NCV 4 New Venture Creation Hands-On Support Slide Show - Module 4

New Venture Creation 4

Module 4: South African law and the regulation of risk management

Module 4: South African law and the regulation of risk management

• After completing this outcome, you will be able to:– identify legislation that potentially impacts on

the management of risk– explain the risks associated with non-

compliance– use common law terminology in the correct

context– apply legislation that regulates risk

management to a specific organisation

1. IDENTIFY LEGISLATION THAT POTENTIALLY IMPACTS ON THE MANAGEMENT OF RISK• At the end of this Learning Outcome you will

be able to: • identify legislation that impacts on risk

management in general, financial aspects of risk management and people management.

• provide examples of how each of the acts applies to a specific sector

What is risk?

• Risk is the probability that a hazard will turn into a disaster

RiskRisk rating

Extreme

High

Moderate

Low

Identifying risk

RISK TYPE

RELATE TO

CAN AFFECT / BE AFFECTED BY…

COULD

LEAD TO

Consequences of not managing risk

• Poor performance

• Failure of the business

• Fines

• Other legal consequences

Managing of risk

• How do you manage risk?– Avoidance

– Reduction

– Control

– Transfer

Activity 1

• From the above of strategies for managing risk, and from your understanding of ethics, why would you say Avoidance is the only option with regard to LEGAL NON -COMPLIANCE?

1.1 Identify legislation that impacts on risk

• Acts that regulate risk management in general– Compensation for Occupational Injury and Disease

Act– Environmental Conservation Act– Explosives Act– Mines Health and Safety Act– Disaster Management Act– Mines and Works Act– National Environmental Management Act– Occupational Health and Safety Act– South African Constitution


• Acts that regulate financial aspects of risk management– Capital Gains Tax

– Companies Act

– Income Tax Act

– Public Funds Act

– Unit Trust Control Act

– Value Added Tax


• Acts that regulate the people aspect of risk management– Access to Information Act

– Basic Conditions of Employment Act

– Employment Equity Act

– Labour Relations Act

– Skills Development Act

– Skills Development Levies Act


• Acts that regulate risk in certain sectors– Electricity Act– Financial Advisory and Intermediary Services Act– Financial Intelligence Centre Act– Financial Securities Act– Long Term Insurance Act– Medical Schemes Act– Medicines and Related Substances Control Act– Prevention of Organised Crime Act– Prevention of Constitutional Democracy Against Terrorist

and Related Activities Act– Pension Funds Act– Short-Term Insurance Act

Other laws which might apply

1.1.1 Identify legislation that impacts on risk management in general

• King Committee on Corporate Governance

• King II Report on Corporate Governance

1.2 Provide examples of how each of the Acts applies to a specific sector

• Economic sectors:– Primary

– Secondary

– Tertiary

– Quaternary

– Quinary

– Industry sectors

Industry sectors

Activity 2

• Think of at least two groups of activity that could be called an industry sector but which are not mentioned in the list above

• Where would the Bee-Bop Milk Bar & Ice Cream Palace fit in?

1.2.2 Examples of how each of the Acts applies to a specific sector

Basic Conditions of Employment Act

Broad-Based Black Economic Empowerment Act


Companies Act

Compensation for Occupational Injury and Disease Act


Competition Act

Employment Equity Act


Income Tax Act

Labour Relations Act


Medical Schemes Act

Occupational Health and Safety Act


Pension Funds Act

Skills Development and Skills Development Levies Acts


Unemployment Insurance Act

Unemployment Insurance Contributions Act


Value added tax

2. EXPLAIN THE RISKS ASSOCIATED WITH NON-COMPLIANCE

At the end of this Learning Outcome you will be able to: • analyse the compliance aspects of five different

acts

• indicate the legal consequences of non-compliance for a specific sector

• analyse business risks and reputational risks associated with non-compliance for five different pieces of legislation appropriate to a sector

What is non-compliance

• Doing something that is forbidden

• Not doing something that is required

• Standing by when someone else does something that is forbidden

• Not seeing to it that someone else does something that is required

Consequences

• Criminal non-compliance– Criminal record

– Fines

– Imprisonment

• Civil non-compliance– Fines

– Jail

Commercial risks

• Your reputation is going to suffer. People will not want to be associated with you or your business

• You can be forbidden to do certain work.

