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CONTENTS

INTRODUCTION
BUSINESS ENTITIES

1.    Introduction
2.    South African Participation
3.    Business Entities
    3.1    Individual / Sole Proprietorship
    3.2    Partnerships and Joint Ventures
    3.3    Close Corporations
    3.4    Companies
    3.5    External Companies
TAX SYSTEM
4.    Income Tax
    4.1    Principles
    4.2    Tax rates
    4.3    Capital allowances
    4.4    Tax holidays
    4.5    Transfer pricing and thin capitalisation rules
5.    Withholding taxes
6.    Secondary Tax on Companies (STC)
7.    Value Added Tax (VAT)
8.    Double Taxation Agreements
EXCHANGE CONTROL
9.    Introduction
10.    Transfer of Capital ;  
    10.1    Non-residents
    10.2    Residents of South Africa
11.    Restrictions on local borrowing
LAW OF CONTRACT
12.    Introduction
13.    Contracts for the Appointment of Agents or Distributors
14.    Contracts which restrict competition
ENVIRONMENTAL CONSIDERATIONS
LABOUR AND EMPLOYMENT LAW
               
15.    Introduction
16.    Labour Relations
17.    Basic Conditions of Employment
18.    Employment Equity Legislation
19.    Health and Safety
20.    Human Resource Development Strategy
CONCLUSION


BUSINESS WITH SOUTH AFRICA

INTRODUCTION

This book illustrates an important feature of doing business with South Africa. The legal system within which business operates is closely based on overseas, particularly English, models. The concepts and rules are workable and will be familiar to overseas investors and trading partners.

Underlying the formal legislative system is a flexible common law system governing fields such as contract. The common law is fair and logical and will hold no surprises for anyone doing business in South Africa.

Since achieving democratic government in 1993 South Africa has had the benefit of a modern democratic Constitution which includes a Bill of Rights which is the cornerstone of democracy. The Bill of Rights enshrines the rights of all people and affirms democratic values of human dignity, equality and freedom. The Bill applies to all law and binds the government in all its forms. Fundamental rights are thus totally protected.

Our country has highly sophisticated mining, commercial and industrial sectors which are now competing with the best throughout the world and attracting considerable interest with overseas investors. These sectors operate against a background of political and economic stability that encourage investment.

South Africa has also developed equitable labour and employment laws. While in comparison with some other economies the cost of labour is high, investors can operate in South Africa free of any potential criticism regarding the exploitation of labour.

South Africa has also become the favoured staging post for investment in Africa south of the Sahara as well as providing opportunities for trading with Africa second to none. It is anticipated that Southern Africa as a whole, rich as it is in minerals and natural resources, will become a strong economic unit to the benefit of everyone involved in this region including overseas investors.

Thus to call South Africa a land of opportunity is a truism, not a cliche.

We wish everyone doing business with South Africa great success.

DENEYS REITZ


BUSINESS ENTITIES

1.    Introduction

There are a number of forms in which persons may elect to carry on business or to invest in South Africa. The most important are:

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BUSINESS WITH SOUTH AFRICA

individually or as a sole proprietorship;
jointly with others in partnership;
through the incorporation of a close corporation where only natural persons are involved;
through the incorporation of a private or public company;
by the registration of a juristic person as an "external company" in South Africa, if the person concerned is a juristic person incorporated outside South Africa.

An investment in business can also be carried on through a business trust. This involves the passing of ownership in assets to trustees who then hold those assets, as a separate estate distinct from their own personal estates, for the benefit of the beneficiaries. Trusts are often used to attain a form of limited liability without the formalities of incorporating a close corporation or company, and are also used for the purposes of protecting assets by separating the assets from those of the beneficiaries. Trusts can also play an important role in estate planning for individuals.

2.    South African Participation

There is no requirement that an individual or any one or more members or shareholders of a close corporation or company should be citizens of or resident in South Africa. There is also no requirement that any of the directors of companies should be citizens of or resident in South Africa.

