March 13 (Bloomberg) -- Textile companies owned by Chinese and Taiwanese families in Newcastle, in South Africa’s eastern KwaZulu-Natal province, won an exemption from an industry pay agreement, allowing them to ignore a regulated minimum wage.
Factories that aren’t members of the National Bargaining Council, where union and business representatives negotiate wages for industries, can hold separate talks with their workers on pay levels, Pietermaritzburg High Court Judge Piet Koen said in a written ruling today.
The judgment may make it easier for companies to afford employees in a country where one in four is jobless. It could also undermine the power of labor unions that have demanded higher minimum wages and reduce pay to those already employed. The factories pay on average 350 rand ($38) to 400 rand a week before performance bonuses, compared with an industry minimum wage of 479 rand, Alex Lui, president of the Newcastle Chinese Chamber of Business said in an interview yesterday.
“We want to return the power of negotiation to the shop floor,” Lui said. “We don’t want wages set by some organization based in Johannesburg that treats all employers the same whether they are large or small.”
A union membership fee and contribution to the provident fund is deducted from the pay, he said.
The nation’s labor laws, training costs and lack of skilled workers discourage hiring, Mark Cutifani, the chief executive officer of Johannesburg-based AngloGold Ashanti Ltd., said last year.
The mostly family-owned companies threatened to cut jobs or close down the factories if they were forced to abide by national labor rules. Already, the number of clothing plants in the town have dropped to 20 from 80 factories in 1997 and employment has halved to about 4,000 people, according to Lui.
The businesses started in the region after the government tried to lure foreign textile companies and other industrial plants through investment incentives when the coal mines that built the town in province in the country’s east closed down.
In 2004, then South African Labour Minister Membathisi Mdladlana said all employers were bound by wage deals agreed to by the National Bargaining Council, Lui said. The agreements weren’t enforced until 2010, he said.
The clothing companies employ about 30 percent of the town’s workforce, said Newcastle’s director of Economic Development, Ferdie Alberts, who was part of the campaign to bring textile companies from China and Taiwan. ArcelorMittal South Africa Ltd., Africa biggest steel producer, operates a plant in Newcastle.
Unemployment is about 29 percent in the town, excluding people who have given up looking for work, Alberts said.
South Africa is struggling to cut a 24.9 percent jobless rate, the highest of 39 emerging-market nations monitored by Bloomberg. The National Development Plan, a 20-year blueprint to boost investment adopted by the government, calls for a change to labor laws to boost hiring.
Its proposal to link wage increases to productivity is opposed by the Congress of South African Trade Unions, the nation’s biggest labor federation that’s in a political alliance with the ruling African National Congress. Cosatu is demanding that companies stop hiring temporary workers as a way to bypass labor laws.
South Africa’s textile industry, centered around Cape Town, employed about 108,000 people in 2010 and accounted for about 0.7 percent of gross domestic product.
The South African Clothing and Textile Workers Union, a Cosatu affiliate, is studying the decision and is yet to decide whether it will appeal.
The court ruled that the labor ministry’s extension of the National Bargaining Council’s agreements to non-party companies in 2010 wasn’t done properly and hasn’t scrapped the industrywide pay agreement, General Secretary Andre Kriel said.
“All that they have now done is to harden Sactwu’s attitude towards them,” he said. “We will now ensure that the legitimate non-compliance writs held against them will be executed more vociferously.”
Fighting between unions over negotiation rights and pay spread from Lonmin Plc platinum mine, at which about 46 people died in violence in August, to other precious metal mines. Farmworkers, truck drivers and coal miners have also struck in recent months.
Unemployment is higher in rural areas where businesses can’t afford the wages paid in cities, according to the Centre for Development and Enterprise, a independent research group based in Johannesburg.
“The struggle of the Newcastle clothing producers to remain in business is symptomatic of the difficulties involved in promoting labor-intensive growth in South Africa,” it said in a report released in January. “The firms have to contend with minimum wages set in bargaining councils dominated by unionized businesses in metropolitan areas.”
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