Business Day: Business Law & Tax – March 2021 by SundayTimesZA

BUSINESS LAW &TAX

MARCH 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Corporate tax cut welcome

SA rate is higher than global •average, must come down faster Evan Pickworth Business Law & Tax Editor

ne of the welcome surprises in the 2021 budget was a lowering in the corporate tax rate from 28% to 27% from next year. A healthy debate had been raging prior to the budget whether this rate may need to be increased to 30% to make up for the growing revenue shortfalls. However, sanity prevailed. Even with the cut, SA’s rate is still far higher than a global average of about 23% and needs to come down even faster in the future. SA needs more competitive company taxes to ensure other jurisdictions do not become more attractive in the desperate search for investment and growth. The corporate rate will only be lowered for companies with years of assessment starting on or after April 1 2022. But notably this will be done alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses. Tax executive at ENSafrica Kazi Mbangeleli — who correctly predicted the corporate tax cut ahead of the budget in

a Business Law Focus podcast — says tax changes indicate a clear, targeted and well thought-out strategy of broadening the SA tax base. “Securing additional foreign investment for economic recovery is a priority for SA. This is why any increase to the already high 28% corporate income tax rate would surely have neutralised these good intentions,” she says. Finance minister Tito Mboweni gave an early indication of the intent to grow the tax base and economy in his 2020 budget speech, when he spoke of an intention to broaden the corporate income tax base to create additional revenue to be used to reduce the corporate tax rate in the near future, to help SA businesses grow. AJM directors Albertus Marais and De Wet de Villiers say the key benefits of lowering the corporate rate include making SA a more attractive economy and a

SECURING ADDITIONAL FOREIGN INVESTMENT FOR ECONOMIC RECOVERY IS A PRIORITY FOR SA

CLEARING HURDLES TO GROWTH

/123RF — ELNUR AMIKISHIYEV hub into the rest of Africa. “Our corporate taxes were a little high compared with other jurisdictions in Africa, while our VAT rate is actually fairly competitive, compared to some peers. So the move to lower the corporate rate from April next year and to hold VAT steady is an important signal that SA is open for business. These moves should also help broaden the tax base, which will be crucial to getting the overall economic recovery moving forward.” Nazrien Kader, group head of tax for Old Mutual,

ENSafrica

Heavyweight firm with a highly acclaimed tax practice Chambers Global

says Mboweni reiterated his commitment to the policy change for companies. Partial relief in the form of a deferral to 2022 of changes such as the ring-fencing of deductions for interest expenses of companies that form part of a multinational group (to 30% of earnings), a limitation on the set-off of assessed losses against taxable income (to 80% of taxable income) announced in the 2020 budget, is also welcomed. Companies in the regulated financial services sector were cautioned that a financial sector levy will be

tabled in due course to fund the regulation of the financial sector. Head of tax in ENSAfrica’s Johannesburg office, Andries Myburgh, says while the reduction in corporate taxes and other partial relief is welcome, the details about the future treatment of assessed losses and interest exemptions were in short supply. “For instance, this seems to be a nod to the need to clamp down on base erosion and profit shifting broadly. This is in line with similar moves globally and in accordance with directives of the OECD. If you break that down, however, then it could mean they would need to focus on thin capitalisation and transfer pricing rules, as these would relate to funding and interest deductibility. But we do not have the details, so we don’t know which of the corporate relief measures will be taken away and when.” Myburgh says if broadening the tax base is the aim, it may be important for the Treasury not to mess with incentives which encourage investment by limiting costs for investors. According to Myburgh, it was disappointing that the budget did not mention incentivising foreign direct investment in mining. Wesley Grimm, Joon Chong and Cor Kraamwinkel from Webber Wentzel say that uncertainty regarding the scope and content of the

interest deductibility rules remains a concern and proposed refinements to the corporate reorganisation rules will have to be carefully considered when the relevant bill is published. Ntebaleng Sekabate, also a tax executive at ENSafrica, says while the budget did not directly address wealth taxes, it was made clear the SA Revenue Service (Sars) would be looking into the affairs of high-net worth individuals.

THE KEY BENEFITS OF LOWERING THE CORPORATE RATE INCLUDE MAKING SA A MORE ATTRACTIVE ECONOMY AND A HUB INTO THE REST OF AFRICA “Whether the wealth tax should be introduced should largely depend on the efficacy of collecting such taxes, and the determination of the basis on which the wealth tax will be imposed. Questions that still need to be answered are: how is “wealth” determined? Will certain assets be excluded in the determination of ‘wealth’? For instance, are pensions included, and how CONTINUED ON PAGE 2

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BUSINESS LAW & TAX BUDGET 2021

Corporate tax cut welcome CONTINUED FROM PAGE 1 would offshore stocks and bonds be treated? Who will ultimately bear the burden of the wealth tax and the opportunities for evasion by taxpayers? Considering that wealth taxes already exist in the form of capital gains tax, estate duty and so on,” Sekabate says. “These are still open questions after the budget speech, and it seems the can was kicked down the road. The reality is SA already has high taxes and the impact of wealth taxes on capital flight remains,” she says. In a nod to the benefits of lower taxes to encourage growth, Mboweni said consideration would be given to further rate decreases to make the tax system more attractive. These changes are expected to enhance efficiency, transparency and fairness in the business tax system, while facilitating economic growth through improved investment and competitiveness. However, Grimm, Chong and Kraamwinkel caution that one of the hardest hit groups will be individual taxpayers who propose to emigrate for tax purposes and have pension or provident funds in SA. The proposal to include retirement funds in the exit tax net may cause panic and increase withdrawals of such funds prematurely.

Positive budget supports growth

SIN TAXES

Government has realised it •must address structural issues Dr Albertus Marais AJM Tax Director

inance minister Tito Mboweni tabled a surprising yet resoundingly positive budget on February 24. Clearly, the government has realised there are serious structural problems which exist in the SA economy: a bloated public sector wage bill which relies too heavily on a shrinking tax base. In the result, the government has on the expense side reconfirmed that the current public sector wage bill is not commercially feasible and needs to be addressed urgently. The wage bill, which absorbs a huge 47% of total revenue year on year, has become a clear and present danger to SA’s fiscal position which can no longer be ignored, no matter how

politically inconvenient. On the income side, the realisation is that tax hikes cannot be relied on to provide increased tax revenues. An increase in tax rates will, in

WHAT IS DISAPPOINTING IS THE SLOW PROGRESS IN IMPLEMENTATION OF EXCHANGE CONTROL REFORM the current overtaxed SA environment, ultimately lead to decreased tax revenues over the medium to long term. It is for this reason that the government has proposed a cut in the corporate income tax rate from 28% to 27%, effective April 2022, coupled

/123RF — SEREZNIY with the making provision for so-called “fiscal creep” not to have an effect on taxpayers this year by allowing for tax brackets to be raised by 5% across the board. Instead of increasing tax rates, the government has rather resorted to rely on the considerable (yet of late neglected) intellect which it has at its disposal in Treasury, and opted to resort to enacting more focused and nuanced measures to bolster tax revenues through reviewing existing tax incentives which are inefficient, address tax abuse related schemes, and decrease the ability of entities to rely on assessed tax losses. These measures will lead to increased tax revenues on a focused basis and it is encouraging to see the government taking a finessed approach towards tax revenues as opposed to yielding

blunt instruments such as tax rates and which the public have sadly become accustomed to over the past few years. There are many unsurprising matters contained in the budget, such as the average 8% increase in duties on alcohol-related products (no doubt driven by the recent lockdown experience drawn from what a South African society will look like that absorbs less alcohol), as well as increased levies insofar as fuel and tobacco products are concerned. What is somewhat disappointing is the slow progress in implementation of exchange control reform with scant detail made available in this budget on further relaxation, perhaps even signalling a rethink of some of the generous relaxations anticipated and announced over the past year.

Leaving exchange control matters aside, the budget tabled should be applauded as one that will not only serve to encourage long-term growth in SA, stimulate growth and depart from structural problems, but it is also bound to make SA a more competitive investment destination internationally. ● Albertus previously worked for the Titan Group as its head of tax, whereafter he established the AJM tax consultancy business.

IT IS ENCOURAGING TO SEE THE GOVERNMENT TAKING A FINESSED APPROACH TOWARDS TAX REVENUES

Tax proposals that will add to hardships Wesley Grimm, Joon Chong & Cor Kraamwinkel Webber Wentzel Finance minister Tito Mboweni treads a pragmatic path between overspending and too much austerity in the budget, as the economy grapples with the impact of Covid-19 and lockdowns. The minister clearly listened to widespread calls to avoid raising taxes but also to allocate more funds to rolling out vaccines. Overall, it was an optimistic budget, but with some stings in the tail.

