25 August 2004

Our Brief

We have been asked to advise on whether the new Public Investment Corporation Bill (PI Bill) should have been submitted to the Public Service Coordinating Bargaining Council (PSCBC) for negotiation prior to it being submitted to Parliament.

We record that we were furnished yesterday with two versions of the constitution, one of which is apparently the Constitution as it stood in 1997 and an amended version which reflects the Constitution, as it stood in 2002. For present purposes, we have assumed that the 2002 constitution is the correct constitution to be applied in this matter. Clearly, in due course, it is crucial to determine the constitution in force at the date that you set in motion the procedure for the consideration and drafting of the bill, since it will be against the binding terms of this constitution that your conduct will be measured, should the matter be found to be one of mutual interest.

We have had limited time to consider the difficult issues which arise from the brief put to us, but set out below our analysis.


The Labour Relations Act creates the PSCBC as the bargaining council between the government and state employees. Amongst the aims of the PSCBC are the following:

in terms of the Act and the constitution, negotiate and bargain collectively to reach agreement on matters of mutual interest to the employer and employees represented by admitted trade unions in the Council; consider and deal with such other matters as may affect the interests of

the parties to the Council;

Clause 15 of the Constitution regulates when and in what manner matters of mutual interest shall be negotiated within the PSCBC. Clause 15(1), (2) and (3) read as follows:

"15.1. Any party to the Council may submit a written proposal regarding a matter of mutual interest to the Secretary for consideration by the Council. The Council must determine the procedure for placing a proposal on the agenda of the Council.

15.2 If it is decided that the Council will deal with a proposal, it must meet within 21 working days after receipt of a proposal submitted in terms of clause 15.1 or any time thereafter, if the party who made the proposal agrees thereto.

15.3 At the meeting referred to in clause 15.2, the Council must attempt to agree on a negotiation process which may include the following:……"

While clause 15(1) is somewhat unclear, it would seem that, read in context, it requires anyone who is proceeding with a matter of mutual interest to report that mutual interest, so that the presence or absence of a dispute in relation thereto may be confirmed (in terms of clause 15(2)) and, in turn, so that dispute resolution may be initiated, or not, in terms of section 15(3). Consequently, unless you did this at the time that you began working on the Public Investment Corporation Bill (PI Bill), you would be in breach of your obligations under the Constitution, provided that the matter was indeed a matter of mutual interest (see discussion below). We have considered whether 15(1) in fact means that an objecting party must notify his objection to one proceeding with a matter of mutual interest, before the dispute resolution procedures in this clause are triggered. However, we believe this to be a strained meaning to give the clause.

Consequently, we proceed to consider whether the preparation of the PI Bill was a matter of mutual interest. Obviously the reporting duty in terms of clause 15(1) would only be triggered if it was such a mutual interest.

Law relating to Mutual Interest: What is a Mutual Interest?

It is trite that what will constitute a matter of mutual interest is widely and liberally construed. In Rand Tyres and Accessories (Pty) Ltd and Appel v Industrial Council for the Motor Industry and Others 1941 TPD it was defined as:

"Whatever can fairly and reasonably be regarded as calculated to promote the well-being of the industry concerned"

See Rex v Woliak 1939 TPD 428.

On the basis of this dictum, inter alia, matters relating to working hours, trading practices within the industry (eg touting), trading hours, minimum qualifications for employees, disposal of monies in military service fund established for the sector were all held to be matters within the scope of mutual interest. All these instances showed some relationship to terms or conditions of employment or to the conduct of business in the sector in question.

See: Concession Stores and Allied Trades Assistants’ Union and Another v Minister of Labour and Others 1948 (1) SA 1179 (T);

Rex v Woliak 1939 TPD 428;

S v Winer 1962 (3) SA 536 (T)

It is also quite apparent from the case law, that matters of mutual interest extend beyond the strict terms and conditions of employment. Indeed, mutual interest refers to conflicts/issues of interest, rather than rights. Consequently this concept concerns itself with matters aiming at the creation of new rights, rather than the interpretation or application of existing rights.

