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Compliance Order: Closed business gets R700’000 fine.

Closed company fined

After a compliance order resulted in a Labour Court case, the closed business Jinghua Garments received a fine of R200’000 plus R500’000 in costs for breaking the Employment Equity law. The Jinghua Garments case was cited several times to show how organisations can be fined for contravening the Employment Equity Act. However, most citations miss that the company was already closed when the Labour Court issued the verdict.

Over the last 26 years of consultation, almost 99% of managing directors threatened to close the business if summoned. In terms of legislation, once the organisation has contravened the employment equity act, the court case will continue whether the organisation exists. The person in charge of the organisation at the time of the infringement is the organisation’s representative and responsible person as per the Companies Act.

After a compliance order was issued and served on Jinghua Garments by the Department of Labour Inspector, the managing director signed a Written Undertaking to comply with the order.

However, the managing director did not comply and decided to close the business and discontinue trading. This, however, did not deter the Department of Labour, and they petitioned the Labour Court to have a compliance order made an order of the court. The Department of Labour also requested that the court issue a fine for contravention of the Employment Equity Act.

Jinghua Garments did not comply with sections 16, 19, 20, 21, 22 and 23 of the Employment Equity Act. The Labour Court held that the designated employer must comply with the Act’s statutory requirements, implement all affirmative action measures, and perform the Workplace analysis. 

In his defence, the managing director, a Chinese citizen, argued that he recently commenced business operations in South Africa and his lack of expertise led to non-compliance with the Act. He provided proof that he engaged with the FEDSA to comply with the required legislation, not knowing that FEDSA also lacked the necessary knowledge to assist the organisation in complying with the Required legislation. 

 

Failure by Consultants, after compliance order

Failure by third party consultants and organisations is very typical, and we are encountering this more frequently. Many organisations and consultants offer Employment Equity services, which turn out to do more damage than good. The Jinghua Garments case was no different, with a consultancy association FEDSA and a consultancy firm Perfect Partners, acting as an employment equity consultant. 

In every case we handle, there is always a consulting organisation that provided “Employment Equity compliance services”, but they abandon the organisation after the compliance order. 

The court held that Ignorance is no excuse, and to ensure compliance with the Act, the fine should have a punitive and preventative element that should deter would­be offenders. The court, therefore, decided that a fine of R200,000 would be reasonable. The court also ordered that Jinghua Garments pay the costs of both parties.

 

Conclusion:

In conclusion, in this case, even if the organisation closes down, the Department of Labour will continue with its prosecution for the infringement of the employment equity act. The managing director or owner of the organisation will become responsible for both the fine and all parties’ legal costs.

In the end, the total cost plus the imposed fine exceeded R700’000.

 

Find more information and how to implement employment equity in my other articles,

Are you having difficulty with employment equity please don’t hesitate to contact me, by clicking any of the links below?
Stephan du Toit
Prepared by DuToit Associates in collaboration with Honey Attorneys.
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For your reference.

Director-General of the Department of Labour v Jinghua Garments (Pty) Ltd [2007] JOL 19127 (LC)

Compliance order for sections contravened  

 

SECTION 16. Consultation with employees

(1) A designated employer must take reasonable steps to consult and attempt to reach agreement on the matters referred to in section 17-

(a) with a representative trade union representing members at the workplace and its employees or representatives nominated by them; or

(b) if no representative trade union represents members at the workplace, with its employees or representatives nominated by them.

(2) The employees or their nominated representatives with whom an employer consults in terms of subsection (1)(a) and (b), taken as a whole, must reflect the interests of-

(a) employees from across all occupational levels of the employer’s workforce;

(b) employees from designated groups; and

(c) employees who are not from designated groups.

(3) This section does not affect the obligation of any designated employer in terms of section 86 of the Labour Relations Act to consult and reach consensus with a workplace forum on any of the matters referred to in section 17 of this Act.

 

SECTION 19. Analysis

  1. (1) A designated employer must collect information and conduct an analysis, as prescribed, of its employment policies, practices, procedures and the working environment, in order to identify employment barriers which adversely affect people from designated groups.

