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Outlawing outsourcing

The local IT sector is modelled around skills provision. But what if SA's labour laws change? Brainstorm's August 2009 cover story uncovers a frightening future scenario.

With elections now past, it is time for the ruling party to deliver to its union supporters. But this delivery could spell the end of the IT sector in South Africa.

The country has little in the way of IT manufacturing capability; the sector is based predominantly on the supply of services – from consulting to implementation and support. This foundation could, however, become unstable if proposed amendments to the Labour Relations Act go through unimpeded.

Proposed amendments to the Labour Relations Act could significantly impact the IT sector, says Janette Cumming, ITA vice-chairperson.

Information Technology Association (ITA) vice-chairperson Janette Cumming explains: “There are discussions under way to change the Act to eliminate labour broking, including outsourcing, sub-contracting and consulting. The proposed amendments are aimed at protecting vulnerable blue-collar workers; however, current wording casts the net far too wide and could have severe ramifications for the IT industry at large.”

At this time, debates at the National Economic Development and Labour Council (Nedlac) are centred on the wording of similar legislation passed in Namibia during 2007. This states: “No person may, for reward, employ any person with a view to making that person available to a third party to perform work for the third party.”

“While the intent of these amendments is laudable and required for many blue-collar workers who are taken advantage of on a daily basis, the impact when you move further afield is considerable. It effectively means skill-based services of any kind – on which the local IT industry is dependent vice-chairperson will become illegal,” she states.

Labouring the issue

Such changes to the Labour Relations Act would certainly be cause for concern, according to Irnest Kaplan, MD of Kaplan Equity Analysts.

“This type of legislative change would have to be carefully investigated before sweeping changes were made. No one is denying there is a need to protect vulnerable workers; however, to challenge the outsourcing model in its entirety would throw out the key benefits that have become an inherent aspect of business today,” he comments.

These benefits include the cross-pollination of skills, economies of scale and project-based flexibility, he says. And these benefits are employed across sectors and industries to enable companies to focus on their core business.

GijimaAst CEO Jonas Bogoshi concurs, pointing out that local companies could be tempted to outsource their IT requirements to regions such as India.

“The industry has voiced its concern about the skills dearth for some time and the resultant cost of highly experienced people. Our customers cannot afford to permanently hire the specialists required for large projects, nor do they have scope of work or experience to keep these types of people challenged – and, therefore, happy – in their positions,” he reasons. Contracting is thus the only realistic option.

Bogoshi makes another valid point: labour has the weight in the IT industry.

“The skills deficit has placed a completely different slant on the balance of power. High-level IT consultants are not forced to sub-contract or consult; they choose to because it is more lucrative: financially, experientially and intellectually. Restricting this type of activity could see an increase in the number of skills looking to ply their trade elsewhere in the world,” he says.

Cumming agrees: “Outsourcing, sub-contracting or consulting is very attractive to the individual in the IT sector. And it's not just a financial consideration. People who have specialist skills quickly lose interest after a project has completed and it's just maintenance left to organise. Typically people who choose this path are those who thrive on new challenges. On the financial side, it's difficult to argue that a person who earns R40 000 a month consulting is a vulnerable worker,” she notes.

At the bargaining table

Despite extraordinary ramifications for companies across all sectors, John Botha, COO of the Confederation of Associations in the Private Employment Sector, says business has been slow in coming to the table on this matter.

“Organised labour has been pushing this mandate since 2000, producing research papers to prove their point. However, it was only in around 2004 that business started to take notice of the amendments that were taking place. And since election campaigning – where labour issues were strongly pushed by the ANC and its allies - corporate lobbying has stepped up as companies come to understand the impact such changes could have,” he explains.

To Botha's mind, wide-ranging changes to the Labour Relations Act are unlikely to be pursued in the immediate future as these will undoubtedly be tied up in legal wrangling and potential constitutional action.

“There are definitely companies that will argue that the proposed amendments infringe on their right to choose their trade freely. More importantly, the Services SETA has more than 180 000 companies registered on its database and it is one of the few sectors that is showing growth during these times. As much as government needs to deliver on its election promises, it is unlikely to introduce legislation that will scrap an essential part of the economy,” he comments.

Nevertheless, Botha concedes government will have to make changes in order to appease the labour movement.

“We are not entirely sure what those changes will be at this time. Nedlac is preparing a discussion document, which is expected out shortly, and this will give us a better idea of what direction government is looking to take.”

In the meantime, Cumming says the ITA is looking for the sector to come together with input on how government's drive to protect the vulnerable can be achieved without negating the growth of the IT industry.

“The time to lobby is now and we need as much input as possible so that all parties can walk away satisfied that both labour and business is protected,” she urges.

Spelling it out

No person may, for reward, employ any person with a view to making that person available to a third party to perform work for the third party.

The solution, Bogoshi agrees, is for the industry to come up with proposals that would satisfy both labour and business.