The non-resident status of individuals, shareholders or directors does, however, have a number of consequences, for example:

certain investments are required to be marked as "non-resident" in terms of exchange control regulations;
there are limits on the local borrowing powers of artificial persons where ownership or control of more than 50% of the equity or votes is in the hands of  non-residents.
the so called "thin capitalisation rules" may be applied where financial assistance, such as a loan, is granted by non-residents to connected or related companies (as defined) in South Africa.
the anti-transfer pricing provisions contained in the Income Tax Act may be applied in relation to goods or services acquired or supplied under an international agreement, concluded between connected persons.
the nationality of non-South African directors must be disclosed on all documents where directors' names are required to be listed, for example on letterheads.

In addition, certain South African requirements must be met, for example:

traders are required to register as vendors in terms of the Value-Added Tax (VAT) Act, 1991 where their income exceeds a specified amount.

Where a trader is not a South African resident, a person resident in South Africa must be nominated as the representative VAT vendor;

a close corporation, company and external company must:

3.    Business Entities

3.1    Individual / Sole Proprietorship

There are no formalities required where a person commences business as a sole proprietorship. The business is not a separate legal person and all transactions are regarded as having been concluded by the person concerned. The sole proprietorship does not enjoy limited liability.

3.2    Partnerships and Joint Ventures

In general a partnership may be formed by between 2 and 20 persons. This number may be increased with the permission of the relevant Minister. There are no formalities required to form a partnership and a partnership will exist if the following requirements are met:

two or more persons agree to act jointly to pursue a venture;
they each make a contribution (whether in money or otherwise);
the purpose of their venture is to make a profit;
they divide that profit between them.

Although no formalities are required in the formation of a partnership, it is usual for a written agreement to be concluded.

A distinction is often drawn between the term "partnership" and the term "joint venture". Although many joint venture agreements contain a statement that they are not to be construed as a partnership, joint ventures generally meet all the requirements of a partnership and will, where appropriate, be treated as a form of partnership.

The term "joint venture" is usually used where the parties concerned intend to pursue a single venture only, for example, in the mining industry joint ventures are often formed for the purpose of prospecting for mineral deposits. If a viable deposit is found the exploitation of the minerals is thereafter carried out by a company in which the joint venture members become shareholders.

Partnerships do not generally offer limited liability and the partners are each jointly and severally liable for the obligations of the partnership. In other words, should the partnership fail to pay, any one or more of the partners can be compelled to pay. If a partnership is sequestrated, the individual estates of the partners are automatically and simultaneously sequestrated.

3.3    Close Corporations

This form of business entity was introduced in 1984. It was intended to serve smaller businesses, extending limited liability and certain other advantages of a corporate identity without requiring compliance with all the formalities of the Companies Act, 1973.

Only natural persons can be members of a close corporation.

Legislation recognises the personal nature of the relationship between members of a close corporation and thus the courts have extensive powers to regulate the relationship of the members should there be a dispute including, where appropriate, the power to order one member to sell his interest in the close corporation on terms fixed by the court.

It is possible to convert a close corporation into a private company and vice versa.
Members in a close corporation commonly regulate their relationship in an association agreement. The association agreement may vary some, but not all, of the provisions of the Close Corporations Act, 1984.

3.4    Companies

All companies are regulated in terms of the Companies Act, 1973 as amended. The Act is modelled very closely on English law, although there are several important differences.

Generally speaking, all companies have a share capital consisting of shares having a par value or of shares having no par value. Different classes of shares may be created. Each class of shares must have rights that differ from the other classes in one or more respects, which may include voting rights. All issued share capital must be fully paid-up. A company may not purchase its own shares or give any financial assistance directly or indirectly to any other party for the purchase of its shares.

There are no minimum share capital requirements in South Africa. Companies may thus be formed with a nominal share capital. However, on incorporation, the directors of the company must lodge a statement that the capital of the company is adequate for its purposes or must state how the company will procure sufficient funds for its purposes. Stamp duty at varying rates is payable on the creation of share capital, the issue of shares and transfers of shares. Currently the rates are 0.5% on the nominal value of new share capital created, at 0.25% on the full subscription price (including share premium) on the issue of new shares, and at 0.25% on the price paid (or market value in certain circumstances) on the transfer of shares.