INFLATION-RELATED INCREASES IN THE FUEL LEVY AND THE ROAD ACCIDENT FUND LEVY WERE EXPECTED

The budget delivered good news for taxpayers on a number of fronts. However, here are the proposals necessary to raise tax revenue or increase the tax base that will be less welcome. One of the hardest hit groups will be individual taxpayers who propose to emigrate for tax purposes and have pension or provident funds in SA. The proposal to include retirement funds in the exit tax net may cause panic and increase withdrawals of such funds prematurely. The increase in excise duties on alcohol and tobacco products is above inflation, and while the government is commendably determined to tackle the abuse of alcohol, which costs the economy billions, it will have unfortunate consequences. It may fuel the

PAY MORE TO GET MOVING

/123RF — ZHUDIFENG illicit trade that flourished under the alcohol and cigarette bans during lockdowns. This will ultimately result in less revenue being collected than the taxes are intended to raise. It will hit a range of companies — not

only large ones but also small craft brewers who have struggled to recover from the loss of revenue during the bans. Though the intention is to cut corporate taxes, Mboweni said to maintain

revenue neutrality this has to be accompanied by measures such as limiting assessed losses and interest expense deductions. This proposal is deferred for a year and will give corporate taxpayers some breathing space, as after that many businesses will be unable to fully utilise losses that they could before. Uncertainty regarding the scope and content of the interest deductibility rules remains a concern and proposed refinements to the corporate reorganisation rules will have to be carefully considered when the relevant bill is published. The announcement that the Section 12J incentive available to venture capital companies will cease on the sunset date of June 30 2021 reflects the Treasury’s find-

ings that the tax deduction available for investing in Section 12J companies is not having the desired effect in promoting small business and job creation. This means the 2022 year of assessment will be the last year in which investors can put money into a Section 12J company/fund and claim a tax deduction.

TRANSPORT COSTS

Inflation-related increases in the fuel levy and the Road Accident Fund (RAF) levy were expected, because of the RAF’s contingent liability, but will affect transport costs for consumers. The announcement that a bill will be introduced to impose levies on regulated companies in the financial sector will also contribute to increased regulatory costs for affected entities.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX BUDGET 2021

Speech signals taxing times

Mboweni’s budget zeroed in on sunset clauses for •incentives and limitation of interest on deductions By ENSafrica’s Tax Department

he 2021 budget speech, which was delivered by the finance minister on February 24, hit the right notes in preferring economic growth over raising taxes as a means to hike tax revenue. This continued a consistent theme from previous budget speeches that acknowledged SA’s relatively high tax rates, and the inverse relationship between higher rates and increased tax revenues. Arguably, the budget announcements prioritise individuals ahead of businesses, which could lead to a longer road to economic recovery and a more gradual increase in tax collections. Not only was there a recognition that raising taxes may not increase revenues and is anathema to economic growth, but there was also complete silence regarding any form of what may crudely be termed “wealth taxes”, which were widely expected to make an appearance. However, a small mention was made of continuing evaluation and data collection in this regard, so wealth taxes are not off the table completely. The recognition of the economic devastation of

Covid-19 (and efforts to contain it) was clear. What taxpayers will be looking for is the pathway out of these current difficulties. The game plan appears to be the following: general corporate tax rates can only be reduced if overall effective tax rates are increased. As such, certain taxpayers must pay more tax in the form of a reduction of their particular beneficial treatment if the majority are to obtain a general reduction. The minister

THE MINISTER SHELVED MEASURES THAT HAD PREVIOUSLY BEEN ANNOUNCED TO INCREASE THE TAX TAKE mentioned in his speech a forthcoming 1% cut in the corporate tax rate. The budget speech commented on many initiatives to reinvigorate the SA Revenue Service (Sars), including reinstating the Large Business Centre (LBC) and initiatives to improve data collection, digital technology and artificial intelligence. Enforcement and compliance measures were also mentioned. In addition, based

on our interactions with Sars and in court decisions, this seems to indicate a trend (anecdotally at least) that is pro fiscus. All of this signals a tougher tax environment, even if the headline rates remain the same. The minister shelved measures that had previously been announced to increase the tax take. In addition, and worrying for the industries affected, he zeroed in on the sunset clauses for a number of specific tax incentives (which are a form of fiscal subsidy for qualifying taxpayers). Section 12J will therefore expire without extension, while others such as the Urban Development Zone regime continue for now, but are under review. Taxpayers should follow developments in this regard and take up opportunities to make their case to the Treasury. This harkens back to a decade or more ago when a concerted effort was made to limit or eliminate the number of tax incentives to specific industries, but which have slowly crept back into the system to facilitate policy initiatives. The minister explicitly referred to vested interests and lobby groups that arise in response to these incentives. Over and above the sunset clauses was a clear focus on two areas in particular: the

BUDGET BALANCE

Finance minister Tito Mboweni delivers his 2021 budget speech in parliament in Cape Town. /Esa Alexander/Sunday Times offset of assessed losses, and the limitation of interest deductions. Each of these limitations had previously been announced, and if it weren’t for the pandemic probably would have been introduced already. They are postponed to 2022. It is fairly obvious that an effect of the pandemic for many taxpayers will have been to increase or generate losses, and many will have had to gear up their balance sheets with debt. As such, it will be particularly worrying for the affected

taxpayers that these areas are in the spotlight. The interest limitation will seemingly be expanded further on introduction, and we will pay close attention to the draft legislation on both topics. Individuals will be happy that some (overdue) attention will be given to the tax rules for working from home, but no specifics were given. It may be a minor tax windfall for Sars that employees are using their after-tax earnings to pay expenses that would ordinarily be deductible by

their employers. There did not seem to be any urgency to address the tax rules relating to this fundamental shift in the business landscape. We had expected some attention to the tax treatment of bad and doubtful debts, both because of technical uncertainty and because the pandemic must have had a significant effect on irrecoverable debts and recovery rates of previously written off debts. However, there was no mention of this in the budget speech.

End of venture capital company regime Dedicated unit tasked with tax CHANGE OF PLAN enforcement

Dries Hoek CDH

The venture capital company (VCC) tax incentive was introduced into the Income Tax Act in 2008. The regime was aimed at raising equity funding for small, medium and micro enterprises which would otherwise have struggled to attract funding due to their size and inherent risk. Investors investing in venture capital companies are allowed an upfront deduction for their investment which compared favourably to other equity investments. The 2008 rules contained strict investor criteria and deductions were limited to R750,000 per tax year with individual investors also subject to a lifetime deduction limit of R2.250m. Changes were made to the venture capital regime in

/123RF — ARTUR SZCZYBYLO 2011 to make it more attractive which resulted in natural persons and legal entities securing full deductions for investments without any

monetary threshold limitation. In 2015 further changes were made to broaden the scope of the regime, which

resulted in a significant uptake in the regime and making a telling investment into the economy. In 2019, a monetary threshold of R2.5m per venture capital investor was reintroduced in order to balance the benefit and perceived effectiveness of the regime. National Treasury again reviewed the VCC regime as part of a larger process of monitoring and evaluating tax expenditures and concluded that the incentive did not achieve its objectives. The 2021 budget indicates Treasury found that the incentive raised capital for relatively low-risk investments which could have attracted funding without the incentive. Therefore, no upfront deduction will be allowed in terms of this incentive for shares acquired on or after June 30 2021.

Professor Emil Brincker CDH Consistent with the approach of the revenue authorities to bolster tax enforcement, it has been decided that a dedicated unit will be established to improve compliance of individuals with wealth and complex financial arrangements. High-net worth individuals are certainly to be targeted in circumstances where, for the 2020 fiscal year, 6,554 individuals reflected taxable

6,554 INDIVIDUALS REFLECTED TAXABLE INCOME IN EXCESS OF R5M

income in excess of R5m. Mostly high-net worth individuals make use of complex financial structures, including trust structures which may be located within SA and overseas. The extent of management and control of these entities will also be considered. It has been indicated the first group of taxpayers have been identified and they will receive their notices during April 2021. One can expect that the enforcement conduct of the South African Revenue Service (Sars) will be bolstered substantially and in this context an additional spending allocation of R3bn to Sars over the medium term has been approved.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

Share repurchases explained

A recent court judgment cleared up confusion •around when a buyback is a scheme of arrangement Kevin Trudgeon, Brian Price & Raquel Goncalves Werksmans

ince the promulgation of the Companies Act No 17 of 2008 there has been a debate as to whether or not every repurchase by a company of more than 5% of its own shares constitutes a scheme of arrangement. The genesis of this debate is the wording of section 48(8)(b) of the act. That section stipulates a decision by the board of directors of a company to acquire more than 5% of the company’s own shares, whether in one transaction or through a series of integrated transactions (qualifying repurchase), is subject to the requirements of sections 114 and 115 of the Companies Act. In light of the fact that section 114 deals with schemes of arrangement, it was argued that a qualifying repurchase must automatically be regarded as a scheme of arrangement. On February 5 2021, the Gauteng division of the high court, Johannesburg had the opportunity to consider, inter alia, this issue in First National Nominees (Pty) Ltd and others vs Capital Appreciation Limited and another (case no 19/41679).

The act does not contain a definition of a “scheme of arrangement”, so the court was left to consider this question. The court concluded that “the objective of an arrangement in terms of section 114 [that is, a scheme of arrangement] is to affect the respective rights and obligations inter se of the company and its holders of securities in a manner which cannot otherwise be conveniently achieved by independent agreement between the company and each holder of securities”.

