South African Local Government Bargaining Council and Others v Municipal Workers Retirement Fund and Others

In September 2021, the South African Local Government Bargaining Council (the Council), representing the South African Local Government Association (SALGA) and two majority trade unions (IMATU and SAMWU), concluded a Retirement Fund Collective Agreement (the CA). The CA established an accreditation regime for retirement funds operating in the local government sector, which employed approximately 250,000 employees. The CA provided that municipalities would only pay contributions to accredited retirement funds. To be accredited, retirement funds had to amend their rules to meet specified criteria, including: permitting in-service transfers of members between accredited funds; allowing employers to withdraw from funds; reporting obligations to the Council; and governance requirements. Various retirement funds (the respondents) challenged the CA through three consolidated applications in the high court, arguing it was unlawful, ultra vires, and impermissibly sought to regulate pension funds in violation of the Pension Funds Act 24 of 1956 (PFA). The high court set aside the entire CA except clause 8, finding it constituted administrative action reviewable under PAJA and was also reviewable under the principle of legality.

• Whether the Retirement Fund Collective Agreement constitutes a 'collective agreement' as defined in sections 23 and 213 of the Labour Relations Act 66 of 1995 (the LRA)
• Whether the accreditation scheme in the CA is lawful or whether it impermissibly regulates pension funds contrary to the Pension Funds Act 24 of 1956 (PFA)
• Whether the conclusion of the CA was within the mandate of SALGA and the trade unions under the Main Collective Agreement and section 71 of the Municipal Systems Act 32 of 2000
• Whether the CA is subject to review under the Promotion of Administrative Justice Act 3 of 2000 (PAJA) or the principle of legality
• Whether the CA unlawfully fetters the independence and discretion of pension fund trustees
• Whether the CA violates the constitutional rights of pensioners and non-unionised employees who were not parties to the agreement

Appeal dismissed with costs, including costs of two counsel. Cross-appeal upheld with costs. The order of the high court was set aside and replaced with an order reviewing and setting aside the Retirement Fund Collective Agreement signed on 15 September 2021 in its entirety (including clause 8) on account of illegality. The appellants (first to fourth respondents in the high court) were ordered to pay the respondents' costs on a party-and-party scale, including costs of more than one counsel where so employed.

The binding legal principles established by the majority are: (1) A collective agreement that purports to regulate the operations of pension funds beyond matters of mutual interest between employers and employees, and that usurps the statutory regulatory functions of the Financial Sector Conduct Authority under the Pension Funds Act, is ultra vires and unlawful; (2) Pension fund rules are binding on all stakeholders, including participating employers and their representative organisations, and cannot be indirectly overridden through collective agreements that make rule amendments a prerequisite for continued participation in an employment sector; (3) The independence of pension fund trustees, statutorily protected under section 7C of the PFA, cannot be lawfully fettered through collective agreements that effectively coerce trustees to adopt rules not in the best interests of the fund or its members; (4) Where a collective agreement has far-reaching consequences extending to non-parties (including pensioners and non-unionised employees) and effectively exercises public power by determining which entities may operate in a sector, it is subject to review under the principle of legality and must satisfy the rationality test; (5) The principle of legality requires that collective agreements with public power dimensions must be rationally connected to a legitimate purpose, must take account of relevant considerations, and must not be arbitrary or capricious; (6) Section 71 of the Municipal Systems Act requires that organised local government, when concluding collective agreements, must act within its mandate and must consider the budgets, fiscal capacity and efficiency of municipalities, particularly where agreements may result in substantial financial liabilities.

The majority made several non-binding observations: (1) While retirement benefits may legitimately be the subject of collective bargaining in appropriate circumstances, this does not extend to creating accreditation regimes that effectively determine which pension funds may operate in a sector; (2) The fact that some retirement fund rules permit in-service transfers does not mean that collective agreements can compel all funds to adopt such provisions; (3) The majoritarian principle applicable to collective bargaining does not justify extending agreements to non-parties (such as pensioners) who have not been consulted and who may be prejudiced; (4) The potential financial burden on municipalities arising from pension fund shortfalls under section 30(3) of the PFA, if multiple funds become unviable simultaneously, represents a significant risk to the national fiscus that should have been carefully considered; (5) Even if clause 8 of the CA (dealing with contribution rates) might be regarded as permissible in isolation, it is not severable from the unlawful accreditation regime and must fall with the rest of the agreement; (6) The fact that the FSCA registered rule amendments for funds seeking accreditation does not validate an otherwise unlawful collective agreement; (7) Although PAJA and legality reviews involve different standards, where ultra vires conduct, lack of rationality or improper motive are established, both review pathways lead to the same outcome. The dissenting judges observed that: (1) The test for rationality review is stringent and distinct from reasonableness review; (2) The negotiation history demonstrated serious deliberation over 20 years with expert input, negating any finding of arbitrariness; (3) Following AMCU and Calibre, collective agreements concluded under section 31 of the LRA do not constitute administrative action or exercises of public power merely because they may have consequences for third parties; (4) Retirement funds retain full discretion whether to seek accreditation and are not coerced by the existence of the CA.

This judgment is significant for establishing important boundaries between collective bargaining powers under the LRA and the regulatory regime governing pension funds under the PFA. It confirms that: (1) Collective bargaining parties cannot create parallel regulatory regimes that usurp statutory powers vested in financial sector regulators; (2) The independence of pension fund trustees, protected by the PFA, cannot be undermined through collective agreements that effectively coerce rule amendments; (3) Fund rules that prohibit in-service transfers (previously upheld as lawful) cannot be overridden through collective bargaining mechanisms; (4) Collective agreements with far-reaching consequences beyond the immediate parties may constitute exercises of public power subject to legality review; (5) The interests of pensioners and non-unionised employees must be adequately considered where collective agreements may affect their pension rights; (6) Section 71 of the Municipal Systems Act requires proper consideration of municipal budgets and fiscal capacity before concluding collective agreements with significant financial implications. The case illustrates the limits of collective bargaining in relation to third-party institutions (retirement funds) and the protection of pension beneficiaries' interests within the constitutional framework.