A company is incorporated by lodging a Memorandum and Articles of Association and various supporting documents and company forms with the Registrar of Companies. A company may trade only once the Registrar has issued a certificate to commence business to it. Once all the documents have been lodged there is only a minimal delay in the company being incorporated and a certificate to commence business being issued.

Companies may either be private companies (designated by the words "(Pty) Ltd" or "(Proprietary) Limited" after the name) or public companies (designated by the words "Ltd" or "Limited" after the name).

Private Companies

A private company may be established by one or more persons provided that it does not have more than 50 shareholders.

Although a private company is obliged to prepare audited financial statements on an annual basis, these financial statements do not have to be lodged with the Registrar of Companies and do not become public documents.
The right to transfer the shares of a private company must be restricted in terms of the Memorandum and Articles of Association.

Shareholders commonly regulate their relationship in a shareholders' agreement. Save where any provision is contrary to the provisions of the Companies Act, such an agreement may, as between the parties thereto, override the provisions of the Memorandum and Articles of Association.

Public Companies

A public company requires at least 7 shareholders.
Public companies are required to lodge audited financial statements with the Registrar of Companies each year and to make such statements available for inspection by members of the public at the registered office of the company.

Only a public company may offer its shares or debentures to the public and only a public company may be listed in terms of the Stock Exchange Control Act. In order to obtain a listing the company must comply with the listing requirements of the Johannesburg Stock Exchange.

3.5    External Companies

South African law recognises the corporate identity of artificial persons incorporated outside the Republic of South Africa. However, where any company or other association of persons incorporated outside the Republic of South Africa establishes a "place of business" in the Republic of South Africa, it is obliged to register as an external company. "Place of business" is defined as any place where the company transacts or holds itself out as transacting business. An external company must register within 21 days of establishing its place of business.

Registration involves the lodging of a notarially certified copy of the Memorandum and Articles of Association of the company. If that document is not in one of the official languages it must be accompanied by a sworn translation into one of the official languages.

In addition, the company must give notice of its registered office in South Africa, appoint an auditor who practices in South Africa, give full details of all directors and nominate a person resident in South Africa to accept service of documents on behalf of the company.

The external company will be subject to tax on its South African branch profits at a higher rate than South African companies but will be exempt from the Secondary Tax on Companies (see below).


TAX SYSTEM

4.    Income tax

4.1    Principles

South African income tax is based on the source of the income. All income earned from a source or deemed source within South Africa is taxable. This means that establishing a presence in South Africa does not involve becoming liable for South African tax on worldwide income. Proposals have been made by the Katz Commission for the reform of taxation in South Africa for the introduction of extra-territorial taxation on certain types of income. Income tax applies only to income and not to capital gains in any form. For a number of years the possibility of introducing a capital gains tax has been under discussion but nothing concrete is currently proposed.

4.2    Tax rates

Companies and close corporations are taxed at a flat rate of 35% on income. There is also a secondary tax of 12.5% on declared dividends (see below), resulting in an effective rate of 42%.

External companies are taxed on branch profits at a flat rate of 40% on income. The secondary tax on companies does not apply to external companies (see below).

Individuals pay tax based on a sliding scale with a maximum marginal rate currently of 45%.

4.3    Capital allowances

Expenditure is in general deductible if it is not of a capital nature, it is incurred in the production of income and to the extent that it is laid out or expended for the purposes of trade. Certain allowances in respect of capital expenditure are granted. These include :

Wear and Tear - An annual write-off of part of the cost or value of a capital asset. The amount of the allowance is at the discretion of the Commissioner for Inland Revenue and the period of the write-off depends on the type of asset. The wear and tear allowance is not granted on structures of a permanent nature (such as buildings) or any assets which are written off over 3 years or 5 years (in terms of the special depreciation allowance provisions in the Income Tax Act, 1962) or which are referred to below.

Industrial Buildings - An annual allowance expressed as a percentage of the cost of buildings or improvements (excluding the land) is granted in respect of buildings used wholly or mainly for a process of manufacture or similar process. The percentage of the allowance varies according to the date of commencement of the erection of, or improvements to the building:

  • erection / improvements commenced before 1 January 1989: initial allowance of 17.5% thereafter allowance of 2% per annum.