See: Sithole v Nogwaza NO and Others (1999) 20 ILJ 2710 (LC);

Democratic Teachers Union v Minister of Education and Others (2001) 22 ILJ 2325 (LC)

Nevertheless, despite the broad reach of the concept, there are limitations to its scope. Consequently, in Durban City Council v Minister of Labour and Another 1948 (1) SA 220 (N) the court dismissed the argument that a dispute over the cost of running and staffing of a library built by the employer near to a barracks occupied by its employees and for the use of this barracks, was an issue of mutual interest between company and employees. It said the following:

"The relationship between the Council and the employees who reside at the Barracks is that of landlord and tenant. This means, in my opinion, that the Barracks constitute a housing, not an industrial, undertaking, and the relationship of employer and employee is merely an incident in a matter of housing, which has nothing to do with the work upon which the employees are engaged nor with their conditions of their employment. Thus the dispute…relates to housing and not to industry or employment."

From the above, one may draw the conclusion that an issue outside the industry in which the employees are employed, in relation to a different "business" undertaking and bearing no proper relationship to the work upon which the employees are engaged would not constitute a matter of mutual interest.

Obviously, the meaning of mutual interest is not static. The above view on the meaning of mutual interest was arrived at under previous labour legislation. Though this view is certainly not invalidated by the Labour Relations Act, it will certainly be influenced heavily by those current provisions of the Labour Relations Act which indicate the proper sphere of employee/union interest. Of particular relevance to this is section 28 (the proper scope of the powers of the bargaining council) and section 84 (those matters on which an employer should consult workplace forums). The following should be noted:

That a bargaining council has the power, and it is its function, to develop proposals for submission to NEDLAC or any other appropriate forum on policy and legislation that may affect the sector and area;

That an employer must consult workplace forums, inter alia on restructuring, reorganisation

of work, retrenchments, mergers and transfers of ownership, closures, product development, export development plans and job grading.

One may thus conclude that the scope of mutual interest has been broadened to give employees some interest in policy and legislation affecting their sector and areas of work. Clearly this is of crucial significance to our matter.

Application of the Law to the Facts

There can be no doubt that issues relating to the management and administration of the Government Employees Pension Fund (GEPF) would be quite closely related or connected to public sector employees’ employment as civil servants, the terms and conditions of their employment and more generally to the civil service "industry" in which they work. Consequently, it is undeniable that such issues would be issues of mutual interest. This is quite clearly recognised in the Government Employees Pension Law (GEP Law), which explicitly makes mention of mutual interest issues.

It appears that COSATU is, in part, arguing that the proposed Public Investment Corporation Bill (PIC Bill) and the Public Investment Commissioners Act (PIC Act) are sufficiently directly or necessarily linked in to the GEPF that they are, by connection, a matter of mutual interest. Furthermore, they are arguing that the financial impacts of the PI Corporation’s decisions will have effects on the wider economy and therefore, also on the employees of the state. Consequently, as far as we can ascertain, COSATU raises the following facts/arguments in support of its contentions:

Ninety One percent of the assets currently managed by the Public Investment Commissioners (PI Commissioners) are the assets of the GEPF;

The Public Investment Commissioners are responsible for the management of various retirement funds and entities providing social upliftment and care;

That if the affairs of the GEPF are mismanaged by the PI Commissioners and monies of the GEPF are lost, the state will have to make good the shortfall, since the GEPF is a defined benefit fund. This will in turn have an effect on the economy and therefore state employees.

The investment of assets of the magnitude of those managed by PI Commissioners will have a substantial impact on the market and on the economy as a whole and therefore on the state employees.

On closer inspection, we believe that these arguments have a number of flaws viz:

Firstly, as COSATU freely admits, the GEPF is not compelled to invest its funds with the PI Commissioners, nor will it be obliged to do so with the proposed Public Investment Corporation (PI Corp). In fact, the GEP Law clearly authorises the making of regulations/rules that will govern the investment of the funds of the GEPF. These rules quite clearly state that the trustees are permitted to invest the GEPF funds and do not require the investment to be handled by the PI Commissioners or PI Corp. The trustees of GEPF, half of whom are member elected, could thus move their business away from the PI Commissioners or PI Corp. Since GEPF have relative autonomy, the true site of decision-making, in respect of the type of risks and investment strategies to which employees’ pension monies will be exposed, lies substantially with the Board of GEPF. It is here then, rather than in the PI Act, that a matter of mutual interest arises.

It must be conceded, on the other hand, that the relative autonomy of the trustees is somewhat compromised by the fact that changes to the "investment policy" of the Fund require the consent of the Minister. However, it is doubtful whether the mere decision to change one’s financial service provider, as opposed to one’s asset selection, could be considered a change of investment policy. Indeed, the GEPF could obtain a private financial service provider to provide an identical service to the PI Commissioners, in terms of a specific asset allocation mandate. Nevertheless, even were we to be wrong on this point, it seems to us that it would be arguable that the mutual interest issues would arise in relation to the GEPF Act and not the PI Act.

