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Labour Law

Will Minimum Wage Increase Boost Economic Growth In South Africa?

The increase in minimum wage comes as good news since it raises the amount of disposable income for the domestic workers.

Jeff Broth

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johannesburg-city

The South African government announced on Monday that it is going to raise the minimum wage for domestic workers in the country starting from December 1st 2016. Labour Minister Mildred Oliphant said that the new wage increase will be applicable until November 30th 2017. The increase in minimum wage comes as good news since it raises the amount of disposable income for the domestic workers.

With the higher levels of disposable income, the domestic workers can decide to spend it all in improving their living standards or save the surplus income. However, for the financially prudent domestic workers, they will find ways to invest the surplus income through easy to use channels such as Stern Options and other trading platforms.

In his statement, the Labour Minister added that “The minimum wage adjustment is in line with the Basic Conditions of Employment Act which is regulated through the Sectoral Determination. Domestic workers are by law classified as vulnerable‚ hence the Sectoral Determination governing minimum wage and conditions of employment.” According to the labor laws in South Africa, domestic workers include nannies, gardeners, domestic drivers, housekeepers among others.

Related: Increase For Hospitality Wages

The minimum wage increase will however not be applied uniformly in all places. The government has divided different locations into Area A and Area B. Area A consists of major cities, towns and metropolitan municipalities. For domestic workers in Area A working for more than 27 hours per week, their hourly rate will be increased from R11.44 to R12.42. This will translate to weekly earnings of R559.09 from R514.82; and a monthly increase in wages from R2230.70 to R2422.54.

Domestic workers working for less than 27 hours a week in Area A, their hourly wage rate was raised to R14.54, which adds up to a weekly wage rate of R392.58 and cumulatively sums up to a monthly wage rate of R1 701.06. On average, the change in minimum wage for the metropolitan areas represents an increase of about 8.2% in the net pay for domestic workers from the previous year.

Area B consists of non-metropolitan areas in South Africa. For domestic workers in Area B working for more than 27 hours in a week, their new hourly rates stand at R11.31, which translates to a weekly rate of R508.93 and cumulatively add up to a monthly rate of R2205.17. Those domestic workers working less than 27 hours in Area B will start receiving a new hourly wage rate of R13.53, a weekly rate of R360.54 and cumulatively receive a monthly wage rate of R1 562.21. Compared to the financial year 2015/2016, on average this represents a 10% increase the wages for the domestic workers in Area B.

cyril-ramaphosa

These changes are the first among several others that are expected to be introduced in the coming months by the government of South Africa. Early on in August this year the Deputy President of South Africa Cyril Ramaphosa launched the process of reviewing the national minimum wage for South Africa by appointing a seven member panel to initiate the deliberations on the same. The debate about minimum national wage has been in the media for quite some time now going back to first quarter of 2016.

Related: How To Structure A Fair Salary That Will Motivate Your Sales Team

One school of thought believes that the minimum wage is not the solution to economic development in South Africa. In their argument, they believe that setting a minimum wage will increase the cost of production for goods and services and leave employers with two options.

The employers will either reduce their headcount in order to curb the rising costs or increase their product prices and face the danger of reduced demand and falling sales. Both alternatives are detrimental to economic growth.

Another school of thought argues that with increased minimum wages, spending power for the consumers will be increased and they will buy more goods and services that they could not afford before.

This would then push demand up and translate to higher production to meet the increasing demand and hence result to an increase in GDP. Eventually South Africa would experience higher economic growth rates as higher revenues for businesses result to further increase in wages by the employers which sparks another round of increased production and the cycle continues.

The debate is still raging on whether the increase in minimum wage is the solution to South Africa’s economic development and the final judgment is yet to be arrived at. However, with the panel constituted to deliberate the matter being made up of the best brains in the discipline of economics, we can expect prudent results to emerge from their discussions soon.

Jeff Broth, a business writer and advisor. Consulted for SMB owners and entrepreneurs for 7 years now. Mainly covering finance, stocks and emerging fintech trends.

Labour Law

5 Tips For Ensuring Minority Shareholder Protection

The following tips may help you secure your position.

Justine Krige

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minority-shareholder

Minority shareholders are often faced with the challenge of entrenching their rights in a company and making sure their voices are heard.  Although there are certain statutory protections that are afforded to them, minority shareholders can request that certain additional protections are included in a company’s constitutional documents which will afford them even greater protection.

If you are going to be a minority shareholder in a company (that is, you will hold less than 50% of the shares in the company), the following tips may help you secure your position:

1. Include rights of pre-emption

Rights of pre-emption can be included for further issues of new shares by the company and sales of shares by shareholders. In respect of the issue of new shares by the company, it is important that a company’s constitutional documents contain a right of pre-emption in terms of which the company is obliged to first offer shares to the existing shareholders pro rata to their shareholding in the company, before being offered to a third party. This prevents minority shareholders’ shareholding in the company from being further diluted.

