JOHANNESBURG — As clothing factories all over the country are shut down for noncompliance with new minimum wage directives imposed by the South African Department of Labor and the National Bargaining Council for the Clothing Industry, employers are fighting back with a lawsuit of their own.

This story first appeared in the June 24, 2011 issue of WWD. Subscribe Today.

On Thursday, five factory owners, under the banner of the Newcastle Chinese Chamber of Commerce, filed an application with the Cape Town High Court against South Africa Minister of Labor Mildred Oliphant and the National Bargaining Council, alleging that the closures were illegal and unfair.

The town of Newcastle, in the province of KwaZulu-Natal, has become a central focus for the clothing industry controversy. Many of the factories in Newcastle are Chinese- and Taiwanese-owned, lured to the area in the Eighties and Nineties by favorable government incentives.

At the heart of the matter is a wage dispute. Talks between the unions, the National Bargaining Council and factory owners collapsed last year, and an April 1 deadline was imposed to compel employers to ensure that their workers were paid at least 70 percent of the minimum wage, which ranges from 489 rand to 734 rand, or $72.45 to $108.75 at current exchange, a week. The minimum wage is determined by the area in which the factory is located, whether metropolitan or nonmetropolitan.

Citing noncompliance with the deadline, 140 factories employing close to 8,000 workers were slapped with writs ordering them to close. Another 36 factories, employing more than 1,600 people, chose to close voluntarily, claiming that they are unable to pay the minimum wages set by the government and remain viable.

Last September, 85 of these Chinese-owned factories in Newcastle decided to cease operations following an impasse in wage negotiations. The South African Clothing and Textile Workers Union sued the factory owners, citing the closures as illegal.

Renato Palmi, a textile industry analyst who runs the ReDress Consultancy and advises the Newcastle Chinese Chamber of Commerce, noted that apparel production on a global scale has increased but South Africa’s exports continue to dwindle.

“We can link this to South Africa’s high unemployment figures, low productivity outputs and the misguided policy direction of collective bargaining,” Palmi said. “Newcastle and its Chinese community have become an economic experiment that could go horribly wrong for the wider community and more so for the outspoken Chinese factory owners.”

Among the most outspoken of these factory owners is Alex Liu, chairman of the Newcastle Chinese Chamber of Commerce, who has insisted that with profits “already nearly nothing,” paying the minimum wage as mandated by the government in consultation with the unions and the National Bargaining Council was simply unaffordable.

In an interview Thursday, Liu said, “The National Bargaining Council sent a sheriff to do inventory on four factories this morning. We don’t know what will happen after this, whether the factories will be forced to close or not.”

According to Statistics SA, South African imports of clothing, textile, leather and footwear products increased 435 percent in dollar terms between 2002 and 2009. Yet South Africa’s clothing exports decreased 65 percent in the same period.

Leon Deetlefs, national compliance manager for the NBC, said of the application filed by the Newcastle group, “We are co-respondents and we will be defending it.” He insisted that the Newcastle employers were not being singled out at all.

As to allegations that the closures had no legal basis, Deetlefs said, “The NBC represents the majority of the clothing industry and reached an agreement with industry players, from unions representing the employees to associations representing the interests of the employers, and the minimum wage recommendations were sent to the Labor Minister for review. Once these have been published by the minister in the Government Gazette, they become law, and everybody must comply with it. In fact, the April 1 deadline for compliance gave everyone ample time to make the necessary wage adjustments, as well as pay outstanding levies.”

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