The Alignment Between the Employment Equity & B-BBEE Acts | Natural Bedfellows |

The 20th Commission for Employment Equity Annual Report 2019/20

(CEE) was released in August 2020. It incorporates information from

27,127 Employment Equity Report submissions covering 7,332,072

employees. The findings include the economic downturn during that

period. However, they do not highlight the impact of the COVID-19

lockdown yet, as the period for submission, which is covered in the CEE

Report, ended in January 2020, before the lockdown. Therefore, the

January 2022 report results will most likely reveal that many Designated

Employers will have fallen short of meeting their objectives. Hence,

we expect the lockdown’s real impact, through the analysis findings

between the reporting periods from 2018 to 2021, to reflect this.

The Employment Equity Act No. 55 of 1998 (EEA), as amended, and

B-BBEE Act 53 of 2003 (B-BBEE Act) as amended, are both pieces

of legislation that seek to redress historic imbalances. The EEA uses

annual reporting to gauge an organisation’s transformation, whilst

the B-BBEE Act uses the Codes of Good Practice (Codes) as its

measurement benchmark. Amongst others, the specific purpose of the

EEA is to achieve equity in the workplace by:

> Affording equal opportunity to and fair treatment of all employees by

eliminating unfair discrimination;

> Implementing affirmative action measures to redress disadvantages

experienced by employees from Designated Groups, which include

African, Coloured and Indian People, as well as women and

persons with disabilities; and

> Encouraging equitable representation at all occupational levels in

the national workforce.

Similarly, the B-BBEE Act addresses the effects of the apartheid system

by promoting economic participation of ‘Black’ People, which includes

‘Black’ Women, ‘Black’ persons with disabilities and ‘Black’ Youth, in

the mainstream South African economy. Although there are similarities

between the two pieces of legislation, the EEA deals exclusively with

the labour market. In contrast, the B-BBEE Act is the point of reference

that holistically addresses the South African economy by measuring

Ownership, Management Control, Skills Development, Preferential

Procurement, Enterprise Development, Supplier Development and

Socio-economic Development. Additionally, the EEA differs from the

Codes as it includes White women and White persons with disabilities

as Beneficiaries of Affirmative Action; besides, these groups are covered

under Designated Groups.

Although the scope differs, there is cross-pollination between the EE

reporting objectives and the Management Control element held within

the Codes, the mechanism that measures B-BBEE. In effect, EE

reporting feeds into Management Control, considering that a Designated

Employer may not claim points for Management Control without

providing the EEA2 form, forwarded by the Department of Employment

and Labour (DoEL) as evidence of submission of a Designated

Employer’s annual EE Report. Put another way, organisations are not

rewarded with B-BBEE points unless they can show compliance with

the EEA’s EE Report submission prescripts.

There is no qualifying criteria or piece of legislation that obligates

organisations to incorporate B-BBEE into their business. Organisations

have a choice whether or not they incorporate B-BBEE. In contrast, a

Designated Employer is compelled to comply with the EEA’s prescripts

once their employee headcount goes above 49 or if they have an

annual turnover above the turnover threshold for the industry in which

they operate. The EEA employs a monitoring and compliance ‘stick’

approach. Organisations qualifying as Designated Employers which

do not comply with the EEA requirements may be issued with a fine

for non-compliance, ranging between R 1.5m and/or 2% of annual

turnover, whichever amount is greater, for first offences.

On the other hand, the B-BBEE Act, which uses the Codes as a

tool, has a ‘carrot’ approach whereby different sets of measurement

benchmarks apply, depending on an organisation’s annual turnover.

It awards organisations with a B-BBEE Certificate, otherwise referred

to as a ‘license to trade’, enhancing an organisation’s ability to thrive

in the South African business environment. To re-iterate, B-BBEE is

not a legal requirement; organisations opt to align with the Codes’

expectations due to the benefits of exhibiting a favourable Status Level

and Preferential Procurement Recognition positively contributing to their

customers’ B-BBEE levels.

Although implemented with different approaches, it is evident that

the two Acts intersect on a practical level. To support an equitable

representation of ‘Black’ People, both the EEA and the Management

Control element require organisations to apply Economically Active

Population (EAP) targets for Senior, Middle and Junior Managers.

However, the EAP targets for EE reporting further incorporate Top

Management, Semi-skilled and Unskilled levels.

The following scenario illustrates how EE and Management Control reporting interlink from the perspective of an EE Plan and EEA2 on the

one hand, and the Management Control Scorecard on the other:

> ABC Traders is a Large Enterprise discounted from a Status Level 5 to 6, following their last B-BBEE Verification, for not meeting

the Ownership sub-minimum requirement, namely 40% of the Ownership Net Value points. To rectify this, they entered into an

empowerment deal with a group of ‘Black’ Women, offering them a percentage shareholding. Instead of allocating these shares in an

existing business, they established an independent entity, NewCo, within which the shares were issued. The activities of NewCo were

ring-fenced and formed part of the agreement; thus, both parties contractually agreed that NewCo would operate independently.