“By engaging with government, we can find a solution that recognises the importance of contractors and consultants in our line of work but still addresses the socio-economic difficulties experienced by a large portion of our population. An earnings cap, for instance, would protect those who are more likely to be vulnerable, while empowering high-earners to deliver on their skills. We should also be proposing exemptions for those sectors where the balance of power lies with labour and not with employers,” he suggests.

Additionally, enforcement of current legislation will eliminate the majority of the challenges that labour is trying to address with these initiatives, says Cumming. “We have some of the world's best labour policies. We already specifically address labour broking in this legislature. What we lack is enforcement.”

Although the IT sector has its hands full fighting the ravages of the economic downturn, it cannot afford to ignore what is happening in the realm of labour. Indeed, government's determination to make changes before the end of March next year should have the alarm bells ringing.

At the end of the day, political power may hold sway over a distracted corporate sector. As Webber Wentzel's Greg Palmer warns: “What remains to be seen is perhaps just how powerful the trade union lobby actually is.”

Namibia leads the way

South Africa's labour unions have watched the progress of Namibia's labour amendments closely, using it as a foundation for its own arguments.

Frightening future

It effectively means skill-based services of any kind ... will become illegal.

The revised Labour Bill was signed into law in December 2007 and was due to be implemented as of 1 November 2008.

While trade unions welcomed the legislation, employers opposed article 128, which read: “No person may, for reward, employ any person with a view to making that person available to a third party to perform work for the third party.”

The country's largest labour hire company, Africa Personnel Services, took the Namibian parliament and government to court stating it violated its constitutional right to do business. This action was dismissed by the High Court in December 2008 and the company launched an appeal with Namibia's Supreme Court.

At the time of writing, this court had not yet issued its decision.

South Africa takes action

Although Namibia's changes to its labour regulations have spurred on South Africa's efforts, this is not in itself the catalyst for changes to the local legislative regime.

Local companies could be tempted to outsource their IT requirements to regions such as India, notes Jonas Bogoshi, GijimaAst CEO.

The Confederation of Associations in the Private Employment Sector's John Botha says changes have been on the table at Nedlac since 2000.

“Cosatu and the National Labour and Economic Development Institute have produced several research papers around the atypical or non-permanent employment environment over the last decade. Essentially this was labour-focused research into a labour issue. Around 2004/5, business realised it would have to provide employer balance to these arguments,” he says.

The matter garnered greater attention during the ANC's Polokwane conference as labour put its weight behind then presidential candidate Jacob Zuma.

Accordingly, labour broking was referenced in the political party's 2009 Election Manifesto: “In order to avoid exploitation of workers and ensure decent work for all workers as well as to protect the employment relationship, introduce laws to regulate contract work, subcontracting and outsourcing, address the problem of labour broking and prohibit certain abusive practices”.

In May, ANC national spokesperson Jesse Duarte reiterated its stance: “In line with its 2009 Election Manifesto, the ANC would like to set the record straight on its position regarding labour brokers. In order to avoid exploitation of workers, ensuring decent work for all workers as well as protecting employment relationship, the ANC government will introduce laws to regulate contract work, subcontracting and outsourcing, address the problem of labour broking and prohibit certain abusive practices.”
A month later, labour minister Membathisi Mdladlana said in his budget speech before Parliament that it was clear that the first issue that the department would have to clarify in “taking forward the decent work agenda is how the country deals with temporary employment services”.

At the time of writing, Nedlac was preparing a position paper for discussion on the matter.

Speaking for labour

The use of temporary workers is hardly a trend relegated to the continent of Africa. Indeed, it is practised the world over, with countries like India using it to snare foreign direct investment.

Spreading out

Restricting this type of activity could see an increase in the number of skills looking to ply their trade elsewhere in the world.

Nevertheless, Herbert Jauch, head of research at Namibia's Labour Resource and Research Institute, explains that the practice is not always beneficial to both sides of the table.

“Client companies use labour hire workers to reduce the impact of strikes by permanent workers, to achieve flexibility, to cut costs, to avoid labour problems and trade unions, to concentrate on their 'core business' and to replace 'unproductive' workers. Labour hire workers are paid significantly less than permanent workers and they usually do not enjoy any benefits,” he notes.

In his report, Jauch dismisses the argument of some labour hire companies that the abolition of labour hire would lead to thousands of job losses. This argument, he says, is based on the assumption that client companies will reduce their operations and staff levels if they cannot use labour hire workers any longer.

“This is debatable. What is certain is that labour hire companies themselves are not job creators and, therefore, contribute very little to Namibia's development. They certainly undermine attempts to create decent work.”

(Source: “Confronting Outsourcing Head-On? Namibia's Ban on Labour Hire”. Prepared by Herbert Jauch, Labour Resource and Research Institute for the International Labour Research and Information Group.)

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