  • erection / improvements commenced on or after 1 January 1989: allowance of 5% per annum.

  • erection / improvements commenced between 1 July 1996 and 30 September 1999, and buildings brought into use befor 31 March 2000: allowance of 10% per annum.

 

Hotels - An allowance of 5% per annum of the cost of that portion of the buildings or improvements used for the purpose of the taxpayer's trade as a hotel keeper if erection or improvement commenced was commenced on or after 4 June 1988 (if erection or improvement commenced before 4 June 1988 the allowance is of 2% per annum). Improvements to an existing hotel building which do not extend the exterior framework of the building are subject to an allowance of 20% per annum. An annual allowance of 20% is also granted on new or used hotel equipment brought into use for the first time on or after 17 March 1993.

Aircraft - An allowance of 20% per annum of the cost of the aircraft acquired on or after 1 April 1995 for the purpose of any trade;

Ships - An allowance of 20% per annum of the cost of ships acquired on or after 1 April 1995 for the purpose of any trade;

Intellectual Property - The cost may, subject to the discretion of the Commissioner for Inland Revenue, be written off over the lower of the estimated life of the property or 25 years.

Leasehold Improvements - The cost may be written off over the period of the lease, provided the lessor is taxable on the value of the improvements.

Plant and Machinery - There is a special depreciation allowance expressed as a percentage of the cost of plant and machinery brought into use for the first time by the taxpayer for the purpose of trade (other than mining or farming) and used directly in a process of manufacture or similar process:

  • new or used plant and machinery acquired and brought into use on or after 15 December 1989: allowance of 20% per annum;
  • new plant and machinery acquired and brought into use between 1 July 1996 and 30 September 1999: allowance of 33.3% per annum.

In the year of disposal or scrapping of any of the above assets an adjustment is allowed. A scrapping allowance may be granted if the proceeds of scrapping are less than the tax written down value. Any recoupment of allowances on disposal is limited to the initial cost of the asset.

4.4    Tax holidays

A tax holiday scheme has recently been introduced into South African legislation.
Companies qualifying for tax holiday status may become entitled to exemption from income tax for a period of 2 to 6 years.

To qualify for tax holiday status the taxpayer must invest an amount exceeding R3 million into a new industrial project comprising one or more of the following components:

a spatial component. The project must be carried on in one of the locations identified by the authorities;
an industry component. The project must fall within one of the categories of industries identified by the authorities;
a human resource component. The remuneration of the human resources employed within the framework of the project must correspond to a prescribed ratio of human resource remuneration to value added.

For each component approved by the relevant authorities the taxpayer will be granted a two year tax holiday.

The tax holiday commences only when the qualifying taxpayer becomes liable to pay income tax, but must be utilised within 10 years from the year in which the taxpayer is granted tax holiday status.

The possibility of applying for tax holiday status will remain open only until 30 September 1999.

4.5    Transfer pricing and thin capitalisation rules

Transfer pricing - the anti-transfer pricing provisions contained in the Income Tax Act may be applied where goods or services are supplied or acquired in terms of an international agreement concluded between connected persons, i.e. essentially, group companies. If the price of the goods or services is other than arm's length, then the Commissioner for Inland Revenue may adjust the consideration in the determination of the taxable income of either the acquirer or the supplier.
Thin Capitalisation - the thin capitalisation rules may be applied where financial assistance, such as a loan, advance or debt and the provision of any security, is granted by a non-resident investor to a resident investee who is either a connected person (this is a widely defined expression in the Income Tax Act), or a corporate entity in which the investor has a direct or indirect interest entitling it to participate in not less than 25% of the dividends, profits, capital or votes. The thin capitalisation rules, when applied, disallow the deductibility of interest paid by the South African resident to the foreign lender, to the extent such interest is considered to be excessive by the Commissioner for Inland Revenue. In broad terms, the rules will not be applied if:

These rules do not apply to financial assistance granted by "parent" companies to external companies who carry on business in South Africa.

5.    Withholding taxes

At present only royalties are subject to withholding taxes.