As a matter of fact, COSATU maintains that the main motivation for preferring the PI Commissioners is their competitive rates. Consequently, it cannot yet be suggested that anything other than economics has dictated the choice of the PI Commissioners. Certainly the fact that charges are low/competitive would not seem to be a necessary consequence of the legislative framework, whether as it is now or will be under the PIC Bill, but rather a reaction to market forces.

Secondly, as COSATU admits, the GEPF is a defined benefit fund, which means that losses incurred by the fund through using the PI Commissioners or PI Corp will largely have to be met by the state. This is borne out by section 31 of the GEP Law, which reads as follows:

"This Law shall bind the State and the Government shall be responsible for meeting the obligations of the Fund, whether properly funded or not, in favour of its members, pensioners and beneficiaries: Provided that any change in the investment policy of the Fund referred to in section 6 (7) or the benefit structure of the Fund, as provided for in the rules which may have an effect on the Government’s financial obligation towards the Fund, shall be subject to the approval of the Minister: Provided further that the Minister’s approval shall not be required in the event of changes to the benefit structures brought about by agreements reached in the bargaining structures for the Public Service."

Since the benefits offered by the GEPF are effectively backed by the state, it is hard to see exactly what kind of direct interest state employees have in the investment management of the PI Commissioner or PI Corp or losses that may arise therefrom. In fact, as we read the COSATU argument, they have had to (tacitly) concede this and have thus placed weight on the fact that such a bail-out will have severe implications for the state and consequently for the economy. We deal with this aspect of their argument directly below.

The remainder of the arguments, it seems to us, revolve around socio-economic consequences to the economy as a whole. Such an argument obviously accepts, as a necessary premise, that the issues are in fact matters of public interest generally, by virtue of their impact on the economy as a whole, rather than being issues of particular interest impacting on the particular sphere of employment and sector in which the employees actually work. As indicated above, the Labour Relations Act really only implies that legislation impacting on the particular sector in which employees are employed is a matter of mutual interest. If one accepts that the impact is in fact nationwide, rather than sector specific, it becomes clear that this is an issue which is in fact the prerogative of Parliament ie. assessing the public interest and impact of legislation nationwide. Fundamentally, it impacts on how the state sees fit to regulate the manner in which state monies are to be invested generally, rather than a determination on how state pensions scheme monies, in particular, are to be invested. It could not have been the intention of the Labour Relations Act to hold the legislative system hostage to potentially lengthy bargaining council deliberations in respect of all legislation which would have a potential socio-economic impact. Were this so, much of the legislation before Parliament would have to work its way through the PSCBC. If this were so, the PSCBC would become a significant constitutional institution, which it is clearly not intended to be.

The issue of whether the PI Bill is a matter of mutual interest is not an easy one to resolve. Cogent arguments may be raised on both sides. On balance, we prefer the view that it would not be such a matter. However, such a view is not without risk.

Withdrawal of the PI Bill

Should you, nevertheless, decide to withdraw the PIC Bill and engage with COSATU in a mutual interest negotiation within the PSBC, we believe that you course would be as follows.

If the Bill has not been introduced in Parliament, but the proposed legislation has been published for comment, with an explanatory memorandum, and has been submitted to the Speaker of Parliament, if necessary, then the following is the situation. In terms of Rule 242 of the Rules of the National Assembly, the Cabinet Minister, Deputy Minister, committee or member of parliament responsible must, without delay, inform the Secretary that the legislation is to be withdrawn. The secretary of Parliament must then publish a notice in the Gazette stating that the legislation has been withdrawn.

If the Bill has proceeded beyond this point, Rule 299 of the rules of the National Assembly provides that a Bill may be withdrawn by the person in charge thereof before the Second Reading of the Bill has been decided. It appears that the PIC Bill is currently at this stage, i.e. it has been introduced but is still being considered by the Portfolio Committee. It has not been referred back to the National Assembly for the Second Reading.

If you should decide to take this course, we would advise you to revert to us, so that we can set out the formalities for you in greater detail. In light of our finding on the question of mutual interest, it did not seem necessary to set this out in detail.

Anton Steenkamp and Zimisele Majamane

Sonnenberg Hoffmann Galombik

Cape Town

25 August 2004