THE ACT DOES NOT CONTAIN A DEFINITION OF A ‘SCHEME OF ARRANGEMENT’, SO THE COURT WAS LEFT TO CONSIDER THIS QUESTION It is apparent that the function of a scheme of arrangement is to provide a mechanism to affect the respective rights and obligations between a company and its shareholders and shareholders inter se in circumstances where doing so by a conventional agreement between all parties is not an

option. Axiomatically, a share repurchase pursuant to an agreement between a company and certain of its shareholders that does not seek to bind other shareholders who have not agreed thereto is not a scheme of arrangement. An arrangement that seeks to bind all shareholders, assuming all of the applicable statutory requirements are met and regardless of whether or not such shareholder/s voted in favour thereof (that is, agreed thereto), is by its nature a scheme of arrangement. The court went on to deal with the wording of section 48(8)(b) of the act itself, saying it clearly does not state that the qualifying repurchase is a scheme of arrangement, but rather that every qualifying repurchase is subject to the requirements set out in sections 114 and 115. The court acknowledged that, though a share repurchase may be implemented by means of a scheme of arrangement in terms of section 114, not every qualifying repurchase automatically falls to be classified as such. A qualifying repurchase that is not intrinsically of the nature of a scheme of arrangement is no more than a share buyback subject to the further conditions found in sections 114 and 115. A qualifying repurchase will only be

INVESTOR STATUS

/123RF — BAVORNDEJ PRAKIT a scheme of arrangement if, by its nature, it seeks to bind all shareholders whether they agree thereto or not. According to the court, the rationale behind the application of the additional requirements to qualifying repurchases is that “such transactions merit additional protection because they potentially affect minority shareholders more radically as they amount to a restructuring of the shares of the company”. It was the view of the court that the legislature accordingly saw it fit to impose on qualifying repurchases the protections that are already contained in sections 114 and 115 of the act and not to render all qualifying repurchases as schemes of arrangement.

The additional requirements applicable to qualifying repurchases include, inter alia, the appointment of an independent expert as contemplated in section 114(2), the adoption of a special resolution as contemplated in section 115(2)(a) and, importantly, the entitlement for shareholders to exercise appraisal rights in terms of section 115(8) (read with section 164) of the act. The purpose of the legislature in making the additional requirements applicable to qualifying repurchases was not to convert a simple share buyback contemplated in section 48 of the act into a scheme of arrangement, but rather to protect shareholders against potential abuses

that could accompany qualifying repurchases. Furthermore, the judgment arguably provides clarity on an additional aspect, namely whether a qualifying repurchase constitutes an “affected transaction” that is subject to the takeover regulations. Since there was a view that a qualifying repurchase is a scheme of arrangement, qualifying repurchases were therefore considered “affected transactions” by virtue of section 117(c)(iii) of the act, which states that an affected transaction means “a scheme of arrangement between a regulated company and its shareholders, as contemplated in section 114, subject to section 118(3)”. Accordingly, since the court has ruled that qualifying repurchases are not always schemes of arrangement, it seems only logical that a qualifying repurchase will not constitute an “affected transaction” unless it is a scheme of arrangement by nature. In conclusion, a qualifying repurchase that is not a scheme of arrangement will therefore not be subject to the takeover regulations. It should, however, be noted that the implementation of a qualifying repurchase may give rise to a different kind of affected transaction such as a mandatory offer or a comparable offer. It remains to be seen whether this judgment will be appealed.

LABOUR PAINS

Dealing with unacceptable employee behaviour

isciplinary procedures are, first and foremost, a process to attempt to correct unacceptable employee behaviour. There are, of course, many occasions when dismissal for a first offence is fair and justified, such as in cases of gross dishonesty, breaches of safety protocols and assault. However, as a general observation, employers tend to utilise disciplinary action more for dismissal than correction. As a rule of thumb, alleged unfair dismissal cases are easier to defend at the CCMA and bargaining councils if there is a history of progressive discipline, than is the case when the employee, at face value, has no history of progressive discipline. Item 3 (2) of Schedule 8 of the Labour Relations Act (Code of Good Practice:

TONY HEALY Dismissal) states that “the courts have endorsed the concept of corrective or progressive discipline. This approach regards the purpose of discipline as a means for employees to know and understand what standards are required of them”. Importantly, it continues that “efforts should be made to correct employees’ behaviour through a system of graduated disciplinary measures such as counselling and warnings”. We see in practice that less serious, and occasionally regular, acts of relatively

minor misconduct are frequently overlooked by employers. Yet, as we see all too often, an employee may commit the same act of relatively minor misconduct once too often in the eyes of the employer, who then seeks dismissal of the employee for repetition of the minor act of misconduct over time. Such an example could include habitual late-coming. The employee may have a poor time-keeping record, but if no prior, timeous corrective or progressive disciplinary sanctions were applied in those instances, this employee with a poor time-keeping record has an unblemished disciplinary record, when they ought to have, for example, had a final written warning for this offence on file. All too often we see employers rue the fact they did not apply prior

progressive discipline. Item 3(3) of the Code of Good Practice: Dismissal confirms that “repeated misconduct will warrant warnings, which themselves may be graded according to degrees of severity. More serious or repeated misconduct may call for a final warning, or other action short of dismissal.” Item 3(4) of the Code of Good Practice: Dismissal emphasises the importance of progressive discipline even further in stating that “generally, it is not appropriate to dismiss an employee for a first offence, except if the misconduct is serious and of such gravity that it makes a continued employment relationship intolerable”. The issuing of progressive disciplinary warnings is relatively simple. There are typically three levels of disciplinary warnings: verbal

warnings (typically valid for three months), written warnings (typically valid for six months) and final written warnings (typically valid for 12 months). Before any warnings are issued, the employee should be given an opportunity to explain themselves, before the employer decides whether the employee is “probably” guilty of the misconduct, prior to selecting an appropriate sanction (warning). No formal disciplinary hearings are necessary before issuing a disciplinary warning. In the final analysis,

ALL TOO OFTEN WE SEE EMPLOYERS RUE THE FACT THEY DID NOT APPLY PRIOR PROGRESSIVE DISCIPLINE

disciplinary warnings are an attempt to bring an employee’s attention to unacceptable conduct, in the hope they will correct their conduct. While most employees will correct unacceptable conduct with simple counselling and informal measures, other employees will not do so until such time as disciplinary steps are taken against them more formally. It is generally accepted that employers should develop a disciplinary procedure and code which outlines the employer’s in-house disciplinary procedures and establishes a company disciplinary code which as appropriate for the nature of the employer’s business. ● Tony Healy is CEO at Tony Healy & Associates Labour Law Consultants, www.tonyhealy.co.za.

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Novartis / South Africa and Kiara Health breaking new ground in the transformation of South Africa’s Pharmaceutical sector

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BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

Uber drivers are ruled ‘workers’ UK Supreme Court says ride-hailing firm’s drivers •should not be classified as independent contractors Sandile July Werksmans

he UK Supreme Court was called on to determine whether or not the Uber drivers (claimants) were employees of Uber BV and if the answer was to the affirmative, the employees would have a right to be covered by the National Minimum Wage Act. The Supreme Court delivered its judgment on February 19 2021. There are basically three parties involved in this relationship, namely Uber BV, a Dutch company; Uber London Ltd, a subsidiary of Uber BV based in London; and the drivers. In the service agree-

ments concluded between Uber and the drivers, the drivers are referred to as independent contractors and not employees. The Supreme Court held that the question of whether Uber drivers were workers or employees of Uber within the meaning of legislation designed to protect employees is not determined by applying ordinary principles of contract law to the contractual terms of the agreements between the parties. Those contractual provisions were inserted (by Uber) with the intention of excluding the operation of employment legislation. The Supreme Court investigated the relationship between Uber BV and the

drivers and found that because of the degree of control Uber exercised over the drivers, Uber BV was the employer. In coming to the conclusion, the court considered some of the following factors: ● That the private hired vehicle licence used by the drivers was in the name of Uber London; ● The passenger contacts Uber for transportation, in turn Uber engages the driver to ferry the passenger; ● The fare amount is fixed by Uber; ● The driver undergoes Uber training at Uber’s premises; ● The driver is subjected to the performance standards set by Uber; and ● There is no direct contact

ALONG FOR THE RIDE

/123RF — INKDROP between the passenger and the driver. This decision, in our view,

might be followed by other courts in other jurisdictions. The implications of this deci-

sion are not only for Uber but also extend to those companies that operate similar businesses to Uber. It is going to be a game changer, not just for Uber but also for other businesses that have owner-drivers. A similar matter came before the Labour Court. Because of the failure to join Uber BV to the proceedings, the court was constrained to deal with the relationship between Uber BV and the drivers. The Labour Court came to the conclusion that the drivers had concluded contracts with Uber BV and their claim potentially lay against Uber BV. According to the Labour Court, the commissioner ought to have upheld the jurisdictional challenge raised by Uber SA because there was no contract between Uber SA and the drivers.