Dividends - Withholding tax on dividends was abolished with effect from 1 October 1995. Dividends received by a taxpayer do not form part of the taxable income of the taxpayer.
Interest - Interest payable to non-residents is exempt from normal tax in South Africa provided that:

Interest from certain prescribed investments is also exempt from normal tax in South Africa.

Royalties - There is a withholding tax on the gross amount of certain royalties or similar payments such as know-how payments made to non-residents not carrying on business in South Africa. Non-residents are taxed in South Africa on royalties at 30% of the royalty at the corporate tax rate. The effective rate is therefore 30% x the royalty x the corporate tax rate. This would produce an effective withholding of 10.5%, based on a current corporate tax rate of 35%.

South Africa has entered into a number of double taxation treaties with foreign countries. These agreements often vary the provisions concerning the withholding tax on royalties and may be an important consideration relative to the off-shore shareholding structure of a South Africa company. Details of the current status of such agreements appear below (paragraph 8).

6.    Secondary Tax on Companies (STC)

STC applies to companies and close corporations but not to external companies.

The net amount of a dividend declared by a company (including a close corporation) is subject to STC at a rate of 12.5%. The net amount is the amount by which dividends declared during a dividend cycle exceed dividends accrued during the relevant cycle. The dividend cycle commences the day after the declaration of the last dividend and ends on the date on which the next dividends accrue. Dividends passing through a group structure will be exempt from STC when declared by a wholly owned subsidiary, but will suffer STC when subsequently declared out by the parent company.

Companies which earn profits both from within and outside South Arica are liable to STC on the pro rata portion of dividends declared which relate to profits earned from a source within South Africa. Dividends received are not taken into account in the determination of the ratio.

STC is payable by the company declaring the dividend, and not by the recipient.

Currently only the United Kingdom grants tax relief in respect of the STC imposed in South Africa.

Special provisions apply to gold mining companies and long-term insurers.

7.    Value Added Tax (VAT)

VAT must be charged and paid over by all suppliers of goods and services (other than very limited exempt goods and services). The current rate is 14%.

All suppliers of goods and services having an annual turnover exceeding a specified amount are obliged to register as VAT vendors and to charge output VAT. All other vendors may elect to register as VAT vendors. If they do not register, they are prohibited from:

8.    Double Taxation Agreements

The status as at 23 May 1997 with regard to bilateral agreements for the avoidance of double taxation to which South Africa is a party, is as follows:

Comprehensive Agreements (in force)
Austria Hungary Netherlands Sweden
Botswana Israel Norway Switzerland
Canada Korea Poland Tanzania
Denmark Lesotho Republic of Thailand
Finland Malawi China (Taiwan) United Kingdom
France Mauritius Romania Zambia
Germany Namibia Swaziland Zimbabwe
Note :    The treaty with the United Kingdom was extended to the following countries:
Grenada Seychelles Sierra Leone
Limited Sea and Air Transport Agreements (in force)
Belgium Greece Italy Portugal
Brazil Ireland Japan Spain
Comprehensive Agreements Ratified in South Africa (not in force)
Belgium Italy Russian Federation
Treaties signed but not ratified (not in force)
Croatia India Malta Singapore
Czechh Republic Japan Mauritius United States of America
Treaties negotiated but not signed (not in force)
Botswana Greece Malta Uganda
Cypres Ireland Namibia Zambia
Egypt Luxembourg Slovakia Zimbabwe
Gabon Malaysia Swaziland
Treaties under negotiation (not in force)
Australia Iran Tunisia Turkey
Indonesia Portugal

EXCHANGE CONTROL

9.    Introduction

Exchange control regulations, which restrict the free flow of capital in and out of the country, do exist in South Africa. These regulations, which until the recent past were rather strict, have been gradually relaxed. Significant relaxations were contained in the South African budget proposal for 1997/1998. The stated ultimate goal of the South Africa government is the equal treatment of residents and non-residents in relation to inflows and outflows of capital and the abolition of exchange control measures.

10.    Transfer of Capital

10.1    Non-residents

Non-residents are no longer subject to exchange control and may freely transfer capital into and out of South Africa. It should, however, be noted that non-residents who wish to invest in South Africa by means of loan capital need to obtain prior approval from the South African Reserve Bank, particularly with reference to intended repayment dates.

