutions assisting to ensure legal clarity. Elements of stricter labour laws are needed when considering the country’s history of inequality, warranting a heightened need for measures to protect employees’ rights. To guard against a labour regime becoming too rigid, however, we should always strive to consider and introduce innovative and dynamic policies that focus on simultaneously encouraging economic growth and alleviating inequality.

The death knell of a jurisdiction seeking to attract businesses and create employment opportunities is when the employment law regime becomes so stifling that the victims of such employee protections turn out to be the employees it aims to protect.