DUES DATE

Structural reform aims to remove growth inhibitors

inance minister Tito Mboweni delivered his budget speech on February 24, one of the more challenging budgets in years, considering the pandemic, lack of growth and high unemployment. Main budget revenue is projected at R1.35-trillion (25.3% of GDP) in 2021/22. This increases to R1.52trillion in 2023/24. Noninterest spending will remain relatively constant at R1.56-trillion over the next three years but will decrease as a ratio of GDP from 29.2% in 2021/22 to 26.2% in 2023/24. Government allocated R10bn to purchase and deliver vaccines over the next two years. The contingency reserve is increased from R5bn to R12bn to provide for more vaccine purchases and cater for other emergencies. A primary surplus on the main budget will only be achieved in 2024/25. Government debt will be stabilised at 88.9% of GDP in 2025/26 and will decline thereafter. Total spending amounts to R2-trillion a year over the medium term, the majority allocated to social services. Global economic growth is expected to increase to 5.5% in 2021 before decreasing to 4.2% in 2022. China is expected to grow at 8.1% in 2021, and India at 11.5%. Sub-Saharan Africa is expected to grow at 3.2%. SA is expected to grow by 3.3% this year, after a 7.2%

FERDIE SCHNEIDER contraction in 2020. SA is progressing implementation of its economic structural reform which aims to remove growth inhibitors. Operation Vulindlela accelerated the pace of implementation of high impact structural reforms. Government aims to alter the economic structure through lowering barriers to entry, raising productivity and lowering the cost of doing business. Government committed R791.2bn to infrastructure investment, partnering with private sector and others. Expanded infrastructure could be funded through the end user paying a costreflective usage tariff. The budget supports economic transformation and job creation. Government allocated close to R100bn for public employment programmes and the Presidential Youth Employment Initiative. Government plans to finalise 1,409 restitution claims at R9.3bn over the next three years to achieve equitable access to land. Some R7bn is allocated to the Land Bank which will assist to resolve its current default and re-establish the development and

transformation mandate. Support to state-owned companies and public entities will be done through budget reprioritisation as outlined in the 2020 medium-term budget policy statement (MTBPS). The Department of Small Business Development allocated R4bn over the medium term to township and rural enterprises, including blended finance initiatives. SA’s public finances are stretched. Borrowing requirements will remain well above R500bn in each year of the medium term. Gross loan debt will increase from R3.95-trillion in the current year to R5.2-trillion in 2023/24. Government expects to collect R1.21-trillion in taxes during 2020/21 — R213bn less than the 2020 budget projection — the largest tax shortfall yet. In 2021/22 government expects to collect R1.37-trillion. Mboweni announced the corporate income tax rate will decrease to 27% for companies with years of assessment commencing on or after April 1 2022, while the corporate base will be broadened by limiting interest deductions and assessed losses. Further rate decreases will be considered to make the system more attractive, but in a revenueneutral manner. Personal income tax brackets will increase by 5%, which exceeds inflation, and provide R2.2bn tax relief mostly to lower and middle-

income households. Fuel levies will increase by 27c/l, comprising 15c a litre for the general fuel levy, 11c a litre for the Road Accident Fund levy and 1c a litre for the carbon fuel levy. Excise duties on alcohol and tobacco products will increase by 8%. Provinces will be allocated R3.5bn to improve access to early childhood development services. The special Covid-19 social relief of distress grant will receive R6.3bn for extension until April 30. Social assistance grants will also be adjusted. Government remains committed to support deserving students through higher education. Treasury is working with the department of higher education & training on policy and funding options. Payments to the Sacu have been increased to R137.3bn over the medium term. The African Renaissance and International Cooperation Fund will over the MTEF support projects that enhance African trade, economic development and integration and is also supported. The Africa Continental Free Trade Agreement presents the opportunity to deepen SA’s trade and financial linkages with the continent. The Treasury continues to work with industry bodies to promote SA as a financial hub for Africa. From March 1 , companies with a primary listing offshore will be

aligned to current foreign direct investment rules, which the Reserve Bank will oversee. The six busiest border posts will be upgraded and expanded. The SA Revenue Service (Sars) is deepening its information technology capability and specialised audit and investigative skills in the tax and customs areas to address abuse of transfer pricing, tax base erosion and tax crime. This fiscal year,

THE DEPARTMENT OF SMALL BUSINESS DEVELOPMENT ALLOCATED R4BN OVER THE MEDIUM TERM TO TOWNSHIP AND RURAL ENTERPRISES Sars will establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements. The first group of taxpayers have been identified and will receive communication in April 2021. The Treasury is fasttracking the finalisation of the Public Procurement Bill. It is finalising a framework to implement zero-based budgeting across government, done through spending reviews used internationally to achieve efficiencies. The department of justice

& constitutional development is ready to improve business processes and support the fight against crime and corruption. Sars, the Reserve Bank and the Financial Intelligence Centre (FIC) are working jointly on combating criminal and illicit cross-border activities through an interagency working group. Government announced in the MTBPS the historic agreement with all Nedlac constituencies for the annuitisation of provident funds. The constituencies agreed to accelerate the introduction of autoenrolment for all employed workers, and the establishment of a fund to cater for workers currently excluded from pension coverage, as an urgent intervention towards a comprehensive social security system. Annuitisation of provident funds took effect from March 1 2021, and provident fund members will continue to enjoy a tax deduction on their contributions. SA’s economy has a long road to recovery. If government can put the infrastructural building blocks in place, focus on creating employment, reduce foreign debt and debt cost, and seriously reduce government expenditure, SA will find itself on that road. The engine fuelling this needs to be growth in GDP. ● Dr Ferdie Schneider is CEO of Sta Konsult.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

When staffers refuse to be vaccinated

WORKABLE SOLUTION

Dismissals over vaccines are usually unfair, but •employer can sometimes act within their rights Silindokuhle Magagula & Lesego Ralekoa ENSafrica

ith the rollout of the Covid-19 vaccine in motion, many employers want to impose mandatory vaccination as part of their health and safety protocols. The question is: can they fairly dismiss employees for refusing to take the vaccine? In this article of the series, we deal with the legal position relevant to this question. Is the dismissal automatically unfair? Section 187(1)(f) of the Labour Relations Act provides that, if the reason for the dismissal is that the employer unfairly discriminated against an employee on grounds set out in the act, this dismissal is automatically unfair. These grounds include age, religion, conscience and belief and “any other arbitrary ground”. An employee who refuses to be vaccinated, for example, on religious or similar grounds, could argue that a dismissal was automatically unfair on this basis. It will be for the employer to show the reason for the dismissal was not one of these (or other discriminatory) grounds. Even if it is established that the dismissal was not for an automatically unfair reason, the employer will still

have to show that the dismissal was not unfair. Section 188 of the act provides that a dismissal is unfair if it is not effected for a fair reason falling within one of the three categories of dismissal recognised by the act, and in accordance with a fair procedure. These three categories of dismissal are: ● The conduct of the employee; ● The capacity of the employee; and ● The operational requirements of the employer’s business. We deal with dismissal for each of these reasons below.

MISCONDUCT

Item 7 of the Code of Good Practice: Dismissal requires any person determining whether a dismissal for misconduct is unfair to consider whether or not the employee contravened a rule or standard regulating conduct in, or relevant to, the workplace. Accordingly, employers could formulate their vaccination policy in such a manner that it creates a rule or

IN CERTAIN CIRCUMSTANCES, THE TERMINATION OF EMPLOYMENT COULD BE JUSTIFIED ON THE BASIS OF INCAPACITY

requirement for employees to take the vaccine. However, the code provides that a disciplinary act must be valid or reasonable. It is entirely possible employees could challenge the reasonableness of this rule, for example, on the basis that it constitutes a serious infringement of various constitutional rights such as privacy or bodily integrity. But it is also possible an employer may be able to justify the rule on the basis that vaccination is required to enable the employer to comply with its obligations (and those of its employees) in terms of the Occupational Health and Safety Act or the Mine Health and Safety Act. The code also requires the employer to show the disciplinary sanction of dismissal is fair. The failure or refusal to be vaccinated could also be cast as a form of insubordination. However, an employer would have to show the instruction to be vaccinated was reasonable and lawful and the arguments mentioned above would also be applicable in this scenario. Although there is no law in SA making it mandatory for citizens to take the vaccine, employers are still required by the occupational and mining safety acts to provide and maintain, as far as is reasonably practicable, a working environment that is safe and without risk to the health of

/123RF — CHOKNITI KHONGCHUM its employees. In addition, the increasing number of deaths from the coronavirus and the hardship suffered by businesses satisfy the requirement of reasonableness. The facts of each failure or refusal to take the vaccine ought to be considered as there may be valid grounds for the employee’s failure or refusal that will not justify his/her dismissal.

