About 6.72% of mineworkers in South Africa have been issued with emolument attachment orders (EAOs), which has resulted in a crisis of indebtedness in the mining sector – a crisis that some believe is one of the major underlying factors of the recent labour unrest and protracted strike action.

Industrial strikes – such as the five-month-long strike sustained by the platinum sector in the first half of this year – have affected not only the mining sector but also the economic stability of the country, as it resulted in a significant production loss and, therefore, affected business in general.

Various industry commentators have highlighted the need to reverse or even cancel EAOs, as they are perceived to drive mineworkers further into debt.

The University of Stellenbosch’s legal aid clinic in October submitted an application to the Western Cape High Court, noting that issuing an EAO without judicial oversight – the scrutiny of a magistrate or judge – to satisfy a debt against which a judgment has been made is unconstitutional.

EAOs and Garnishee Orders
An EAO is commonly confused with and referred to as a garnishee order, which is the attachment of a debt owed to a third party by the employee. An EAO, however, is an order that obliges an employer (the garnishee) to deduct a certain amount from an employee’s salary to pay a debt that the employee owes to the judgment creditor, explains law firm Legal Resource Centre attorney Carien van der Linde.

She adds that the biggest concern surrounding this issue is that creditors obtain orders from the Magistrates Court, which they lay against debtors in their absence. The court clerk signs off on the EAO without there being any judicial consideration of the order by a presiding officer.

Law firm Webber Wentzel senior associate Odette Geldenhuys adds that the abuse of EAOs is rife and the subsequent problems are well documented: “They . . . can be issued by the clerk of the court and can be issued in a jurisdiction nowhere near your employer . . . if consent is given,” she states.

Geldenhuys notes that giving consent is problematic, as consumers are woefully uninformed and give consent unwittingly, especially when confronted by a collection agent – which can be intimidating or embarrassing – at work.

She adds that when a debtor is unable to repay the debt, the issuing of EAOs, without judicial oversight and a limit on how much can be deducted from a debtor’s salary, often results in a debtor being trapped in a vicious cycle of debt from which there is little hope of escape.

Effects on Economy
Chamber of Mines of South Africa (CoM) legal department deputy head Sue Fritz states that the number of EAOs issued against mineworkers in South Africa is a serious problem and affects the sector negatively in that production is often compromised owing to the stress of the employee regarding his indebtedness. However, it is agreed among all stakeholders involved – banks, the National Treasury and the mining companies – that if an individual incurs a debt, the debt has to be settled.

“The economic impact of people not paying outstanding debt is about R700-million to R1.6-billion of the gross domestic product. Should the debts remain unsettled, this could change our entire economy as about 24 000 jobs could be lost if debts are unsettled,” Fritz points out.

Subsequently, the CoM has been exploring avenues which would assist mineworkers in managing their finances. This involves initiatives such as educating them through financial management programmes, and audits of EAOs in order to determine their validity. Many mining companies have contracted with debt admini- stration firms, such as Summit, to audit and manage their employees’ EAOs.

The CoM notes that these initiatives aim to create a “culture transformation” in terms of the way mineworkers spend their money.

Collaboration of Industry Bodies and Unions
Fritz attributes the significant amount of mineworkers being served with EAOs to a lack of basic financial and legal literacy skills; to mineworkers having to support two households; to impulsive spending; to major life events, such as death or retrenchment; and to reckless lending by some credit providers, who provide workers with too much credit.

The CoM highlights that, to mitigate these challenges, most mining companies have embarked on providing large-scale financial literacy courses for their employees/the mineworkers to improve their financial literacy. Insurance companies, such as Sanlam and Old Mutual as well as TNP, partner with mining houses and the CoM in trying to educate people on ways to save and manage money.

“Other companies have advanced further, as they are using their employee wellness programmes to assist employees during consultations about stress or other physical challenges,” Fritz indicates, adding that this enables companies to become more aware of the factors causing illness and to identify any debt-related stress.

In 2013, the CoM, together with the National Union of Mineworkers, Solidarity, and Uasa, signed a wages and other conditions of employment agreement in the gold sector. Subsequently, a joint task team was established to address indebtedness of employees regarding micro- lending and garnishee orders.

CoM senior policy analyst Corinna Gardner tells Mining Weekly that five issues were discussed under this agreement.