• You could be fined so heavily that you business can’t afford to keep going

2.1 Analyse the compliance aspects of five different acts

• Basic Conditions of Employment Act

• Income Tax Act

• Labour Relations Act

• Compensation for Occupational Injury and Disease Act

• Employment Equity Act

2.1.1 Basic Conditions of Employment Act

• Purpose of the act– The purpose of this act is to advance economic

development and social justice by fulfilling the primary objects of this act which are-

• to give effect to and regulate the right to fair labour practices conferred by section 23(1) of the Constitution –

– by establishing and enforcing basic conditions of employment

– by regulating the variation of basic conditions of employment

– to give effect to obligations incurred by the Republic as a member state of the International Labour Organisation

Compliance aspects• The employer

– Must regulate the working time of each employee-• in accordance with the provisions of any Act governing occupational health

and safety• with due regard to the health and safety of employees• with due regard to the Code of Good Practice on the Regulation of Working

Time issued under section 87(1)(a)• with due regard to the family responsibilities of employees

– May not require or permit an employee to work more than--• 45 hours in any week• nine hours in any day if the employee works for five days or fewer in a week• eight hours in any day if the employee works on more than five days in a

week– May not require or permit an employee to work –

• more than 12 hours on any day• overtime except in accordance with an agreement• more than ten hours’ overtime a week• must pay an employee at least one and one-half times the employee's wage

for overtime worked

Other aspects of compliance

Transgressions• A labour inspector who has reasonable grounds to believe that an

employer has not complied with a provision of this act may issue a compliance order

• A compliance order must set out--1. the name of the employer, and the location of every workplace, to which

it applies2. any provision of this act that the employer has not complied with, and

details of the conduct constituting non-compliance3. any amount that the employer is required to pay to an employee4. any written undertaking by the employer in terms of section 68(1) and

any failure by the employer to comply with a written undertaking5. any steps that the employer is required to take including, if necessary,

the cessation of the contravention in question and the period within which those steps must be taken

6. the maximum fine that may be imposed upon the employer in accordance with Schedule Two for a failure to comply with a provision of this act

Transgressions

• A labour inspector must serve a copy of the compliance order on the employer named in it, and on each employee affected by it unless this is impractical, and on a representative of the employees.

• The failure to serve a copy of a compliance order on any employee or any representative of employees in terms of paragraph (a) does not invalidate the order

• The employer must display a copy of the compliance order prominently at a place accessible to the affected employees at each workplace named in it

• An employer must comply with the compliance order within the time period stated in the order unless the employer objects in terms of section 71


• Purpose of the Act– To provide for compensation for disablement

caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment, or for death resulting from such injuries or diseases; and to provide for matters connected therewith.


• Compliance aspects– Register with the compensation commissioner

and furnish him with particulars as follows:• An employer carrying on business in the Republic

shall within the prescribed period and in the prescribed manner register with the commissioner, and shall furnish the commissioner with the prescribed particulars of his business, and shall within a period determined by the commissioner furnish such additional particulars as the commissioner may require


• Compliance aspects– … not later than the thirty-first day of March in each

year furnish the commissioner with a return in the prescribed form, certified by him, her or it as correct, showing—

• the amount of earnings up to the maximum contemplated in section 83(8) paid by him, her or it to his, her or its employees during the period with effect from the first day of March of the immediately preceding year up to and including the last day of February of the following year

• such further information as may be prescribed or as the Director-General may require


• Compliance aspects– Give notices of accident as follows:

• … within seven days after having received notice of an accident or having learned in some other way that an employee has met with an accident, report the accident to the commissioner in the prescribed manner

• … within seven days after having received a claim, medical report or other documents or information concerning such claim send such claim, report, documents or information to the commissioner


• Compliance aspects– Keep records as follows:

• … a register or other record of the earnings and other prescribed particulars of all the employees, and shall at all reasonable times produce such register or record or a microfilm or other microform reproduction thereof on demand to an authorized person referred to in section 7 for inspection.

• … retain the register, record or reproduction for a period of at least four years after the date of the last entry in that register or record


• Legal consequences of non compliance– Any person contravenes the provisions of this act

may be convicted of an offence

– Any person who is convicted of an offence in terms of this act shall be liable to a fine, or to imprisonment for a period not exceeding one year

2.1.3 Employment Equity Act

• Purpose of the act– The purpose of this act is to achieve equity in the

workplace by-• Promoting equal opportunity and fair treatment in

employment through the elimination of unfair discrimination

• Implementing affirmative action measures to redress the disadvantages in employment experienced by designated groups, in order to ensure their equitable representation in all occupational categories and levels in the workforce

2.1.3 Employment Equity Act• Compliance aspects

– The first part of this act applies to all employers. In terms of this act:

• Every employer must take steps to Promote equal opportunity in the workplace by eliminating unfair discrimination in any employment policy or practice.