INCAPACITY

In certain (probably limited) circumstances, the termination of employment could be justified on the basis of incapacity. This could, for example, be the case when a statute or regulation is enacted that requires an employee to be vaccinated as a precondition to do the job. An example may be employees on a cargo vessel who are required to enter and exit other countries to deliver and collect goods. These individuals may be required in terms of the laws of other jurisdictions to present proof of the vaccination on entry and exit. In some cases, where employees are required to interact with each other and/ or where interaction with the general public is necessary for employees to carry out their duties, risk assessments performed by the employer may make it mandatory for

employees to be vaccinated for them to render their services safely. Arguably, employees who do not take the vaccine could be dismissed on the basis that they are unable to render their services safely or adequately.

OPERATIONAL REQUIREMENTS

These are defined in section 213 of the act as requirements based on the economic, technological, structural or similar needs of an employer. Similar needs are not defined in the act. However, in decisions such as SA Transport and Allied Workers Union and Others v G4S Aviation Secure Solutions, the labour court and the Labour Appeal Court have accepted that this concept is broad enough to include factors that generally have economic consequences for the enterprise. A plausible argument could be made that an employer, in at least certain circumstances, may be able to justify a dismissal on the grounds of its operational requirements.

CONSTRUCTIVE DISMISSAL

In terms of section 186(1)(e) of the act, a constructive dismissal takes place if an employee terminates employment with or without notice

because the employer made continued employment intolerable for the employee. An employee confronted by a demand from an employer that they be vaccinated could conceivably argue this demand makes continued employment intolerable and resign from their employment and claim they have been constructively dismissed. However, even if it is accepted there was a constructive dismissal an employer could in specific instances, justify the fairness of such dismissal on the basis of its obligation in terms of the occupational and mine health and safety acts. The key takeaway in this article is that the question whether or not employees can be dismissed for refusing to take the vaccine can only be answered on a case-bycase basis. Dismissal might not be justified in all circumstances and employers should guard against hastily terminating employment without fully exploring whether it is necessary to require vaccination and why employees have failed or refused to be vaccinated. ● Reviewed by Peter le Roux (Executive Consultant) and Lauren Salt (Executive) of ENSafrica’s Employment department.

Kickbacks: your Swiss bank may owe you money Daniel Macqueen Faucon International Services In spite of the practice being outlawed throughout the European Union, many Swiss banks, asset managers, trustees and financial service providers continued to earn and keep commissions and kickbacks on investments such as funds, obligations, structured products and so on in agreements made with distributors of these products on the monies held for their wealth management clients. Retrocessions are a form of inducement that have for

many years been a wellestablished lucrative income for Swiss banks and other financial service companies. While the practice of expecting and receiving such inducements has been highly regulated by many countries in the EU, and even banned in some, the Swiss banks have continued to keep these kickbacks, claiming that without them their clients would have to pay more for their services. The argument against the receipt of these kickbacks is that they are not transparent in most cases and constitute a

potential conflict of interest, with the losers being the clients themselves. Although the banks have tried to remedy their position with regards to these retrocessions by issuing revised “waivers” for their clients to sign, the courts have ruled these are not sufficient to fully inform their clients of the true quantum of the retrocessions being earned. However, the practice began to come under the legal microscope in 2006, when it was ruled the kickbacks belonged to the client and, therefore, had to be for-

warded to them. Further, in a Swiss Federal Supreme Court Ruling in 2012, it was decided the banks were not allowed to keep the retrocessions on inhouse products for such client portfolios. Then, in 2017, the same court made a clarification regarding the time period over which these retrocession claims could be made; clients could now claim retrocessions retroactively for the past 10 years. In 2018, the court held the failure to adequately disclose the retrocessions could con-

stitute an act of criminal mismanagement. In May 2020, the Swiss Federal Supreme Court questioned the validity of certain banks’ “retrocession waivers”, further opening up, substantially, the number of legal claims that could be made by affected clients, even opening up previously rejected claims. The banks were not, however, ordered to track down and repay their clients. It is estimated up to Sf15bn ($15.4bn) could be reclaimable from the banks. While banking in Switzerland may have been seen as a

way of avoiding taxation or generally hiding one’s wealth, the vast majority of clients invested there for legitimate reasons, with the skills and results of Swiss asset managers being highly regarded. Regardless of whether the client still holds an account with a Swiss bank, or whether held by a company, trust or foundation, the claims would remain valid and actionable. Assuming all the provided information is correct, the recovery of the claims would generally take between six and nine months.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

Digital platforms to be probed

Competition •Commission to

SPELLING IT OUT

conduct market inquiry as world increasingly heads online Jac Marais & Misha van Niekerk Adams and Adams

n February 19 2021 the SA Competition Commission announced it will be conducting a market inquiry into online intermediation platforms and published the draft terms of reference for the inquiry, with calls for public comment to be received by no later than 4pm on March 12 2021.

THE WHAT

A market inquiry is one of the tools available to the commission to look at competition within a specific market. The commission may initiate such an inquiry where it believes that the market in question has certain features that impede, distort or restrict competition and undermine

/123RF — THANEE HENGPATTANAPONG the purposes of the Competition Act, 89 of 1998. Digital markets have been placed under the microscope by competition authorities in various jurisdictions owing to the growth in importance of such markets (particularly in light of the pandemic and the concomitant effect it has had on the global economy and the ways in which business is conducted) as well as the high levels of concentration inherent therein.

The commission’s inquiry follows from its calls for public comment and stakeholder involvement in respect of its September 2020 strategic view on regulating competition in the digital economy — the report in respect hereof is due to be published this week and concludes that a market inquiry would be the most suitable means by which to consider and address potential competition concerns within the market.

THE WHO

As digital platforms cover a wide range of platform types — each of which gives rise to its own competition and public interest concerns — the commission has restricted its inquiry into a particular set of digital platforms with common competition issues, namely online intermediation services. This is said to be online intermediation service platform markets that intermediate transactions between business users and consumers (or “B2C” platforms), including the generation of transactions leads (such as the case with online classifieds and travel aggregators). The online intermediate services market includes the following platforms: ● E-commerce — with specific reference being made to Takealot and Superbalist being substantially larger than other online platforms, with many business users depending on them as a route to market. ● Service delivery platforms — most of which is said to have one or two dominant players, with specific reference being made to MrD, UberEats, Airbnb and TravelStart.

● Online classifieds — which the commission argues typically have two platforms that dominate sales leads and market revenue such as Autotrader and cars.co.za in respect of automobile sales and Property24 and Private Property as an example of property listings. ● Software app stores — where Google Play and the Apple App store are said to have dominant positions.

TERMS OF REFERENCE

The commission’s draft terms of reference lists the following features of the market as being of concern: ● Price parity clauses. ● Exclusive contracts. ● Predation concerns. ● Conglomeration (such as with the Naspers Group, which is said to be involved across various platforms). ● The platform provider’s “dual role” as the platform

THE INQUIRY WILL FOCUS ON THE AREAS OF CONCERN SET OUT IN THE DRAFT TERMS OF REFERENCE

operator for the marketplace and a seller. ● Ranking of sellers and conduct associated therewith. ● The platform’s importance to accessing online customers/route to market may result in dependency by sellers. ● Other potential barriers to entry.

THE HOW

The inquiry will focus on the areas of concern set out in the draft terms of reference. The commission will, inter alia, evaluate trends in the use of the different online intermediation platform markets; evaluate the market features, contracts and core terms of use to consider whether these raise any barriers to entry and/or reduce competition among the platforms domestically or could be said to be discriminatory or unfair; evaluate other barriers to entry and, where it is found to result in adverse effects, determine appropriate remedies. As such, it is important to ensure that if a firm is likely to be impacted by the inquiry, representations are made to the commission during the inquiry.

Two case studies of Covid retrenchment Jonathan Goldberg Global Business Solutions Section 22 of the constitution affords all SA citizens the right to choose their trade, occupation or profession freely. However, it also says the practice of a trade, occupation or profession may be regulated by law. A great many people were retrenched in 2020. While numbers still looked strong in the first quarter, in the second quarter the number of employed people decreased to 14.1-million. According to the Quarterly Labour Force Survey, the number of employed people increased slightly to 14.7-million in the third quarter. It is hoped the upward trend will continue into 2021 as the economy recovers and learns how to navigate the new way of doing business. Here, we will examine two cases that have been through our courts that highlight retrenchment issues that have arisen as a result of the Covid-19 pandemic. 1. Lemley vs Commission for Conciliation, Mediation and Arbitration and others (2020) 29 LAC 1.11.27 If a reasonable alternative

to retrenchments is offered but rejected then no severance is payable. The big question is what is a reasonable alternative? What percentage differential on the package will be reasonable? The answer must lie in the circumstances at the time. If the employee refused to accept the change to remuneration, this could — in certain circumstances — amount to an unreasonable refusal of the alternative.

