A recent decision by the South African High Court overturns a broad basis of economic empowerment (“B-BBEE“) Finding by the Commission of a facade against Cargo Carriers (Pty) Ltd concerning its owner-driver initiative (“ODI“)/scheme.
The essence of the B-BBEE Commission’s findings was that the freight carriers deprived the plaintiffs of the economic benefits they reasonably expected to receive, and that the terms of the owner-driver program were contrary to the objectives of the B -BBEE.
The plaintiffs in this case alleged that they had been denied access to their business accounts, that they had not received training and that they did not understand the nature of the owner-operator plan and its Goals. The B-BBEE Commission concluded that the conduct of the freight carriers violated the objectives of the B-BBEE legislation and that it benefited from the owner-operator regime because it had obtained an enhanced B-BBEE status at the expense of the drivers. In a request for review, the court found that:
With respect to the facade claims, the court found that:
- “not a single jurisdictional fact of fronting has been established” by the B-BBEE Commission;
- there was no misrepresentation to the plaintiffs;
- plaintiffs could participate in the core business of the owner-driver program;
- the conclusions of the B-BBEE Commission were unfounded, misleading and irrational.
One of the main objectives of the trucking industry is to increase black ownership, management control and operational involvement throughout the trucking industry value chain and to design appropriate funding mechanisms to facilitate the process.
In line with these goals, many transport companies have adopted owner-driver regimes. Notably, owner-driver programs are designed to give people, especially black people, the opportunity to own their own business as part of a company’s distribution and logistics value chain.
In the judgment, the court specifically noted that:
- an owner-operator scheme is recognized as a B-BBEE initiative and can be counted towards measuring a company’s B-BBEE status; and
- the “establishment of an ODI is not a facade, unless the ODI has not achieved its objective, to enable former black employers to own an economically viable small business”.
In order to ensure that an owner-driver scheme achieves the intended objectives of the B-BBEE, it is imperative that it is designed to ensure the establishment of an independent, self-sustaining and economically viable business. This can be achieved by:
- undertake a careful selection process for participants;
- provide regular support and resources such as:
- Operational support;
- vocational training, including business acumen and management training;
- provide participants with reasonable independence and autonomy to engage in and manage the core business of its business;
- granting preferential contracts to owner-operators;
- ensure that the terms of the arrangement are fair, reasonable and arm’s length, in particular any terms contained in a service agreement or a management agreement;
- ensure that participants have the ability to become owner-operators within a reasonable time frame. In this regard, the court recognized that “a driver cannot become an owner-driver overnight”.
The court, in rendering its judgment, also pointed out that:
- for an owner-driver system to be successful, all parties must fulfill their contractual obligations; and
- the fact that autonomy over a professional account is restricted for a certain period of time does not prevent the achievement of the objectives of the B-BBEE law, provided that it aims to promote fiscal discipline and the transfer of financial skills.
The path to follow
We recommend that all companies evaluate their existing owner-driver programs to ensure that they are meeting the B-BBEE objectives intended under the B-BBEE legislation.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.