(2) An analysis conducted in terms of subsection (1) must include a profile, as prescribed, of the designated employer’s workforce within each occupational level in order to determine the degree of underrepresentation of people from designated groups in various occupational levels in that employer’s workforce.

 

SECTION 20. Employment equity plan

  1. (1) A designated employer must prepare and implement an employment equity plan which will achieve reasonable progress towards employment equity in that employer’s workforce.

(2) An employment equity plan prepared in terms of subsection (1) must slate-

(a) the objectives to be achieved for each year of the plan;

(b) the affirmative action measures to be implemented as required by section 15(2);

(c) where underrepresentation of people from designated groups has been identified by the analysis, the numerical goals* to achieve the equitable representation of suitably qualified people from designated groups within each occupational level in the workforce, the timetable within which this is to be achieved, and the strategies intended to achieve those goals; (* Guidelines regarding the factors to be taken into account in determining numerical goals will he included in a Code of Good Practice- However, the factors listed in section 42(a) (Assessment of compliance) are relevant to selling numerical goals in each organisation.)

(d) the timetable for each year of the plan for the achievement of goals and objectives other than numerical goals;

(e) the duration of the plan, which may not be shorter than one year or longer than five years;

(f) the procedures that will he used to monitor and evaluate the implementation of the plan and whether reasonable progress is being made towards implementing employment equity;

(g) the internal procedures to resolve any dispute about the interpretation or implementation of the plan;

(h) the persons in the workforce, including senior managers, responsible for monitoring and implementing the plan; and

(i) any other prescribed matter.

(3) For purposes of this Act. a person may be suitably qualified for a job as a result of any one of, or any combination of that person’s-

(a) formal qualifications;

(b) prior learning;

(c) relevant experience: or

(d) capacity to acquire, within a reasonable time. the ability to do the job.

(4) When determining whether a person is suitably qualified for a job, an employer must-

(a) review all the factors listed in subsection (3); and

(b) determine whether that person has the ability to do the job in terms of any one of, or any combination of those factors.

(5) In making a determination under subsection (4), an employer may not unfairly discriminate against a person solely on the grounds of that person’s lack of relevant experience.

(6) An employment equity plan may contain any other measures that are consistent with the purposes of this Act.

(7) The Director-General may apply to the Labour Court to impose a fine in accordance with Schedule 1, if a designated employer fails to prepare or implement an employment equity plan in terms of this section.

 

SECTION 21. Report*

 

(* The first report will refer to the initial development of and consultation around an employment equity plan. The subsequent reports will detail the progress made in implementing the employment equity plan.)

21 (1) A designated employer must-

(a) submit a report to the Director-General once every year, on the first working day of October on the first working day of October or on such other date as may be prescribed.

(3) Despite subsection (1), an employer that becomes a designated employer on or after the first working day of April but before the first working day of October, must only submit its first report on the first working day of October in the following year or on such other date contemplated in subsection (1).

(4) The report referred to in subsection (1) must contain the prescribed information and must be signed by the chief executive officer of the designated employer.

(4A) An employer that is not able to submit a report to the Director-General by the first working day of October in terms of subsection (1) must notify the Director-General in writing before the last working day of August in the same year giving reasons for its inability to do so.

(4B) The Director-General may apply to the Labour Court to impose a fine in accordance with Schedule 1, if an employer—

(a) fails to submit a report in terms of this section;

(b) fails to notify and give reasons to the Director-General in terms of subsection (4A); or

(c) has notified the Director-General in terms of subsection (4A) but the reasons are false or invalid. (6) Every report prepared in terms of this section is a public document.

 

SECTION 22. Publication of report

22 (1) Every designated employer that is a public company must publish a summary of a report required by section 21 in that employer’s annual financial report.

(2) When a designated employer within any organ of state has produced a report in terms of section 21, the Minister responsible for that employer must table that report in Parliament.

 

SECTION 23. Successive employment equity plans

23 Before the end of the term of its current employment equity plan, a designated employer must prepare a subsequent employment equity plan.