The Constitutional Court rules on the public sector wage bill during the Covid-19 pandemic

The Constitutional Court judgement handed down in February 2022 is fascinating because it gives those outside government insight into the complexes process of central wage bargaining, which are largely opaque to academia and broader civil society. Given concerns about the rapidly escalating public service wage bill, these collective bargaining dynamics are particularly pertinent from a public policy and fiscal policy perspective. While the collective bargaining relationship is framed as employer-employee, government as the single largest employer in the country takes decisions which have macroeconomic consequences.

In May 2018, government had entered into a collective agreement with public sector trade union representatives at the Public Sector Bargaining Council (PSCBC) which regulated wage increases in 2018/19, 2019/20 and 2020/21. Despite South Africa’s deteriorating fiscal outlook and declining growth prospects after a decade of state capture, the first two years of the wage agreement were implemented. In March 2020, however, government’s representative at the PSCBC proposed a lower wage increase for 2019/20 (but still above inflation and in excess of what had been budgeted for in terms of compensation of employees), which the unions refused to accept. On 1 April 2020, government reneged on the collective agreement by failing to increase salaries.

After arbitration failed, the matter was referred to the Labour Appeal Court (LAC) which found that the costs of the collective agreement exceeded the Minister of Public Administration’s budget, that the National Treasury had not agreed to guarantee additional funding in writing, and that the amount of the 2020/21 wage offer in excess of the Minister of Public Administration’s budget had not been approved by Parliament. The LAC declared that enforcing the wage increase in 2020/21 would have violated sections 213,  s215 and 216 of the Constitution and sections 78 and 78 of the Public Service regulations, and dismissed the public sector unions’ plea for a court order to compel government to enforce the collective agreement.  Because the collective agreement was, in its view, invalid to begin with, then LAC argued that it could not be enforced.

Regulations 78 and 79 were promulgated by the Minister of Public Service and Administration under section 41 of the Public Service Act, and must be read and interpreted in conjunction with it.

Public Service Regulation 78(2) provides the following in respect of the Minister of Public Administration as an executive authority:

“(2) An executive authority may enter into a collective agreement on a matter of mutual interest only if that authority—

(a) is responsible for managing collective bargaining on behalf of the State as employer in that forum;

(b) has authority to deal with the matter concerned; and

(c) meets the fiscal requirements contained in regulation 79.”

Furthermore Regulation 79 provides:

“An executive authority shall enter into a collective agreement in the appropriate bargaining council on any matter that has financial implications only if—

(a) he or she has a realistic calculation of the costs involved in both the current and the subsequent fiscal year;

(b) the agreement does not conflict with the Treasury Regulations; and

(c) he or she can cover the cost—

(i) from his or her departmental budget;

(ii) on the basis of a written commitment from the Treasury to provide additional funds; or

(iii) from the budgets of other departments or agencies with their written agreement and Treasury approval.”

On the other hand, the Unions argued that Cabinet had approved the agreement and it was therefore lawful.

The matter was subsequently referred to the Constitutional Court which unanimously handed down judgment on 28 February 2022 in 
National Education Health and Allied Workers Union v Minister of Public Service and Administration and Others; South African Democratic Teachers Union and Others v Department of Public Service and Administration and Others; Public Servants Association and Others v Minister of Public Service and Administration and Others; National Union of Public Service and Allied Workers Union v Minister of Public Service and Administration and Others [2022] ZACC 6

 For the full judgment, click here.

The Constitutional Court made the following observations:

“[87] Upon a proper construction, the provisions of regulations 78 and 79 clothe the Minister of Public Service and Administration with the necessary authority to negotiate and conclude a collective agreement on behalf of the State and set the parameters within which this must be done. If the Minister acts outside these regulations she or he lacks the necessary authority and acts ultra vires. Approval by the Cabinet or COM is not one of the jurisdictional facts, which must exist, when the Minister exercises his or her powers and performs his or her functions under regulations 78 and 79. The Cabinet has no power to grant the approval required under these regulations. Such power is invested in the Minister of Public Service and Administration, subject to the prerequisites set by the regulations.”

In para 89, the Court found that the “end result is that the State’s failure, in its capacity as the employer, to comply with the requirements of regulations 78 and 79 renders the resultant collective agreement entered into between the parties under the LRA invalid and unlawful”.

At the heart of the matter the Constitutional Court had to weigh up the rights of public sector trade unions to enforce the final year of a collectively bargained 3 year wage agreement, against the rights of (mainly poor) citizens who would have faced vastly reduced service delivery. Fiscal pressures were exacerbated by the unforeseen Covid-19 pandemic which placed additional burdens on the fiscus to provide social relief in response of wide spread job losses and salary cuts in the private sector, while tax revenues declined markedly.

Government argued that further civil servant increases were not “just and equitable”, but “unaffordable, unbudgeted for and unauthorised by law” (para 102).

In the closing paragraph 113, the Court concludes that if the wage increases were enforced:

“the amount available for service delivery in all its manifestations would be significantly reduced. In this regard, the State has laid emphasis on the impact that the Covid-19 pandemic has had on its financial resources, including the need to protect the lives and livelihoods of vulnerable people exposed to the severe consequences of the pandemic. In the present economic and health circumstances facing the country, it would not be just and equitable to require the State to make good the illicit salary increases it promised at the expense of far more pressing needs affecting the country.”