• No person may unfairly discriminate, directly or indirectly, against an employee, in any employment policy or practice, on one or more grounds, including race, gender, sex, pregnancy, marital status, family responsibility, ethnic or social origin, colour, sexual orientation, age, disability, religion, HIV status, conscience, belief, political opinion, culture, language and birth

– Medical testing of an employee is prohibited, unless—• legislation permits or requires the testing• It is justifiable in the light of medical facts, employment conditions, social

policy, the fair distribution of employee benefits or the inherent requirements of a job


• Compliance aspects– Testing of an employee to determine that employee's HIV status

is prohibited unless such testing is determined to be justifiable by the Labour Court in terms of section 50(4) of this act.

– Psychological testing and other similar assessments of an employee are prohibited unless the test or assessment being used-

• has been scientifically shown to be valid and reliable;• can be applied fairly to all employees; and• is not biased against any employee or group

– For purposes of certain sections of this act "employee" includes an applicant for employment.

– Whenever unfair discrimination' is alleged in terms of this act, the employer against whom the allegation is made must establish that it is fair.

2.1.3 Employment Equity Act• A “designated employer” means:

1. an employer who employs 50 or more employees2. an employer who employs fewer than 50 employees, but has a

total annual turnover that is equal to or above the applicable annual turnover of a small business in terms of Schedule 4 to this act

3. a municipality, as referred to in Chapter 7 of the Constitution4. an organ of state as defined in section 239 of the Constitution, but

excluding local spheres of government, the National Defence Force, the National Intelligence Agency and the South African Secret Service

5. an employer bound by a collective agreement in terms of section 23 or 31 of the Labour Relations Act, which appoints it as a designated employer in terms of this act, to the extent provided for in the agreement A

2.1.3 Employment Equity ActSchedule 4 : Turnover threshold applicable to designated employers

Sector or sub-sectors in accordance with the Standard Industrial Classification

Total annual turnover

Agriculture R 2,00 m

Mining and Quarrying R 7,50 m

Manufacturing R 10,00 m

Electricity, Gas and Water R 10,00 m

Construction R 5,00 m

Retail and Motor Trade and Repair Services R 15,00 m

Wholesale Trade, Commercial Agents and Allied Services R 25,00 m

Catering, Accommodation and Other Trade R 5,00 m

Transport, Storage and Communications R 10,00 m

Finance and Business Services R 10,00 m

Community, Social and Personal Services R 5,00 m


• Achieving employment equity• Every designated employer must, in order to achieve

employment equity, implement affirmative action measures for people from designated groups in terms of this act, and, in doing so must:1. consult with its employees as required by section 162. conduct an analysis as required by section 193. prepare an employment equity plan as required by

section 204. report to the Director-General on progress made in

implementing its employment equity plan, as required by section 21

2.1.3 Employment Equity Act• A labour inspector must request and obtain a written undertaking

from a designated employer to comply with paragraphs (a) to (j) within a specified period, if the inspector has reasonable grounds to believe that the employer has failed to-1. consult with employees as required2. conduct an analysis as required 3. prepare an employment equity plan as required4. implement its employment equity plan5. submit an annual report as required6. publish its report as required7. prepare a successive employment equity plan as required8. assign responsibility to one or more senior managers as required9. inform its employees as required10. keep records as required.

2.1.3 Employment Equity Act• Legal consequences of non-compliance• If an employer fails to comply with a request made by the Director-General

the Director-General may refer the employer's non-compliance to the Labour Court.

• The Labour Court may make any appropriate order including-– making a compliance order an order of the Labour Court;– awarding compensation in any circumstances contemplated in this act;– awarding damages in any circumstances contemplated in this act;– ordering compliance with any provision of this act,– imposing a fine;– payment of compensation by the employer to that employee;– payment of damages by the employer to that employee;– an order directing the employer to take steps to prevent the same unfair discrimination or a

similar practice occurring in the future in respect of other employees;– an order directing an employer, other than a designated employer, to comply as if it were a

designated employer;

2.1.4 Income Tax Act

•Note finish this section in the txt book

2.3 Analyse business risks and reputational risks for five different pieces

of legislation• Basic Conditions of Employment Act

– Payment of compensation to employees

– Demotivated and hostile workforce

• Compensation for Occupational Injury and Disease Act– Fines or imprisonment

– Negative publicity

– Payment of worker’s medical bills

2.3 Analyse business risks and reputational risks for five different pieces

of legislation• Employment Equity Act

– Payment of compensation– Hostile workforce

• Income Tax Act– Severe fines– Negative publicity

• Labour Relations Act– Demotivated or hostile workforce– Strikes– Negative publicity

3. USE COMMON LAW TERMINOLOGY IN THE CORRECT CONTEXT

After completing this subject outcome, you will be able to explain, with examples the following:

• Legal liability

• Contractual liability

• Vicarious liability

• Negligence / delict

• Personal liability

• Public liability

• Professional indemnity

3.1 What is “Common” law?

• Statutory laws are those passed by Parliament. Statutory Laws also fall into two sub groups– “Criminal” laws – “Civil” laws

• These are laws that have arisen out of common practice over the centuries. They are indeed mostly captured in writing in the form of judgments taken in respect of various matters over the years

• Liability is being bound by law and justice to do or not to do something

Types of liability

• Legal liability

• Contractual liability

• Vicarious liability

• Personal liability

• Public liability

• Negligence / delict

• Professional liability

3.1.1 Legal liability

• Legal liability is “being bound by justice to do something that may be enforced by a court”

3.1.2 Contractual liability

• Liability resulting from entering into a contract

• Also legally enforceable

3.1.3 Vicarious liability

• Employers a vicariously liable for negligent acts or ommissions by their employees in the course of employment. For an Act to be considered within the course of employment it must be either authorised or be connected with an authorised act

3.1.4 Delict

• Delict signifies having committed a wilful wrong or having done something intentionally

• Five elements have to be satisfied:– Conduct– Wrongfulness– Fault– Causation– Damage

3.1.5 Negligence

• Negligence is a form of delict

• Delict is a condition

• Negligent is acting in a certain way

Activity 31. It’s a beautiful dry day. Your car has just been serviced, the

brakes and tyres are good. You are sticking to the speed limit but you jump a red traffic light for no real reason that you can think of afterwards and cause an accident. You are sued for the injuries to the passengers in the other car.

1. Are you in delict? 2. Were you negligent or just careless ?

2. Same situation but it is raining. Normally you would have no difficulty in stopping at the red light but your car slides on the wet tar, you go through the red light an have accident.

3. Are you in delict? 4. Were you negligent or just careless?

3.1.6 Public liability

• Public liability is one which arises from the practice of common law

3.1.7 Personal liability• A Legal Person is someone able to be held responsible for its

actions in terms of statutory or common law• A legal person can be an

– individual human being– business entity such

• a close corporation• a public company• a Municipality• a Club• a Church

• When a legal person is a business, usually the business is set up in such a way that the contracts it enters into are legally binding on only the business itself, so that the owners are protected in their personal capacity from the consequences of whatever the business gets up to

3.1.8 Professional indemnity

• What is a professional?– A professional is a worker who is required to possess a

large body of knowledge derived from extensive academic study (usually tertiary), with the training almost always formalised

• An indemnity is a sum paid by one person to another by way of compensation for a particular loss suffered. (put in shoulder)

• Professional indemnity is the monetary compensation that could be claimed from a professional arising from the professional activities of such a professional.

Activity 4• GROUP ACTIVITY 4• Ian is a Registered Professional Civil Engineer, who owns (as a Closed

Corporation) a Consulting Engineering business which designs a sewer network for a municipality. Other people working for him do the detail design work and supervise the installation. Ian, as the “Professional Civil Engineer” does not go there personally but “signs off” the installation as being correct. The network is installed but one of the pipes is put in the wrong place. This goes unnoticed until some years afterward when someone wants to put up a building and finds the pipe in the way. It has to be moved at great cost. Ian doesn’t argue, he simply has the fault corrected and claims it from his Professional Indemnity Insurance.

• Discuss this case study against each of the headings of Legal liability, Contractual liability, Vicarious liability, Personal liability, Public liability, Negligence / delict, Professional indemnity as each applies (or doesn’t) to:– Ian’s business;– Ian himself;– The people working for Ian who designed the pipeline in

the wrong place

4. APPLY LEGISLATION THAT REGULATES RISK MANAGEMENT TO A SPECIFIC ORGANISATION• At the end of this Learning Outcome you will

be able to: • summarise legislation that impacts on risk

management in a specific organisation in a table

• categorize the risks regulated in the legislation according to type

• rate the risks for the business you have chosen

• evaluate policies, practices and systems in an organisation for compliance and make recommendations to reduce risk

Activity 5• Previously in Module 3 of this book, you were required to purchase a

number of newspapers and scour their business sections for reports of two businesses that have been accused or identified as having engaged in doubtful business practices.

• Summarise the legislation that impacts on risk management for one of these business in a table

• Hint : Appendix 4:1• Categorize the risks regulated in the legislation according to type for

one of these businesses • Hint : Table 4:1• Rate the risks for the business you have chosen • Hint : Risk Rating Table in Learning Outcome 1• Evaluate policies, practices and systems in the business for compliance

with the legislation identified in and make recommendations as to how the business concerned could reduce risk

NCV 4 New Venture Creation Hands-On Support Slide Show - Module 4

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