However, when ABC Traders submitted their EE Report to the DoEL in terms of the EEA, their Human Resources Department included

the shareholders and employees of NewCo in the submission. In doing this, ABC Traders misrepresented their reality, creating the

illusion of being a diverse women-led organisation in their EE report submission.

> However, the information supplied for Management Control by the Transformation Department of ABC Traders to their B-BBEE Rating

Agency included the NewCo ‘Black’ Shareholders but excluded the NewCo employees.

> At a later date, the NewCo ‘Black’ Shareholders became aware of ABC Traders’ misrepresentation of EE and Management Control

reporting data. Upon discovering the misrepresentation, the ‘Black’ Shareholders of NewCo brought the matter to the CEE and B-BBEE

Commission’s attention. The NewCo Shareholders requested an investigation.

Over and above the purposeful misrepresentation of information, organisations can learn lessons and note the consequences of

this scenario:

1. The Human Resources and Transformation Departments of ABC Traders used data from two different sources;

2. The Human Resource’s and Transformation Department’s EE and B-BBEE Strategies do not interlink or align;

3. The Human Resources and Transformation Departments are exposing all Knowing People, who were part of their B-BBEE Strategy, to

the risk of being found guilty of a Fronting Practice;

4. ABC Traders is trading with a manipulated, hence invalid, B-BBEE Certificate based on manipulated information. Accordingly,

ABC Traders should withdraw their B-BBEE Certificate. Consequently, their customers who used their certificate during their B-BBEE

Verifications must re-verify their Preferential Procurement claims if any of their material contributions relate to ABC Traders. Should there

be a significant shift on the B-BBEE levels of ABC Traders’ customers, the contracts with their customer base may be at risk;

5. Their Ethics and Transformation Committees did not meet their oversight obligations;

6. They did not realise there is an obligation on the ‘Black’ Shareholders to report any misrepresentation to regulators;

7. The risk of reputational damage to ABC Traders if found guilty of manipulating their EE and B-BBEE data; and

8. Their customers may withdraw contracts with ABC Traders based on their trading with a manipulated B-BBEE Certificate.

Amongst other things, the CEE Report indicated that data for both EE and Management Control reporting must align. However, submitting

a carbon copy of the required information used in EE reporting in a B-BBEE Verification is improbable. The reason is that the B-BBEE

Management Control element is measured at the time of verification, which generally does not align with the date of the Workforce Profile

included in the EEA2. Therefore, any employee movement between the two dates creates a variance in the information submitted to either body

However, unless an organisation experiences significant workforce movements between the two dates – for example,

substantial retrenchments - the information should broadly align. Although the specific number of employees may differ, the

race, gender, EE level, job grades information - amongst others - must align. Noteworthy is that both the 20th CEE Report and

the Management Control information obtained from the B-BBEE Commission National Status Report on B-BBEE for 2020,

expose a slow rate of transformation.

The table below, which is verbatim from the CEE Report, provides an overview of the average statistics between

2001 and 2019.

In her foreword in the 20th CEE Report, CEE Chairperson, Ms T Kabinda, stated:

“An analysis of the workforce movement indicates an apparent pervasive and persistent preference in the appointment,

promotion and development of the White and Indian population groups, particularly at the top two occupational levels. Whilst

South Africa has stringent legislation governing foreign nationals’ appointment, the increase in appointing foreign nationals

at entry occupational levels, namely at Semi-skilled and Unskilled levels, is noteworthy. It is argued that the unemployed in

South Africa might be deprived of employment opportunities due to a trend towards appointing foreign nationals at these

occupational levels. The plight of persons with disabilities seems to go unnoticed. Employers must proactively implement

affirmative action measures to include persons with disabilities in the world of work with more rigour and to eliminate unfair

discrimination against this designated group.”

Ms Zodwa Ntuli, the B-BBEE Commissioner, is a serving member of the CEE; therefore, has insight into the importance of EE

and B-BBEE reporting alignment. Accordingly, the CEE and the B-BBEE Commission have concluded a Memorandum

of Understanding to educate, create awareness programmes, and enforce strategies to accelerate the pace of transformation.

The collaboration provides an opportunity for information sharing and joint investigations on matters involving both

reporting structures.

In conclusion, although there are differences between the EEA and the optimisation of B-BBEE points on a scorecard, it

is clear that the objectives of these two pieces of legislation largely overlap. Hence there must be alignment between the

strategies, data provision and the objectives that drive both. Therefore, the level of success when implementing either impacts

the level of success in implementing the other. In the final analysis, when setting EAP alignment objectives, the best strategy

is to focus on planning for progress towards 100% alignment with EAP, as required by the EEA. Achieving this will ensure the

optimisation of points on an organisation’s Management Control scorecard, which has a lower alignment to EAP targets eat all

occupational levels.