It should also be noted that South African subsidiaries and branches of foreign companies are considered to be South African residents and are, therefore, subject to exchange control.

10.2    Residents of South Africa

South African companies may, as a general rule, freely remit the following to non-residents:

The South African Budget Proposals for 1997/1998 contained the following points which may be of interest:

11.    Restriction of local borrowings

The Exchange Control Regulations provide that when 50% or more of the voting stock, capital or earnings of a local company is held or controlled, directly or indirectly, by a non-resident, a local loan may not be made or granted to the company without the prior approval of the South African Exchange Control. The South African Exchange Control authorities allow local borrowings calculated as a percentage of the company's total effective capital in terms of the following formula:

100% +

% South African interest           % Non-resident interest

x 100% of total effective capital

"Total effective capital" includes, inter alia, share capital, shareholder loans and unappropriated capital or revenue profits.

A relaxation of these provisions may be granted in exceptional circumstances.

The restrictions on borrowings apply both to a South African company and an external company.


LAW OF CONTRACT

12.    Introduction

The South African law of contract is in many respects similar to the English common law of contract. There is no requirement that each party should give a consideration in order to form a binding contract.

The basis of the contract in South African law is offer and acceptance. Save in prescribed circumstances (eg the purchase of land) it is not necessary for a contract to be in writing. However, it is always advisable, and indeed is the common practice, to ensure that contracts are reduced to writing either by way of a formal contract or by an exchange of letters.

13.    Contracts for the Appointment of Agents or Distributors

There are no formalities required for contracts in terms of which persons are appointed as agents or distributors either on behalf of local or foreign businesses. There are also no regulations concerning the termination of such an agreement.

The terms of an agency or distributorship agreement (or any similar agreement) are determined, therefore, strictly in accordance with the provisions of the agreement. Such agreements usually provide for a method of termination. Compensation will only be payable to an agent or distributor on lawful termination if the contract so provides.

14.    Contracts which restrict competition

The Maintenance and Promotion of Competition Act, 1979 provides a mechanism whereby any agreement which restricts or which may restrict competition may be declared unlawful. Such a declaration may be made either:

One general prohibition is the prohibition on resale price maintenance, meaning that parties cannot reach agreement on the minimum prices to be charged. A published price list can therefore only be a recommended price list and cannot restrict any person from charging less than the price stipulated.

In addition, various forms of horizontal collusion have been prohibited. Horizontal collusion involves persons on the same level of distribution, eg manufacturer and manufacturer or retailer and retailer. Thus, a number of suppliers cannot enter into an agreement whereby they divide the market among them. However, there is no similar restriction on a principal dividing a market between its various agents.

The Maintenance and Promotion of Competition Act does not limit itself to agreements but includes any agreement, understanding, trade practice or method of trading, whether legally enforceable or not, which has the effect of restricting competition.

The government is currently investigating proposals which may radically change competition law in South Africa.


ENVIRONMENTAL CONSIDERATIONS

The environmental lobby is becoming increasingly active in South Africa, and any investment involving environmental issues will require careful handling, as well as due compliance with the procedures laid down by the Council for the Environment.

Basically, these procedures revolve around an Integrated Environmental Management ("IEM") process, the object of which is to integrate environmental considerations into all stages of the development process in order to achieve the benefits of development with minimal harm to the environment.

A framework is established between the persons proposing a development, the authorities and the public. IEM applies to all developments that require the approval of any government authority, whether they are in the private sector or the public sector. Examples would be proposals for the development of the coastal zone, for developing an improved public transportation programme, or a new office building or housing project.

IEM is much broader in scope than the traditional Environmental Impact Assessment ("EIA"), the latter being related to only one of the four stages of IEM, namely that of impact assessment. The other stages of IEM, being planning, decision and implementation, are not generally considered in EIAs.

Recommended procedures for the implementation of IEM and EIA planning procedures are complex and lengthy. Deneys Reitz is well placed to offer advice in relation to all these issues through its environmental law division.