THE EMPLOYEE REFUSED ALL THESE ALTERNATIVES AND, AS A RESULT, WAS DISMISSED FOR OPERATIONAL REQUIREMENTS In this case, as an alternative to retrenchment, the employee was offered a transfer from Gqeberha (formerly Port Elizabeth) to East London, which he refused. The employer then offered other alternatives, including an increase in the employee’s rental subsidy or the option of early retirement, with a cash settlement to help him con-

tinue to contribute to his pension fund until the date of his retirement. The employee refused all these alternatives and, as a result, was dismissed for operational requirements without a severance package. A commissioner and the Labour Court, on review, found the employee was not entitled to severance pay because he had refused a reasonable offer of alternative employment. On appeal to the Labour Appeal Court, the employee argued the commissioner had erred by disregarding his age and personal circumstances, which made it impossible for him to relocate. The Labour Appeal Court confirmed that, in terms of the Basic Conditions of Employment Act 75 of 1997, employees dismissed for operational requirements are entitled to one week’s severance pay per year of service, unless they have unreasonably refused an offer of alternative employment. The employee had not provided any reasons for his refusal to accept the offer to relocate. The court found that the purpose of statutory severance pay is to limit job

SIGN OF THE TIMES

/123RF — GAGARYCH losses through retrenchment by incentivising employers to provide alternative employment. The employer had taken steps to avoid retrenching the employee and he had made no effort to engage with management. The commissioner’s finding that the employee had unreasonably refused an alternative was reasonable and the Labour Court had correctly declined to review the award. The appeal was dismissed.

2. In CWIU & others vs Latex Surgical Products (Pty) Ltd (2005) 14 LAC 7.1.3 As the courts will generally not second-guess a business decision made by a company, they will assess the fairness of a decision to retrench owing to operational reasons and not the correctness thereof. These principles were demonstrated in this case. The individual employees were members of a union and were dismissed by the respondent company in

February 1999. The Labour Court found the dismissal was both procedurally and substantively fair but allowed them leave to appeal to the Labour Appeal Court. The appeal court found that the reasons for dismissal were unfair on the basis of the selection criteria used: ● They were not fair nor objective as required by section 189(7)(b) of the LRA; ● Immediately after the dismissal, the employer employed 80 casual workers who were no more qualified than those who were dismissed; and ● The company did not take into account the dismissed employees’ proposal that they all work shifts and share the available work to avoid anyone being retrenched. The Labour Appeal Court found there was no fair reason for the dismissal and ordered reinstatement with retrospective effect. Retrenchments are not easy. The operational reason for the retrenchment has to meet the benchmark of being objective. Though courts will not intervene in employer’s decisions, they will if the evidence is clear there was not justifiable rationale.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

The standout trademark won’t confuse

SORT THROUGH THE MAZE

need not have anything to do •withGoodthetrademarks product, as long as they are distinctive Gerard du Toit ENSafrica

t’s not easy keeping track of Elon Musk — the one week he’s the richest man on the planet, the next he’s a mere second. It really would be nice if he could keep his eye on the ball a bit: we South Africans don’t get many opportunities to claim a number one! We have all long known Musk is very good at making money. What we didn’t know was that he can make others very rich too … all he needs to do is drop the odd word. A few weeks back, Musk tweeted the words “Use Signal” and this had a most remarkable effect — within two days, the shares of a small US health care technology company called Signal Advance soared from 60 US cents to $7.19, and the company’s market cap rose from $55m to $660m. This enormous boost in value was, however, an unintended consequence — investors had the wrong company. In fact, what Musk was suggesting was that peo-

ple use the Signal messaging app. As a nonprofit company it has an interesting advertising message, one that is clearly related to the current privacy concerns surrounding its much bigger rival WhatsApp: “We don’t care about you … your pets … the gossip … your love life … All we care about is to make Signal more private, secure and fast with new features … We really don’t have time to listen to your conversations.” So, what has any of this to do with intellectual property (IP)? Well it does, of course, bring us on to an issue that is close to our hearts — confusion between names or trademarks. The main difference being that in our world,

THE ISSUE THERE WAS WHETHER BOOKING.COM., A TRADEMARK USED AND REGISTERED FOR HOTEL BOOKING SERVICES, WAS A VALID TRADEMARK

the confusion tends to involve consumers (consumers buying the goods or services of one company in the mistaken belief they are those of another) rather than investors. So, how do you avoid trademark confusion? It’s an odd thing but most entrepreneurs are convinced the best kind of trademark is one that describes what the product is, or perhaps describes what the product does, how good it is, where it comes from. They seem to believe if a product has such a name it becomes an easier sell, as the consumer already gets a degree of information. But trademarks like these have serious drawbacks. They don’t distinguish, they don’t stand out from the crowd, they are easily confused with similar competing brands, and they are difficult if not impossible to register. What you need is a standout trademark. But what makes a standout trademark? Ask any trademark attorney and they’ll tell you your best bet is a coined word, a word with no meaning. Portmanteau

/123RF — ALEXSKOPJE words (combinations), they’ll say, can also be good. Even a word with a meaning can work if it is used for goods or services to which it has no relevance. Any of these categories of trademarks can generally be registered and they can be enforced. We have, of course, looked at these issues in previous articles. We’ve discussed the 2017 Supreme Court of Appeal (SCA) judgment in the Twist case, where the issue was whether the trademark Twist was distinctive (and therefore registrable) for soft drinks. The SCA decided it was. The court made the point that a trademark does not always need to be coined or fanciful, but that arbitrary (out-ofcontext) usage of a known word might also work. The court said this: “Like a made-up word a common word which is arbitrary when applied to a particular product is the exemplar of a mark inherently capable of distinguishing.” It went on to

say that even if the word has a meaning in relation to the particular product it might still be registrable if it is allusive or metaphorical: “If ‘twist’ has any meaning as applied to soft drinks, it is ‘allusive or metaphorical’.”

ASK ANY TRADEMARK ATTORNEY AND THEY’LL TELL YOU YOUR BEST BET IS A COINED WORD, A WORD WITH NO MEANING We have also discussed a more recent judgment in the US Supreme Court, one that may have surprised some. The issue there was whether booking.com., a trademark used and registered for hotel booking services, was a valid trademark. The late justice Ruth Bader Ginsburg held that the trade-

mark was distinctive. In her view, much rode on the fact the mark was used on the internet: “Only one entity can occupy a particular internet domain name at a time ... a consumer who is familiar with that aspect of the domain-name system can infer that Booking.com refers to some specific entity.” Another relevant factor, said the judge, was the survey evidence, which proved that consumers believe booking.com is the trademark of a particular company: “Whether any given ‘generic.com’ term is generic, we hold, depends on whether consumers in fact perceive that term as the name of a class or, instead, as a term capable of distinguishing among members of the class.” Trademark creation should not be taken lightly. If you need help, call us … or send a signal. ● Reviewed by Ilse du Plessis, an executive in ENSafrica’s IP department.

CONSUMER BILLS

Life is a beach if you can figure out what it is

very cabinet minister and every judge should have section 36 of the constitution framed and put on their wall. The section deals with the circumstances under which our rights in the Bill of Rights may be limited, which includes consideration of the nature and extent of the limitation, its purpose and less restrictive means to achieve the purpose. The closure of the beaches in December and January demonstrated an unreasonable and unjustifiable limitation of rights resulting in the further destruction of jobs. In a judgment that gave total deference to the government and only made a passing reference to section 36, the high court in beachless Pretoria found

PATRICK BRACHER nothing wrong with the December 15 gazette which prohibited gatherings at beaches on most of the SA coastline. The court refused to deal with the issue as administrative action despite the Constitutional Court’s remarks years ago that the right to challenge such action is an important part of the constitution’s commitment to open and transparent government. In its judgment the court in Pretoria said, “I do not agree that no-one knows

what a ‘beach’ is” and proceeded to give its own definition as “that stretch between the low and high water mark although sand may extend beyond that”. Whatever that may mean. The ordinary meaning is “the sandy stretch up to the high water mark where people are accustomed to gather for a swim”. We saw extraordinary sights such as people at Nature’s Valley crowding onto a small sandy beach next to a lagoon within metres of an empty beach about 2km long. Then we found out that the government did not know what a beach was. By January 5 2021 this became “all beaches, dams, lakes and rivers”. On January 11 a beach became a “sandy, pebbly or rocky shore between the high-water

mark and low-water mark adjacent to the sea or an estuary mouth or within 100m of the high-water mark excluding private property including the sea and the estuary themselves”, which in the Western Cape alone is a coastline of more than 1,000km long. Up until then you could jump into the sea off a rock and have a happy swim. From that date if you got out of your car on a gravel road next to the sea you were unlawfully on the shore. You would also have been greeted by the absurd sight of reluctant members of the police walking slowly along a beach kilometres long to stop any beach recreation. Or you may have seen people swimming with a fishing rod and permit at hand because the restrictions did not apply

to a fisherman on the beach for fishing purposes in possession of a permit. The police themselves did not understand the law because, until January 11 at least, a gathering did not include walking across the beach to have a swim, and yet that was prevented. From January 11 we had a law which in many places prevented anyone swimming in the sea “at all”. Was that 100m from the shore or did we have to go out to swim 12 nautical miles

THE HIGH COURT IN BEACHLESS PRETORIA FOUND NOTHING WRONG WITH THE DECEMBER 15 GAZETTE

from the shoreline where the territorial limits end? The real question is whether it was worth interfering with healthy activities and destroying livelihoods on the basis of hopeless regulations which bear no relationship to the extent of the limitation required, its purpose, nor whether any less restrictive means could have achieved the purpose. On every one of those grounds the regulations failed dismally and so did the courts that protected them. We all understand the need for precautions during a pandemic. But we also need to understand the rationality of the precautions. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

Can firms enforce staff jabs?

