Going in the right direction, at last!
ROBERT W VIVIAN and ALBERT MUSHAI are excited at the possibility of reforms to Workmen’s Compensation for occupational diseases
Over the past few years we have often pointed out that compensation for occupational diseases in the mining industry is in need of reform. We have argued that there is only one way this can go; statutory reform. It is, thus, interesting to read that the discussions currently taking place in Johannesburg are coming to the same conclusion.
One wonders why the process of getting reform on track has taken so long. The fact that the system should be reformed, along the lines being proposed, was recommended by a commission in 1980. This means 36 years have elapsed and very little progress has been made. Reforms were being considered two years ago, but the process lost steam.
Workmen’s Compensation in South Africa is provided via two systems.
First, in general industry, compensation is governed by the Compensation for Occupational Injuries and Diseases Act (CODIA). As the name implies, this Act covers accidents and diseases. However, as a quirk of history, it does not cover compensation for occupational diseases in the mining industry.
This Act accommodates two different systems; a state-administered fund, and compensation provided by the employer, who is individually liable and is insured in terms of a policy issued by a mutual fund. The most well-known of the mutual funds is, of course, Rand Mutual, which covers the mines.
Historically, in industry in general, legislation covering compensation for accidents came first. This was followed at a later stage by compensation for diseases. When it became clear that occupational diseases could be compensable, the Workmen’s Compensation Act of the time, which covered industry in general, was amended to include occupational diseases. To make diseases fit into the legislation, they were treated as accidents.
So, occupational diseases, in general industry, were resolved holistically, early on in one single piece of legislation.
That solution did not apply to the mining industry, however, which had encountered occupational diseases at a much earlier date. Specific legislation to deal with compensation for occupational diseases in the mining industry was subsequently passed.
This underwent many changes over time, and is currently dealt with in the Occupational Diseases in Mines and Works Act (ODIMWA). So, for a long time, both the general and mining sectors have had statutory schemes to provide compensation for occupational diseases.
The scheme for the mining industry was introduced before the one for industry in general. It was introduced specifically to deal with a serious problem in the mines. At the time, it was a pioneering scheme and paid some of the best, if not the best, benefits by far in the world.
Since the scheme was specifically set up for the mines, and at that time mines were at the heart of the South African economy, it was not extended to cover the general industry. Therefore, when it comes to compensation for occupational diseases, two schemes exist: one for the general industry and one for the mining industry.
General industry did not face a problem of a similar magnitude to the mines, so it dealt with the problem best it could, which was simply to append it to the then Workmen’s Compensation legislation. Even at that time, it would have made sense to deal with compensation in South Africa in terms of one piece of legislation, instead of two.
The compensation for diseases in mines proved to be a complex issue from the outset and was subject to a large number of investigations. Finally, in 1980, a commission recommended a single statutory system. That recommendation was, however, never implemented.
Over time, the system in the mines fell further behind. In 2011, the deficiencies were brought to the fore by the Mankayi Constitutional Court decision, and it became clear that the matter would need to be addressed; reform could not be delayed forever.
It is unclear why the system has been neglected for so long. There are many who could have agitated for reform. First, there is the fund established in terms of ODIMWA. One would have thought that those charged with oversight of the fund would have realised the system was in need of updating.
Second, the fund is established in terms of an Act of Parliament, which usually requires an annual report to parliament via a minister. This is another avenue, which one would have thought would have attracted attention initiating reform; from the minister, members of parliament, political parties and so on.
Third, occupational diseases are contracted by employees and one would have thought that unions would have overseen regular updates of the system.
Independent, qualified medical doctors are employed in the mining industry and they do commendable work. One would have thought this is another avenue that would have resulted in reform of the system. There are a number of standing committees dealing with health and safety that could also have agitated for reforms.
Whatever the reason for the slow pace of reform, the good news is it does now appear to be underway.
Economics of compensation for occupational diseases
What does not get any attention, and indeed little seems to be known about it, is the economics of compensation. The economic consequences of providing compensation are not generally understood.
Economic theory can provide great guidance in this matter. When the Constitutional Court ruled that the Workmen’s Compensation Act does not preclude a civil claim from being brought against employers, it simply assumed that employers have limitless funds to pay compensation.
This point was made a long time ago by the then most famous judge in the United Kingdom, Lord Denning. He noted that when courts make awards against large companies, they just assume these companies have limitless funds, or are insured by companies that have limitless funds. That assumption is, of course, incorrect.
It can be anticipated that additional compensation costs imposed on mining companies will run into billions of rand. This will constitute a current cost, and not a future expense. It cannot be passed on to consumers and hence can only be borne by shareholders.
If historic compensation costs totalling billions of rand are imposed, investment in the mining industry will be unattractive, to the point that already-battling mines may not attract any investment at all.
This happened to Lloyd’s of London where, in the end, it was found necessary to establish a separate special-purpose vehicle, Equitas, to take over these liabilities, or face the very real possibility that Lloyd’s would have to close its doors.
In South Africa, all this drama should be avoided. No special-purpose vehicle should be necessary _ rather transfer the liabilities to the existing fund and reform it.
Although this reform has taken 36 years, it looks as though we are at least now heading in the right direction _ let us trust that the process does not, once again, run out of steam!
Legally Speaking is a regular column by Professor Robert W Vivian and Albert Mushai, both in the school of Economics and Business Sciences, University of the Witwatersrand. Robert W Vivian is a leading authority on insurance and risk management. He has written a number of books on South Africa’s business history. Albert Mushai holds a master’s degree from the City University, London, and was the head of the insurance department at the National University of Science and Technology in Zimbabwe before joining Wits University as a lecturer in insurance.