LABOUR AND EMPLOYMENT LAW

15.    Introduction

Subsequent to the April 1994 elections the legislative environment governing the relationship between the employer and employee in South Africa is undergoing a process of major legislative reform.

All changes to Labour legislation are negotiated by representatives of the three traditional social partners, namely government, business and labour. These negotiations take place under the auspices of a statutory tripartite forum, the National, Economic Development and Labour Council ("NEDLAC").

The Ministry of Labour's programme to reform the laws governing the labour market seeks to extend the rights of employees to enjoy equal and fair treatment and to introduce measures aimed at the social upliftment of the historically disadvantaged through employment creation and the eradication of poverty. These objectives are fundamental to government policy, and form a cornerstone to its Growth, Employment and Redistribution ("GEAR") framework.

The challenge to the social partners will be in matching the cost of rising employment standards with improved productivity and efficiencies.

The Ministry's programme of legislative reform is summarised below.

16.    Labour Relations

The first area of legislative reform involved the consolidation and integration of a wide range of disparate statutes governing collective labour relations. After extensive negotiation between the social partners under the auspices of NEDLAC, a comprehensive statute, the Labour Relations Act, 1995 ("the LRA") was implemented on 11 November 1996.

The LRA applies to all employees and employers in all sectors (including the public sector), save for members of the defence force and employees of the Intelligence services.

The LRA regulates primarily collective agreements and bargaining, statutory and private dispute resolution, industrial action, the registration of trade unions and employers' associations, and collective bargaining structures.
The LRA has dramatically reformed dispute resolution through the establishment of the Commission for Conciliation, Mediation and Arbitration ("the CCMA"). The CCMA is an independent statutory body and is central to the new statute. The CCMA is required to conduct a wide range of interventions relating to issues which arise in terms of both the individual and the collective employment relationships, and will play an increasingly critical role in the determination of other matters which will arise through the application of other statutes falling under the Ministry of Labour's ambit of responsibility. Provision is also made for accreditation by the CCMA of other bodies which will perform dispute resolution functions under the LRA.

The LRA also seeks to promote a more participative workplace through the establishment of workplace forums. Statutory work-place forums may only be triggered by representative Trade Unions in larger enterprises employing at least 100 persons.

The LRA creates an entirely new system of court structures which, like the CCMA, will be tasked with an ever expanding role in the adjudication and determination of a wide range of labour disputes and issues not limited to the LRA. The Labour Court has the status of a Provincial Division of the High Court, and the Labour Appeal Court the status of the Supreme Court of Appeal.

The LRA has also been utilised as a vehicle of convenience to introduce two key aspects of individual labour law reform which the Ministry felt required urgent implementation. It was originally contemplated that these two aspects, namely the Unfair Dismissal and a Residual Unfair Labour Practice concerning Unfair Discrimination section in Schedule 7, would be lifted from the LRA and placed in new, more appropriate statutes once these are implemented. Current thinking is that the Unfair Dismissal Chapter at least will remain in the LRA for the foreseeable future. The unfair discrimination provisions will probably be placed in the impending Employment Equity statute.

17.    Basic Conditions of Employment

The second area of primary legislative consolidation and reform relates to those laws governing minimum standards of employment. In essence, this process amounts to amalgamation of the Basic Conditions of Employment Act and the Wage Act under a single legislative instrument. The statute has been extended to cover a materially wider scope of employment and importantly, non-standard employment. This consolidation and extension of standards will be achieved through the finalisation and passage through Parliament of a new, revised Basic Conditions of Employment Act during 1997.

The statute will make provision for a reduction in maximum ordinary working hours, regulated flexibility and the limited variation of certain employment standards. The rising standards the new Act contemplates will apply to as broadly a range of employment as possible.

It is proposed that ordinary working hours will be reduced from the present maximum of 46 hours, that the working of overtime will be circumscribed and that payment for overtime work increased to time-and-a-half as an employment creation mechanism. Annual and sick leave, family responsibility leave and maternity leave provisions have been improved. Fundamental (and non-variable) standards include the strict regulation and limitation of child labour and the prohibition of forced labour. The Act also places new administrative requirements on employers.