Employers •should acquaint

SAFETY IN NUMBERS

themselves with the legal rights and obligations Danie Pretorius Fluxmans

espite health minister Zweli Mkhize remaining tight-lipped on where our Covid-19 vaccines are coming from and concerns around the quantity of vaccines expected, many are poised to do what they can to secure this lifeline that should dramatically help to reignite economic and social activities throughout the country. While most see the vaccine as a positive and necessary step towards normalcy, the question will soon arise of whether an employer can insist on its staff being vaccinated against a virus such as Covid-19. This will in all probability become a burning issue, particularly in respect of large workforces where work is conducted in confined spaces, such as in manufacturing and mining. However, it will also affect any employer who is desirous to have their employees return to the workplace. Though details remain sketchy as to what payment requirements there will be, if any, to acquire the vaccine, one would assume payment will be needed from individuals who wish to be vaccinated. And, therefore, as a matter of general proposition, one would expect that any employer insisting its workforce is vaccinated would offer to pay.

AFFECTED RIGHTS AND OBLIGATIONS

There are various legal rights and obligations that come into play. Obligations include the obligation of an employer to provide a workplace that is safe and without risk, as required in Section 8(1) of the Occupational Health and Safety Act, Act 85 of 1993 (OHS act), and not to discriminate against employees in terms of the Employment Equity Act, Act 55 of 1998, and the rights enshrined in the constitution, including the right to human dignity, life, bodily integrity, freedom of religion, belief and opinion and to an environment that is not harmful to their health or wellbeing. With reference to the rights enshrined in the Bill of Rights contained in the constitution (Sections 7 to 39), it is

/REUTERS important to remember that such rights are subject to the limitation clause (Section 36) which indicates that those rights may be limited in terms of Laws of General Application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account

ONE WOULD EXPECT ANY EMPLOYER INSISTING ITS WORKFORCE IS VACCINATED WOULD OFFER TO PAY all relevant factors, including the nature of the right, importance of the purpose of the limitation, nature and extent of the limitation, relation between the limitation and its purpose, and less restrictive means to achieve the purpose. In light of the obligation on employers in terms of the OHS act, as read with the Bill of Rights regarding a safe environment, employers would be obliged to carefully consider their obligations towards their workforce when it comes to vaccinations. Should it become apparent there are individuals or a group who refuse to be vaccinated, the question of whether a remedy exists for the employer on how to treat them should be examined. The legal position is somewhat different with a smaller workforce that is

nonunionised, as opposed to large highly unionised environments, with the risk for employers with large workforces also being exponentially greater. In small workforces, the employer could more often than not change the terms and conditions of employment by amending them to reflect that governmentapproved and available vaccines during a pandemic must be taken by the workforce. Ordinarily, should someone be aggrieved at such a unilateral change, they can invoke Section 64(4) of the Labour Relations Act, Act 66 of 1995 (LRA), and have the implementation of the variation to the terms and conditions of employment halted for 30 days, after which the changes can be implemented by the employer. At that point, the only remedy available to the aggrieved employee would be to embark on protected strike action. However, it is clear that in small workforces that are not unionised, the strike threat is far less meaningful as a result of these employees not being able to make a significant impact on the business by withholding their labour.

CONSULTATIONS AND PERSUASIONS

When it comes to large unionised and/or organised workforces, a unilateral variation to terms and conditions of employment means the workforce would be able to go on strike almost immediately if the employer refuses to withdraw the variation. Obviously one can assume

most employees would want to be vaccinated and, in that context, the number of employees who refuse a vaccination may not be significantly meaningful to have a real impact on the business, even if they decide to strike. The employer can also adopt another approach. It can embark on a consultative process in which it attempts to persuade its workforce to accept the variation to the terms and conditions of employment that would compel them to be vaccinated. Should they refuse, the employer may refer the issue to the CCMA in accordance with Section 64(1) of the LRA. This would entitle the employer to initiate a protected lock-out should the employees not capitulate. In a protected lock-out, the employer may refuse the recalcitrant employees entry

TO MOST IT IS APPARENT THAT VACCINATIONS IN TIMES OF PANDEMICS ARE FOR THE GREATER GOOD OF SOCIETY to the workplace with no pay until they accept the obligation to be vaccinated. The purpose of a lock-out can, however, be unlawful. If it is unlawful, it could be interdicted in the labour court and set aside. In this regard, complex questions will arise, particularly if someone insists they cannot be vaccinated because of religious or

cultural beliefs. Obviously, if an employee cannot be vaccinated for medical reasons (if there are in fact any), and produces a medical certificate to that effect, different considerations would have to be applied. It is at this point that the limitation clause referred to above in the constitution (Section 36) would come into play, and a weighing-up of the various interests would have to occur as to which rights should take precedence in this scenario.

GREATER GOOD

To most it is apparent that vaccinations in times of pandemics are for the greater good of society. Added to this is the specific obligation contained in the OHS act that obliges an employer to provide a safe workplace. In my view, if one weighs up these conflicting rights and/or interests, the greater good should override religious or cultural considerations or any other reason proffered not to be vaccinated (except specific medical reasons, as alluded to above). Section 36 of the constitution would then allow the greater good of society to prevail despite it encroaching on other rights in the Bill of Rights in the constitution. Therefore, an employer’s insistence its workforce be vaccinated would not be unlawful. The last question that remains relates to what to do with employees who still refuse to be vaccinated, or who are left locked out in terms of a protected lockout.

Obviously, if the employers’ terms and conditions of employment have been amended to compel employees to be vaccinated, a refusal to do so would constitute insubordination that could lead to disciplinary action and ultimately to dismissal. It would also not be a defence to suggest the employee who refuses to be vaccinated can perform his or her duties from home. It remains the managerial prerogative for an employer to decide how, where and when an employee should tender his or her services.

SEVERANCE BENEFITS ENTITLEMENT

The employer could also adopt another approach, namely to consider the retrenchment of employees refusing to be vaccinated, based on its operational requirements to ensure the wellbeing and health of its workforce. Given that a reasonable alternative exists, namely to be vaccinated and continue to be employed, even if employees refusing vaccination would be retrenched, they would not be entitled to any severance benefits. Finally, should an employee who refuses to be vaccinated elect to resign and then claim constructive dismissal, this would also be defeated as it is not the employer’s conduct that renders the employment relationship intolerable. It is rather the presence of a deadly and contagious pandemic that is capable of being defeated by the taking of a vaccine.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

How to start Popia journey

of an information officer is a good •firstAppointment step, although clarity is needed on some issues Nicole Gabryk, Rakhee Dullabh & Jessica Steele ENSafrica

ith the Protection of Personal Information Act 2013 (Popia) closing in on the deadline of July 1 2021, many organisations are starting to feel the mounting pressure of becoming compliant with Popia. A good starting point in any Popia compliance journey is the appointment of an information officer for your organisation. Who is the information officer? Popia, by default, designates the head of any private body as the information officer. However, there has been some debate as to whether or not the role of information officer can be delegated to another person (either internally or externally). Section 1 of Popia defines the “information officer” in relation to a private body as “the head of a private body as contemplated in section 1 of the Promotion of Access to Information Act” (Paia). The act, in turn, defines the “head”, in relation to a private body and in the case of a juristic person, to be “the CEO or equivalent officer of the juris-

tic person or any person duly authorised by that officer; or the person who is acting as such or any person duly authorised by such acting person”. As such, our view is that the relevant legislation allows for the CEO of a juristic person to authorise or appoint some other person to act as the information officer for the purposes of Popia. Clarity on this aspect is awaited and needed from the office of the information regulator, well ahead of July 1 2021, so that organisations can ensure the correct person is appointed as information officer. What are the responsibilities and liabilities of the information officer? ● Encouraging the body’s compliance with the conditions for the lawful processing of personal information; ● Dealing with requests made to the body pursuant to Popia; ● Working with the informa-

THE INFORMATION REGULATOR HAS PREPARED DRAFT GUIDELINES ON THE REGISTRATION OF INFORMATION OFFICERS

tion regulator in relation to investigations; ● Otherwise ensuring compliance by the body with the provisions of Popia; ● Ensuring a compliance framework is developed, implemented, monitored and maintained; ● Conducting personal information impact assessments to ensure adequate measures and standards exist to comply with the conditions for the lawful processing of personal information; ● Developing, monitoring, maintaining and making available the manual as prescribed by Paia; ● Ensuring internal measures are developed together with adequate systems to process requests for information or access; and ● Conducting internal Popia awareness sessions. The information officer, once appointed, does not have to ensure compliance alone. While the information officer remains ultimately responsible for the fulfilment of the responsibilities, section 56 of Popia permits the information officer to delegate their powers and duties to one or more deputy information officers. There is scope for personal liability being imposed on the information officer under Popia. By way of

IT’S GETTING PERSONAL

/123RF — VITALIY VODOLAZSKYY example, section 93 of Popia, which deals with the functions of the enforcement committee, states that the enforcement committee: ● Must consider all matters referred to it by the regulator in terms of Popia or the Paia and make a finding in this respect; and ● May make any recommendation to the regulator necessary or incidental to any action that should be taken against: — A responsible party in terms of Popia; or — An information officer or head of a private body, as the case may be, in terms of Paia. What should an organisation do once it has appointed

an information officer? The information officer must take up their duties in terms of Popia only after the responsible party has registered them with the information regulator. The information regulator has prepared draft guidelines on the registration of information officers. These guidelines have not

SECTION 56 OF POPIA PERMITS THE INFORMATION OFFICER TO DELEGATE THEIR POWERS AND DUTIES

yet been finalised, but we anticipate the regulator will be prepared to receive information officer registrations in March 2021. Organisations should ensure their Paia manuals comply with section 51 of Paia by including the postal and street address, phone and fax number and, if available, electronic mail address of the head of the body (which would, of course, be the head of the organisation unless such authority was delegated to another person who then becomes the head for purposes of Paia.) We note that no express mention is made for the provision of the name of the relevant officer.