Although the Companies Act does include this statutory protection, companies are entitled to amend this provision in their constitutional documents and exclude this protection. Minority shareholders are therefore advised to ensure that this protection is entrenched in the company’s constitutional documents.

Similarly, it is important that a company’s constitutional documents contain a right of pre-emption in respect of the sale of existing shareholders’ shares. Ideally, shareholders who wish to dispose of their shares are obliged to first offer their shares to the existing shareholders pro rata to their shareholding in the company, before being offered to a third party for sale. This protects existing shareholders (including minority shareholders) from having a new (and possibly unwanted) shareholder being foisted upon them.

2. Provide for “specially protected matters”

It is important that a shareholders’ agreement and/or memorandum of incorporation contains a list of “specially protected matters” which require approval by shareholders holding a specified threshold (typically at least 75%) of the shares in the company.

Put differently, a list of possible transactions or eventualities should be drawn up which require that minority shareholders vote on them before they are actioned. Although the Companies Act does contain a statutory list of matters requiring the approval of shareholders holding at least 75% of the issued share capital, this list can be amended to include additional matters and the required threshold can also be increased.

A material change in the nature of the business, the encumbering of the company’s assets, and appointment of senior executives earning above a certain amount would typically be included in this extended list.

3. Ensure representation at board and shareholder level

For minority shareholders, ensuring representation at shareholders meetings is most critical.  Minority shareholders can request that the constitutional documents require their representation at a shareholders meeting for a quorum to be validly constituted.

In respect of board meetings, minority shareholders can request that the constitutional documents provide that they are entitled to make a nomination for appointment to the board and require the other shareholders to vote in favour of such nomination. Minority shareholders can also request that the constitutional documents provide that for so long as they hold not less than a specified threshold (for example, 1%) of all the issued shares, they are entitled to nominate one person for election to the board.

Alternatively, minority shareholders can request observer rights in terms of which they are entitled to appoint one observer to attend meetings of the board, who may observe proceedings at board meetings, but not speak or vote.

4. Insist on a “tag along” clause

It is important that a shareholders’ agreement and/or memorandum of incorporation contain what is known as a “tag along” clause. A tag along clause means that if a third party (A) offers to purchase equity in the company from a group of shareholders (B) but not the remaining shareholders (C), then C can insist that B only sells shares in the company to A if A acquires C’s shares on the same terms.

This ensures that minority shareholders are afforded an opportunity to participate in any sales which the majority shareholders participate in and that minority shareholders are not forced to remain as shareholders in a company with a new majority shareholder. 

5. Conclude a “voting pool” agreement

So-called “voting pool” agreements allow minority shareholders to agree with one another on “block voting” in terms of which they pool their shares and vote collectively on matters, thereby strengthening their voting position in the company.

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Labour Law

Dealing With Decision – Making Deadlocks In Private Companies

Effective decision – making is an important part of running any Business or Company.

Nicolene Schoeman-Louw

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In essence, Companies are governed by the democratic principle on both Shareholder and Board level. This means that the majority rules both on Shareholder and on Board level.  What is important to note though, particularly on Shareholder level is that besides the underlying asset value particularly in Private Companies, the ability to exercise effective control over the business and its assets by being a Majority Shareholder carries considerable economic value. Conversely Minority Shareholding, although Minority Shareholders enjoy increased protection under the new Companies Act 71 of 2008 as amended, carries a lesser economic value and is often difficult to market and sell to Third Party Buyers. For this reason, Majority Shareholders are often reluctant to relinquish the effective control they hold.

The role of a Shareholder and Director are distinctly different from one another as will be investigated briefly through this article. Sound governance principles are in writer’s view key in avoiding decision – making deadlocks on both levels and further, to maintain healthy relationships between Shareholders and Board members.

The distinction between Shareholders and Directors

Shareholders own shares in the Company.  They are therefore  Investors who are key in making certain decisions. Directors on the other hand, are Members of the Board and attend to the day- to- day running of the Company. Both Board and Shareholder decisions are made by way of resolution.

Related: Solutions To Get Your Business Through Tough Times

Shareholder and Director decision- making

Shareholder votes are directly correlated to the amount of shares they own in the Company. Directors on the other hand, generally only have one vote each and resolutions are taken on majority vote.

It is important to distinguish which decisions are for the Board and which are for the Shareholders. The Memorandum of Incorporation (“MOI”) is instrumental in outlining this.

There are two types of resolutions in Shareholder meetings, ordinary and special resolutions. Generally speaking, ordinary resolutions require a 50% support and special resolutions 75%. Accordingly, more sensitive decisions are taken by special resolution. Section 65 of the Companies Act lists special resolutions for Shareholders. Examples include amending the Company’s (“MOI”), to approve the issue of shares and entering into fundamental transactions. This in addition to any matter prescribed to be considered by special resolution in the Company’s MOI.

