Strikes: The part that doesn’t make headlines

In 2011 South Africa lost approximately 2.8 million working days due to strike action¹. This has a significant economic impact causing lost productivity, reduced growth expectations, and diverted foreign investment. To put this into context, in the first 10 months of 2012, South Africa lost an estimated R10.1 billion to strikes and stoppages in the platinum and gold mining industries alone. This, in turn, had the knock-on effect of lowering South Africa’s GDP growth expectations for 2012/2013 to 2.5%².

One undeniable lesson from the strikes of 2012 is that they are not always just about the money – at least not completely. The rock drillers at Marikana, who went on an unprotected strike that resulted in so many deaths, were in the top-earning 25% of formal sector employees³.

The causes of this and other strikes are complex and can include clashes between various organised labour groups, xenophobia, politics, and lack of service delivery. However, some elements of the total rewards system have been noted as contributing factors to the strikes of 2012, such as housing at Marikana and unwanted funeral policies at KDC East. Underpinning the strikes is the omnipresent issue of financial distress among the workers. So, if not managed properly, the total rewards system can contribute to strike action – but what about the converse: how do strikes impact on the total rewards system?

Industrial Action 101

The South African constitution⁴ enshrines workers’ rights to peaceful strike action. Subject to the requirements of Section 64 of the Labour Relations Act⁵, workers may embark on a protected strike, which means that they are treated as if on unpaid leave for as long as the strike remains protected. On the other hand, if these conditions are not met, the strike is unprotected and workers are treated as if absent without leave. 

Some of the conditions for a protected strike are:

• Giving seven days notice to the employer of the intention to strike
• Ongoing negotiations to end the strike
• The strike remaining peaceful.

Research by COSATU suggests that at least half of their union’s members believe that violent, and therefore unprotected, strikes have been more effective than peaceful strikes at achieving their objectives⁶. We may, therefore, be seeing more unprotected strikes in the future.

Employee benefits on strike

While on strike, employees receive no pay from the employer. This means contributions to various unapproved group risk benefits cease. The retirement fund rules may specify what will happen to approved group risk benefits and retirement fund contributions during a strike. Contributions towards retirement savings would typically not be paid during a protected strike but the decision to pay group risk benefit contributions may be left to the employer’s discretion. The rules of the retirement fund should typically detail the required contributions in the event of an employee being absent without pay. In some cases, the employer may need to decide on their course of action upfront and communicate this to members and their unions at the start of the strike.

The impact on group risk benefits can be dramatic. If a month’s premium is not paid, any employees who die or become disabled during that month would not receive an insured benefit. Even if the employer pays the premium, the insurer may contractually exclude claims arising from strike action except if the insurer can arrange appropriate reinsurance cover. Some insurers reserve the right to exclude strike claims completely. This may affect payments to striking and non-striking workers. Some unions may help their members in these circumstances but non-unionised strikers may have no group life or disability benefits. 

Similarly, skipping a medical scheme contribution can result in membership being suspended or even terminated. Cover would not be reinstated until all the outstanding contributions are paid, which may be extremely difficult for a household. Medical services may also be adversely affected, particularly non-essential ones, at workplace health facilities.

On the retirement funding side, strike action can sometimes cause mass dismissals of employees, but after the collective bargaining process plays itself out fully, all or a very large proportion of the dismissed employees may be reinstated. Allowing members to access their accumulated savings in these circumstances, where they are likely to be re-employed fairly soon, is not in the longterm interests of the member, the employer or the economy. While access assists in cushioning the financial stress resulting from a lack of income during the strike process, the long term erosion of retirement benefits becomes a heavy price to pay. This can also, ironically, lead to future mass action when members start receiving poor retirement payouts and members then engage in protest action, which may then set off a further round of retirement savings leakage, unless an end is put to this vicious circle. This and other dynamics around mass exits are discussed further in 'Mass exits'.

The situation requires employers to do some forward planning.
 

Planning around the possibility of strike action

Regarding risk benefits, it is usually best for the employer to clarify upfront what their policy is according to paying risk-benefit premiums when their workers are on a protected strike. For approved benefits, this can be clarified in the retirement fund rules. If premiums will continue to be paid, the employer should notify the group risk underwriter of the workers’ intention to strike as soon as they receive the notice to strike. Although this may not be a policy condition, it may help speed up the payment of claims. Where workers are dismissed due to striking, they will automatically lose their group risk cover. Even if they are reinstated there may still be certain gaps in insured benefit cover, where pre-existing conditions or waiting periods may apply to any new cover provided by their new employer arrangement.

Regarding medical scheme benefits, there is little that can be done other than advising employees of the risks of missed contributions. In terms of retirement benefits, companies that have collective bargaining at the heart of their employee relations should consider implementing waiting periods and special rules into their retirement funds to regulate and minimise the access that workers have to their savings when dismissed as a result of mass action. Waiting periods of one to three months would potentially go a long way to preventing unnecessary access to savings. By the time the waiting period has passed the workers may well be reinstated. Stakeholders should consider introducing special rules and insured benefit policy conditions that keep members covered during periods of mass action. This can avoid lapses or breaks in cover.

Implications

The recent strike activity provides a wake-up call to employers that employee well-being and benefit structures must be regarded in their totality. In short: “Ultimately the employers…have to accept some responsibility for the care and developments of their employees.” This duty of care should extend to making sure employees understand how strike action could impact on their benefits coverage. These impacts might be significant for both
striking and non-striking employees⁷.

References

1 Over 2.8m Working Days Lost in 2011, Sapa,10/08/2012, http://news.howzit.msn.com/article.aspx?cp-documentid=250871980
2 Idéle Esterhuizen. Mine Strikes Cost SA R10bn in Lost Production – Treasury. Mining weekly 25/10/2012
http://www.miningweekly.com/article/mine-strikes-cost-sa-r10bn-in-lost-production-treasury-2012-10-25
3 Mike Schussler. Lonmin’s ‘poor’ workers are not as poor as they think. Business Day Live 03/09/2012
4 Constitution of the Republic of South Africa, Act No. 108 of 1996
5 Act No 66 of 1995, as amended
6 COSATU (Unpublished)
7 Jerry Schuitema, How a labour issue has been hijacked by a myriad of motives Moneyweb, Nov, 15 2012.