Sars gets bite back after ‘rogue unit’ debacle Evan Pickworth Business Law & Tax Editor The rogue unit narrative that brought the once powerful South African Revenue Service (Sars) to its knees was a tragedy of Shakespearean proportions. In fact, it is debatable whether the Bard himself could have conjured up a fiction quite as large. Sparked by fake news and a manipulated news agenda, and coming not in single spies but battalions, it was a tale of woe best relegated to the dustbin of history. It was therefore pleasing to see some important updates on what is being done to fix Sars to ensure it can regain its lustre as one of the foremost tax institutions in the world — a mantle it was proud to wear prior to a coterie of nefarious actors working hard to destroy its legacy. We are already seeing positive results as the taxman gets its bark — and even a lit-

tle bite — back. In a positive development, it was announced in the 2021 budget the recovery in consumption and wages between October and December 2020, and a boost to corporate income tax receipts from the mining sector, saw 2020/21 revenue collections R99.6bn above the 2020 medium-term estimate. An additional spending allocation of R3bn to modernise technology infrastructure and systems, expand and improve the use of data analytics and artificial intelligence capabilities, and participate meaningfully in global tax compliance initiatives, will be money well spent. And all taxpayers will rejoice at the prospect of a digitalised and more efficient Sars, especially if this lowers costs of compliance, simplifies tax administration and improves collections. Some of the initiatives will help fix some of the major damage done by the rogues.

TOOTHY TAXMAN

/123RF — MR FAKHRURROZI Sars is firmly on track to establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements. This first group of taxpayers have been identified and will receive communication during April 2021. The Commission of Inquiry into Tax Administration and Governance by Sars (the Nugent Commission) made 27 recommendations

to address governance failures at the institution. In a follow-up it was announced the commissioner for Sars has implemented 14 of these recommendations, including reestablishing the Large Business Centre, and units focusing on litigation, compliance and integrity. The performance of the previous executive committee was reviewed, and operational policies related to VAT

refunds, settlements and debt collection contracts are being amended. This year, Sars has also started legal processes to recover unwarranted expenditure and handed over case files on persons identified in the Nugent report. The interagency working group on criminal and illicit economic activities completed 117 investigations, yielding revenue of R2.7bn. Customs and excise operations are reducing the illicit movement of goods across borders, assisted by specialised cargo scanners, resulting in 3,393 seizures valued at R1.5bn for the fiscal year to January 2021 Following the recommendations of the Davis Tax Committee, Sars will also focus on consolidating wealth data for taxpayers through third-party information. This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax.

As noted in the 2020 budget review, the finance minister is responsible for implementing Nugent Commission policy recommendations. A National Treasury discussion document proposing legislative amendments to Sars governance, delayed by Covid-19, will soon be published. The document outlines processes to appoint and remove a commissioner, and the establishment of at least two deputy commissioners and an executive committee. It also considers measures to improve governance and integrity oversight processes, including the feasibility of a governance board, an inspector-general and mechanisms to account to the finance minister. It is time plotting, spying and stratagem are kept for readers of Hamlet to untangle. Sars needs to focus on the job at hand and the 2021 budget gave a strong indication significant, positive moves are afoot to do just that.

BusinessDay www.businessday.co.za March 2021

BUSINESS LAW & TAX

Why SAA can lock out pilots

as employees can embark on industrial action •toJust break a deadlock, employers also have options Ari Soldatos Fluxmans

attered, bruised and somewhat beleaguered but still soldiering on might be a fair way to describe our national airline carrier placed into business rescue during December 2019. The troubled relationship between SAA (in business rescue) and the SAA Pilots’ Association (Saapa) recently became the matter of some public and judicial scrutiny and brought to the fore an established principal of law employers have often overlooked or, at the very least, been reluctant to resort to. Armed and no doubt exhorted with a controversial and often maligned bailout, the business rescue practitioners (BRPs) had, in the preceding period, been labouring to limit the financial exposure of SAA. Employers will appreciate that salaries are, inevitably, a considerable component of any balance sheet and, often, terms and conditions of employment and established practices need to be revisited for the purposes of ensuring business sustainability. The business rescue practitioners were required to revisit certain conditions of employment and other matters with a view to, among other things, reducing the remuneration payable in terms of previously concluded agreements and to re-assess certain practices and policies that had been fairly longstanding. The detail of the proposed

variation is not of importance in the context of this discussion; however, in short, the business rescue practitioners and Saapa were unable to agree on the way forward and some drastic action was required to break the impasse that had arisen. Most employers would have read and understood, particularly in the aftermath of Covid-19 and the unfortunate effect this has had on business and labour, that to simply change terms and conditions of employment without the consent of the employees would not only pose employment challenges but, essentially, be unlawful and a repudiation of the

RETRENCHMENT IS THE REMEDY MOST EMPLOYERS HAVE IMMEDIATELY RESORTED TO IN THE CURRENT ENVIRONMENT employment contract, affording customary contractual (and other) remedies to aggrieved employees and trade unions. This option was wisely avoided by the business rescue practitioners. They rather sought (as the employer) to channel internal disputeresolving mechanisms and, in the absence of any resolution, proceeded to “lock out” the employees forming the subject matter of the dispute once they had followed appropriate procedures in that regard.

What is a lock-out? Simply put, this form of industrial action is the employer’s equivalent of a strike. Employees are precluded from rendering their services and the employer is not required to pay the employees for as long as the lock-out persists. Like a strike, this action is aimed at placing pressure on the employees to induce a settlement on the terms proposed by the employer or on such other conditions as may be agreed upon ultimately. It is a perfectly legitimate course available to employers finding themselves in such difficulty. Of course, the lock-out option is not without its criticism. When this is instigated at the instance of the employer, no replacement labour may be engaged in the place of the “locked out” employees and, one would appreciate, fairly considerable industrial tensions arise in the process thereof. Returning to SAA, the representatives of the pilots approached the Labour Court to declare the lock-out unlawful and unprotected. They failed. The court concluded that all procedures and prerequisites for the implementation of the lockout had been complied with and that nothing, in law or equity, prohibited the business rescue practitioners from executing and implementing the lock-out. Applying the lock-out in current employment circumstances The dispute in question raised, once again, a significantly topical issue as to the

ENSafrica

Heavyweight firm with a highly acclaimed tax practice Chambers Global

WINGS CLIPPED

While SAA’s lock-out move has been deemed legal, critics might point to the current economic climate as the real reason for the action. /Waldo Swiegers/BLOOMBERG manner in respect of which employers faced with dwindling turnover and concomitant reduction in profitability may be in a position to change terms and conditions of employment in a manner that is lawful, proper and without committing any form of unfair labour practice, so to speak. Retrenchment, of course, is the remedy most employers have immediately and, somewhat spontaneously, resorted to in the current environment. This course of

EMPLOYEES MAY BE LOCKED OUT, IRRESPECTIVE OF THE CATEGORY OF EMPLOYMENT IN WHICH THEY ARE ENGAGED

action, in many instances, may alleviate the employer’s financial exposure and predicament. Job losses, nonetheless, are not always the answer. Aside from attracting considerable exposure in terms of severance packages, an employer may, indeed, need to retain the workforce and the number of employees involved but not on the conditions of employment that have prevailed. In such circumstances employers may, compellingly, through following appropriate procedures, engage upon a lock-out process and endeavour to induce, through the process of collective bargaining, the amendment to the conditions of employment they seek to achieve. This they do by precluding the employees from rendering their services until the deadlock is resolved.

Employees may be locked out, irrespective of the category of employment in which they are engaged, and until such time as resolution of the dispute is attained, the employment relationship is, for practical terms, suspended. Strikes are aimed at compelling employers to comply with the demands of employees. Nothing precludes the employers from engaging on a similar course of action and, provided such an option is effectively and properly planned and executed, employers might be well advised to consider such a course of action over these troubled times in seeking to change and vary conditions of employment. This, however, needs to be meticulously prepared and executed from both a legal and operational perspective.