Proposed resolutions must be sufficiently clear and accompanied by information enabling the Shareholder entitled to vote whether or not to vote in favour thereof. If this is not the case, the Companies Act prescribes that such a Director or Shareholder may request such information or explanation regarding a proposed resolution. If  it is still insufficient a Shareholder may, before the start of the meeting, “seek leave to apply” to Court for an order restraining the Company from putting the matter to the vote and requiring the Company to amend the proposed resolution to comply with the requirements.  Importantly, the above remedy cannot be applied after the meeting has taken place.

What happens in a deadlock

A deadlock is a situation, typically one involving opposing parties, in which no progress can be made. In essence this means that equal amounts of votes are both for and against a decision.

Deadlocks can be easily avoided in Shareholder’s meetings by dividing the shareholding in such a way that all combinations lead to a majority vote or casting vote. This of course does not ensure that all decisions or processes will be dispute- free, but at least avoids the clear threat of a deadlock when a Company is owned by for example two Shareholders each holding 50% of the shares.

Directors generally only have one vote each, however many Companies afford the Chairperson of the Board an additional vote or casting vote, usually exercised in cases of deadlock.

Related: When To Collaborate And When To Employ

Where deadlocks arise on Shareholder or Board level, consultation with an Independent Expert, mediation  or arbitration can aid in the breaking of a deadlock. However, where this fails, the repercussions may be devastating.  In terms of Section 81 any Director or Shareholder may apply to Court for the winding up of a Company.

When deciding on shareholding allocation it is important to consider the practical and mathematical probabilities of deadlock. The underlying reasons for deadlocks are complex considerations involving in writer’s view the essence of the human experience. The most important of these considerations, is crucially that Shareholders share the same values and vision for the Company. This will safeguard the relationship between them and ultimately may aid in avoiding potential deadlocks.

Boards should be diverse and Directors only focused on acting in the best interests of the Company.

Ideally Shareholders and Directors should not be the same individuals but be two distinct bodies serving the Company. If this is not the case though, those Companies should ensure that Shareholder- Directors understand the differences in the decision-making processes and the purpose thereof.

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Labour Law

When To Collaborate And When To Employ

To help you navigate the maze we have constructed some key questions.

Nicolene Schoeman-Louw

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labour-law

Given the complexity of the labour legislation in South Africa, entrepreneurs are often reluctant to employ and rather look at other forms of agreements to achieve the same outcome. There are instances when it is more appropriate to contract in a different way, but it is important that these reasons are sound.

A number of alternatives could be plausible to consider, these include: Agency, Distribution, Independent Contractor or Supplier Agreements. To help you navigate the maze we have constructed some key questions.

1. Supplier

Question: Is this a unilateral arrangement (to some degree)? In other words, will one party supply or provide something to th other in exchange for payment?

Required Document: Clients or customers are typically engaged by agreement, usually a form of terms and conditions or perhaps even an agreement detailing credit terms. An important provision to include is the aspect of confidentiality and data protection / security. This is crucial from both a customer and supplier perspective.

Related: What Is The Legal Impact Of Acknowledgements?

2. Agency

Question: Do you want to engage multiple people or organisations to sell the goods or services you supply?

Required Document:  An agency agreement could either relate to an individual or an organisation. This means an individual or a business could represent the supplier of the goods or services and earn a commission or remuneration for actual sales. One of the advantages is that this does not create the commitment usually associated with an employment relationship, however, a number of aspects should be carefully considered or constructed including the agent’s powers of representation and some checks and balances should ideally be in place to ensure that these are not exceeded. The process of adjusting commissions in certain instances such as customer complaints or returns.

3. Distribution

Question: Do you sell and market goods? Are you concerned about multiple people or organisations selling the goods you supply, overstepping? Rather prefer that the goods be purchased and delivered to the end consumer from there?

Required Document: A distribution agreement detailing the price to be paid, passing of risk, storage and logistics. This is usually a more appropriate arrangement for a larger scale manufacture or export business. It could also be suitable (where logistics and storage would be less important) for software products. 

Related: The Differences Between A Supplier Relationship, Agency And Distributor

4. Independent Contractor

Question: Have you contracted with an organisation and require a skill you don’t have, to perform the contract only for purposes to finish the contract or project involved? There is no need for the person only working for you.

Required Document: An independent contractor agreement detailing remuneration and term being linked to the contract or project. There is a fine line between these arrangements, labour broking and employment. It is therefore crucial to understand the risks involved and to seek professional guidance when electing to proceed this way. 

Conclusion

It is best to strategically assess your risks, intentions and needs before electing which agreement to use. Contact an expert at SchoemanLaw today.

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