A recent South African High Court decision sets aside a Broad-Based Economic Empowerment ("B-BBEE") Commission finding of fronting against Cargo Carriers (Pty) Ltd relating to its owner-driver initiative ("ODI")/scheme.
The crux of the B-BBEE Commission's findings was that Cargo Carriers had deprived the complainants of the economic benefits they reasonably anticipated to receive, and that the terms of the owner-driver scheme were contrary to the objectives of B-BBEE.
The complainants in the matter alleged that they were denied access to their business accounts, did not receive training and did not understand the nature of the owner-driver scheme and its objectives. The B-BBEE Commission found that Cargo Carriers' conduct was in contravention of the objectives of the B-BBEE legislation and it benefitted from the owner-driver scheme as it attained an improved B-BBEE status at the cost of the drivers. In a review application the court found that:
In respect of the fronting allegations, the court found that:
- "not a single jurisdictional fact for fronting was established" by the B-BBEE Commission;
- there was no misrepresentation to the complainants;
- the complainants could participate in the main activity of the owner-driver scheme;
- the findings of the B-BBEE Commission were unfounded, untrue and irrational.
Owner-driver initiative
One of the key objectives of the road freight industry is to increase black ownership, management control and operational involvement throughout the road freight industry value chain and design appropriate funding mechanisms to facilitate the process.
In line with these objectives, many transport businesses have adopted owner-driver schemes. Notably, owner-driver schemes are designed to give people, in particular Black people, an 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-driver scheme is recognised as a B-BBEE initiative and can be taken into account in measuring a company's B-BBEE status; and
- the "implementation of a ODI is not fronting, unless the ODI did not succeed in its purpose, to enable black former employers to own a small business that is economically viable".
In order to ensure that an owner-driver scheme achieves the intended B-BBEE objectives, 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:
- undertaking a careful selection process of participants;
- providing regular support and resources such as:
- operational support;
- skills training, including business acumen training and management training;
- mentoring;
- providing participants with reasonable independence and autonomy to be involved in and manage the core activities of its business;
- giving the owner-drivers preferential contracts;
- ensuring that the terms of the arrangement are fair, reasonable and at arms-length, in particular any terms contained in a service agreement or management agreement;
- ensuring that participants are given the capacity become an owner-driver over a reasonable period of time. In this regard, the court acknowledged that "a driver cannot overnight become an owner-driver".
The court, in delivering its judgment, also highlighted that:
- in order for an owner-driver scheme to be successful, all parties must fulfil their contractual obligations; and
- the fact that autonomy over a business account is restricted for a certain period of time does not frustrate the achievement of the objectives of the B-BBEE Act, provided it seeks to foster fiscal discipline and transfer of financial skills.
The way forward
We recommend that all companies assess their existing owner-driver schemes to ensure that it achieves the intended B-BBEE objectives in compliance with the B-BBEE legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
