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How much your business could be fined for not following SA’s BEE laws

| Legislation

Labour minister Mildred Oliphant recently indicated that she would be looking at actively enforcing and increasing the punishments for non BEE-compliant companies, following the release of the Employment Equity (EE) Annual Report on 10 May 2017.

According to the report, which was based on 26,255 employment equity reports from companies across the country, 68% of management positions are still held by white employees, while African employees occupy only 14.4% of managerial posts in South Africa.

The report also found that white South Africans occupy 72% of the positions in the private sector, while black South Africans occupy 73.2% in the public sector at senior management level.

“It is this state of affairs that leaves us with no option, but to consider, drafting-in harsher consequences for non-compliance. It’s time to ‘up the ante’ and this may include promulgating the ‘stick’ sections of the Employment Equity Act because quite frankly, the ‘carrot’ sections have not delivered the desired results,” said Oliphant.

“We are seriously considering approaching the President to enact the more punitive Sections and Chapters of the EE Act, which were, initially excluded from the earlier promulgation.”

“This will give the Employment Equity Act real teeth and will bite where it hurts the most, and that is, designated employers’ revenue,” said the minister.

Fines

The Employment Equity Act already contains hefty penalties for non-compliance with the EEA, according to Lauren Salt, Senior Associate at Baker McKenzie.

“The EEA contains the statutory obligation for employers to implement affirmative action measures and also provides protection against unfair discrimination,” she said.

“These penalties can be anywhere between R1.5 million and up to 10% of an employer’s annual turnover, depending on the nature and frequency of the non-compliance”.

Salt explained that Section 42 of the Act empowers the Director-General  to assess employers’ substantive compliance with their Employment Equity obligations, as opposed to their procedural compliance (submitting the EE report on time, appointing an employment equity manager and similar formal requirements).

She noted that, in terms of section 43 of the EEA the DG may issue a recommendation to the employer outlining steps the employer must take in connection with its EE plan (or the implementation thereof), or in relation to its compliance with any other provision of the Act. The DG may also prescribe the period within which those steps must be taken.

“If the employer fails to comply with this recommendation and is unable to justify its actions, the Labour Court may impose a fine on the employer,” she said.

“Non-compliance of this nature attracts the more eye-watering fines, between R1.5 million or 2% of annual turnover and up to R2.7 million or 10% of annual turnover, whichever the greater. The quantum on the fine is dependent on whether employers have had similar contraventions in previous years,” said Salt.

New proposals 

“What the Commission for Employment Equity is proposing is a penalty on top of this fine,” said Salt.

Section 53, previously a dormant section of the EEA, requires that every employer that makes an offer to conclude an agreement with the State – for the furnishing of supplies or services to the State – must attach to the offer a certificate from the Minister or a declaration (confirmed by the DG) that indicates that the employer complies with its employment equity obligations.

Failure to do so will mean they may not be able to do business with the State.

“Measures aimed at achieving greater diversity and representation in the workplace should be applauded,” said Salt.

“However, it is debatable as to whether the implementation of section 53 would have any significant impact as it is already common practice for entities, including the State, seeking services from businesses to request confirmation or proof that they have complied with Employment Equity obligations.”

“We need to explore all options to accelerate the pace of workplace transformation. Research confirms that diversity in the workplace supports business growth and profitability. The tougher issue is arguably challenging beliefs about forced transformation and spreading the gospel that transformation benefits society as a whole.”

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