In a hard-hitting unanimous judgment and a big victory for the government, the Constitutional Court has ruled the state can back out of what an acting judge blasted as an “impugned wage deal” with unions in 2018.
Mjabuliseni Isaac Madondo ruled that the government does not have to implement the last leg of the three-year agreement reached at the public sector bargaining council in 2018 as the unions were “unjustifiably enriched” from the “impugned collective agreement”.
The judgment was widely watched by markets and ratings agencies, because a ruling in the unions’ favour would have added R29bn to expenditure and tarnished the credibility of the budget, which last week named the wage bill — which is set to top R700bn in 2024 — as one of the biggest risks to SA’s finances.
The unions — including the National Education, Health and Allied Workers’ Union, SA Democratic Teachers Union, Police and Prisons Civil Rights Union (Popcru), and the Public Servants Association of SA — approached the top court last August to challenge the ruling by the labour appeal court in 2020, upholding a Treasury decision not to implement the final part of a three-year public sector wage deal due to a lack of money.
On Monday, Madondo dismissed the appeal and criticised the “illicit salary increases” the unions enjoyed over two years, saying if the final year of the agreement were implemented, it would “precipitate a fiscal crisis” that would detract from the state’s ability to alleviate the plight of the poorest of the poor.
Tertia Jacobs, treasury economist at Investec, said the judgment removes the risk of SA having to trawl its coffers to find the mine to plug the hole.
Econometrix chief economist Azar Jammine said it is positive news for SA’s fiscal position because the public service is the government’s main focus for reducing spending.
“This enhances the Treasury’s ability to rein in public expenditure. It’s a very favourable development.
“It will make unions more reluctant to contest [the government’s wage proposals] and more determined to reach agreement during wage negotiations than approaching the courts,” said Jammine.
The judgment comes as the government is trying to rein in public spending and cut the wage bill, which has been increasing exponentially over the years from just more than R154bn in 2006 to R665bn in the 2022 fiscal year.
In his budget speech last week, finance minister Enoch Godongwana said compensation spending would increase to R702bn in 2024/2025, at an average annual rate of 1.8%. This means the wage bill and state-owned enterprises remain among the “significant risks” in the fiscal framework.
Madondo said implementing the final part of the deal is not sustainable during the prevailing Covid-19 pandemic as it would plunge the government into “substantial excess debt”.
At the heart of the dispute is the argument from the government that the wage deal was unlawful because the state negotiators entered into the agreement with the unions without checking if the Treasury had enough in its purse to honour the agreement, as required by law.
“The state contends that these mandatory requirements were not satisfied before it entered into the impugned collective agreement, and it is therefore unlawful and unenforceable. It contends further that enforcing the agreement would cost the fiscus R29bn, which it does not have,” he stated in the judgment.
Implementing the agreement will have “significant and prejudicial budgetary implications”, he said.
The public service unions seemed to ignore the fact that the state had expended a “huge sum of money at the expense of poor citizens, in adjusting and paying out salary increases to public servants for the period of two years under an invalid collective agreement”.
In 2017, the Treasury set aside R128.5bn to fund compensation increases for all public servants from 2018/2019 to 2020/2021. Of this amount, R110bn was allocated to fund the cost of compensation increases for employees in the Public Service Co-ordinating Bargaining Council.
“Firstly, the employees had their jobs secured and received year-on-year salary increments in the public sector outstripping inflation and outperforming the private sector salary increases. This occurred at a time when the rest of the country’s workforce, including high-echelon public servants, cabinet and parliament, had suffered salary cuts or freezes as a consequence of the economic [situation] and the Covid-19 pandemic,” he said.
In the present economic and health circumstances, 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, Madondo said.
Mugwena Maluleke, convener of the Cosatu public service unions, said: “It’s regrettable that the Constitutional Court dismissed our appeal and that workers have lost their increases, not because of their own fault, but that of the DPSA [department of public service & administration] for not complying with the regulations.”
Popcru national spokesperson Richard Mamabolo said the judgment is a “sad moment for collective bargaining in our country”.
He said the Popcru leadership would engage on the apex court’s outcome and define a way forward.
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