The statute creates a permanent Commission with broad powers of investigation, intervention and recommendation which will set statutory minimum standards tailored primarily for those sectors of the economy where collective bargaining does not take place. The initial primary focus of the Commission's work is likely to be the agricultural sector, which is not significantly unionised.

Bargaining Councils in particular will enjoy broad powers to vary aspects covered by the statute through collective bargaining. The enjoyment by Bargaining Councils of quasi-legislative powers is consistent with the State's commitment to giving primacy to centralised bargaining structures. The Minister also enjoys broad powers of variation, usually requiring the involvement of the Commission from an investigation and recommendation perspective.

The statute gives the Department of Labour's inspectorate strong powers of investigation and action in regard to breaches of employment standards under the statute or under a sector-specific determination. The CCMA will play a major role in the determination of disputes and/or offences in respect of alleged breaches of employment standards.

18.    Employment Equity Legislation

The purpose of employment equity legislation is aimed at countering discrimination within the labour market. Both the Automatic Unfair Dismissal and the Residual Unfair Labour Practice provisions of the LRA clearly signal the Government's intent in this regard. On matters of unfair discrimination, the employer's obligations extend to applicants for employment, thereby increasing the employer's exposure to persons other than employees or ex-employees. This extension of the employer's obligations was not contemplated under any previous rights based legislation in the labour market.

The present Government has identified discriminatory practices both within and without the labour market in determining the policy directions to be followed and implemented. Within the labour market, these policies include the introduction of anti-discrimination measures designed to protect individuals and measures to encourage institutional and cultural change by employing organisations. The Ministry has identified the fact that discriminatory practices within the labour market centre particularly on recruitment, promotion, job grading, benefits, training and retrenchment. The Ministry's focus on measures to be introduced to achieve social upliftment includes accelerated training and promotion of individuals from historically disadvantaged groups. These will have formed the focus of employment equity provisions to be contained in an appropriate Employment Equity statute.

19.    Health and Safety

There have been material developments, both in terms of legislative change and the enforcement of health and safety legislation. At the beginning of 1997, the Mine Health and Safety Act was brought into effect. The Department of Labour seeks to extend the principles contained in that statute to other sectors of the economy through improvements to the existing Occupational Health and Safety Laws.

The new direction creates strong rights to individual employees, extends the scope of issues and considerations under an expanded concept of Health and Safety, contemplates a more participative process between management and labour on questions of health and safety in the workplace, and makes provision for a broad range of legislative restrictions aimed at securing the constitutional right of workers to a healthy and safe working environment. The Ministry also seeks to secure some rationalisation and consolidation of health and safety structures, and which at present fall within the preserve of other ministries, including Mineral Affairs, Health and Transport.

South African law also is well developed with respect to the question of compensation and other rights relating to occupational injury and diseases. The tragedy of Aids, and particularly questions surrounding the discrimination of employees (including applicants for employment) who are HIV positive, is enjoying increasing attention beyond the broad constitutional right to equality and freedom from discrimination.

20.    Human Resource Development Strategy

The Ministry of Labour is also committed to securing the rapid development of skills amongst South African labour. The Government's economic philosophy requires improvement in the level of skills in order to attract investment or to compete globally. To ensure the consistency and equity of standards, the emphasis of legislative change will be to focus upon the key requirements of particular occupations and to introduce a programme to improve the level of skills through training and the implementation of a new concept called "learnerships" to replace apprenticeships. The Human Resource Development Strategy also contemplates measures to facilitate and fund training through different sectors, with the focus on the skills needed in such sectors. The present proposals contemplate that the funding of skills development be shared in partnership between Government and business. Consistent with government policy, the focus of skills development will be upon equality of opportunity and the upliftment of the historically disadvantaged.


CONCLUSION

In matters affecting business, we have dealt with above some of the most important aspects relating to trading with and investing in South Africa.

Deneys Reitz is a large firm with partners specialising in all aspects of law and is readily available to give advice in this regard. Overleaf is a list of the departments in the firm with the names of the current heads of those departments. The firm includes 130 lawyers with a commitment to expertise, efficiency and availability. We welcome the opportunity of expanding on any issues relevant to doing business with South Africa.

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