South Africa: Wage deal - Constitutional Court decision signals end of long legal battle and good news for the government

In brief

The Constitutional Court in South Africa recently dismissed the public service unions' appeal over a 2018 wage deal with the South African Government. The decision marked the end of a long legal battle, and was good news for the government, which had noted that the public service wage bill posed a significant risk to the fiscus. The decision also reinforces the principle of legality and is a reminder to parties in a collective bargaining process to ensure that their negotiations can be legally implemented.


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In depth

The Constitutional Court’s dismissal this week of the public service unions’ appeal over the 2018 wage agreement with the South African government marks the end of a long legal battle that began in 2018. The ruling is good news for the government and taxpayers, with Finance Minister Enoch Godongwana noting in the 2022 Budget Speech in February that the public service wage bill posed a significant risk to the fiscus, and that it was the single most expensive item in the national budget. Minister Godongwana said that the government was urgently trying to reduce spending. In 2020, government spending was one of the main reasons cited by rating agencies for further downgrading South Africa’s investment rating.

In 2018, the Public Sector Co-ordinating Bargaining Council (PSCBC) reached a three-year collective bargaining agreement with the South African Government. The wage deal was arranged in three parts, with two parts already implemented. Implementing the last part of the wage deal would have cost the government around ZAR 38 billion for the 2021 fiscal year, and reportedly, another ZAR 75 billion in back pay.

In 2020, the South African government announced that it had decided not to implement the third leg of the three-year deal with unions, citing unaffordability. However, in December 2020, government negotiators offered the public sector unions a once-off cash payment and a year-long pension holiday to resolve the dispute with the PSCBC. The proposal in December 2020 reduced the cost of the initial 2018 package from ZAR 38 billion to ZAR 27 billon, but the government asked for more time to work out the details of the settlement, including how they would pay for it. The unions rejected the government’s request for postponement, agreeing to more talks, but stating it would not abandon its legal quest to force government to implement the third part of the wage deal.

At this point, some unions opted to go to the Labour Court, while others preferred to use the dispute resolution route of conciliation and arbitration. Conciliation failed, however, and government then requested the arbitration proceedings be postponed pending the outcome of the court case. The arbitration was set aside, and government filed a counter application, asking the court to declare the implementation of the final tranche of the agreement unlawful, noting it was unconstitutional because the money was not provided for in the Division of Revenue Act.

In early 2021, the Labour Appeal Court (LAC) ruled in support of the government’s decision to cancel the final part of the 2018 public-sector wage agreement, agreeing that it was unconstitutional. The LAC found that the cost of the collective agreement could not be covered out of the budget of the Department of Public Service and Administration (DPSA), that there was no written guarantee from Treasury and that no further agreements had been made with other departments.

The public sector unions then took the matter on appeal to the Constitutional Court. During proceedings, the DPSA and Finance Ministry again argued that the collective agreement did not comply with regulations 78 and 79 of the Public Service Regulations (Regulations) and the DPSA did not have the budget for the wage increases. The Regulations require the Department to meet the fiscal requirements and gain Treasury approval on spending. It was also argued that the sections 213 and 215 of the Constitution, dealing with effective fiscal management and transparency, had been violated.

The unions argued that the LAC had not considered the doctrine of estoppel, noting that the contractually binding collective agreements should be honoured by the government.

The Constitutional Court held that the Public Service regulations 78 and 79 required jurisdictional facts to be present, failing which the Minister of Public Services could not negotiate on behalf of the government and did not have the power to conclude collective agreements. The Constitutional Court found that these jurisdictional facts were not present, and the collective agreement was deemed to be invalid and unlawful for violating sections 213 and 215 of the Constitution. The court dismissed the application for leave to appeal.

The decision comes as the public sector unions prepare to enter another round of wage negotiations with government. Whilst some commentators have suggested that the judgment undermines the credibility of the collective bargaining process, it actually reinforces the principle of legality. Parties to the collective bargaining process must ensure that the fruits of their negotiations are legally capable of implementation. Establishing the mandate of the team on the other side of the table remains a critical prerequisite for any successful negotiation. Ensuring your opponent has the means to implement the deal you wish to reach, is not only sound bargaining strategy, but a critical duty if you carry the hopes and dreams of a struggling constituency on your shoulders. In collective bargaining there are few tragedies greater than bargaining partners reaching agreement only for their efforts to come to nought because their agreement could not be implemented.

Contact Information
Johan Botes
Partner at BakerMcKenzie
Johannesburg
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johan.botes@bakermckenzie.com

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