The team will investigate the extent of indebtedness; legal issues, such as the legality of judgments and garnishee orders; and the effectiveness of the Framework Agreement for a Sustainable Mining Industry, which then Deputy President Kgalema Motlanthe signed on July 3, 2013. The team will also consider employee financial education and debt counselling, and formulate recommendations on legislative amendments.

“The joint task team will also take cognisance of initiatives by the National Credit Regulator and the National Treasury,” notes Gardner.

During its investigations, the CoM found that human resources personnel in the payroll department of companies did not really understand what EAOs are and were not in a position to determine their validity. As a result, they processed the EAOs and made the deductions from the employee’s monthly salary.

This has led the CoM to develop a one-page EAOs checklist so that the human resources personnel can determine legitimacy of the orders for human resources personnel to follow.

“What we are trying to do is find out what the extent of indebtedness is in the mining sector and who the main credit providers are. Once we have established this, as an industry solution, we can meet with those people and try to work out an agreement [in terms of] the rate of the interest that is to be charged to the workers, preferably at lower rates,” states Fritz.

Invisible Debt
Although the plan to mitigate indebtedness has been working well for the CoM and all the other stakeholders involved, Fritz indicates that “invisible debt” in the sector still exists, which has not yet been adequately dealt with.

“Invisible debt refers to the loans that employees take from loan sharks, commonly known as mashonisa, which is a debt that is difficult to manage, as these loan sharks are unregistered or illegal credit providers who often charge exorbitant rates of interest,” stresses Fritz.

She adds that this practice is illegal and difficult to track; there are also no legal or formal processes that can be used to arrange debt repayment.

To manage employee indebtedness, the CoM has supported the Department of Trade and Industry’s suggested proposal that a creditor conducts financial assessments regarding their debtors’ ability to repay their debt. This requires a person applying for credit to sign a declaration under oath on what the person’s expenses are. This will force applicants to indicate their “invisible debt” in the declaration.

If people lie on this application, they can be charged with contempt of court and perjury, says Fritz, adding that these measures could further assist in identifying the invisible debt that people often hide.

This process also urges credit providers to complete the assessment correctly, as completing it incorrectly could result in their forfeiting the right to claim money owed to them.

Meanwhile, to mitigate the increasing concern regarding wages, the gold and the platinum sectors have adjusted workers’ salaries.

Wage Agreements in the Gold Sector
Following the wage agreement initiatives in 2013, the gold sector implemented second- year wage increases in July this year. These increases have seen the lowest paid entry-level underground gold mine worker, regarded as Category 4, earn a basic cash wage of around R5 700 a month.
Basic wages are augmented by agreed cash and other noncash benefits that lift a Category 4 employee’s fixed monthly cost- to-company to over R9 900 a month.

“In addition to these fixed cost-to-company wages, benefits, such as profit share, bonuses and overtime pay, could potentially lift the value of the lowest-paid underground employee’s salary and benefits package to as much as R12 570 a month,” highlights Gardner.

She further notes that skilled artisans, at the upper end of the scale, could earn monthly pretax packages of more than R30 000, before bonuses and overtime.

Wage Agreements in the Platinum Sector
Mineworkers in the platinum sector whose basic wages were less than R12 500 a month last year started receiving yearly increases of R1 000 for the first two years of the agreements from June this year.

Those earning R12 500 a month will receive an 8% increase for the first year and 7.5% thereafter for the remaining two years of the timeframe set for the negotiation.

Mining Weekly reported in June that the living- out allowance at Impala Platinum’s operation would remain at its current level, while Lonmin would increase its living-out allowance by an unspecified amount in the first year of the revised wage agreement period, which would remain the same for two years thereafter.

Anglo American Platinum’s living-out allowance would increase by 6% in the first year and also remain constant thereafter.

In addition, fringe benefits and allowances, usually based on basic pay, would generally, during the course of these agreements, increase by amounts linked to the inflation rate.

With these wage agreements and the current financial management initiatives, the CoM believes that culture transformation – in terms of financial management – in the mining sector will soon begin to take effect.

The CoM notes that, once the desired outcomes have been achieved, the way in which mineworkers use their money will be transformed, subsequently establishing a money-saving culture.