BEE and owner-driver schemes

Owner-driver schemes concern the creation of independent, small businesses by outsourcing the distribution function of larger enterprises. These businesses are typically run by former (and/or current) employees, but, with maturity, some schemes look externally for their owner-drivers. A transfer of assets, namely the vehicle(s), accompanies the implementation of the scheme. They are similar to franchising: policies and procedures are standardised and controlled, allowing for operational conformity; franchisees and owner-drivers own assets of the business and make a profit from its operations; both operate under one banner, and there is a transfer of skills through initial and ongoing training by the company.

An owner-driver is a driver who undertakes delivery of product, using his own vehicle, on behalf of a larger organisation that, typically, was his former employer. Owner-driver schemes concern the contracting out of an organisation’s distribution services to improve productivity and flexibility. While some companies employ owner-drivers who are independent of the company, most develop owner-driver schemes from within existing and/or former employees. Owner-drivers, irrespective of the business format (e.g., sole trader, close corporation) adopted, are viewed as independent distributors, often tied into exclusive contracts with the ‘parent’ company. Distribution of product is a service provided for the benefit of customers purchasing that product.

Owner-driver schemes are a specific form of employee ownership that needs careful planning and implementation if an organisation is to benefit. While the creation of independent satellite businesses such as owner-driver schemes does not necessarily fall within the conventional sense of employee ownership, there are precedents for this type of empowerment. This supports government policy to promote small and medium-sized businesses by the development of closer business linkages between small and large businesses. Where possible, big business will be encouraged to outsource and subcontract orders to the smaller players.

The most important aspect of being an owner-driver is to know the business and understand your own capabilities and resources.

Owner-driver schemes provide an ideal opportunity for a commercial vehicle driver to become a legitimate business owner with excellent prospects of growing his or her fleet over time. The owner-driver concept was introduced in South Africa in the mid-1980s as both a cost-effective and community upliftment transport solution.

Owner-drivers have a personal stake and purpose when compared to company-employed drivers, which results in improved productivity and increased efficiencies in the overall operation of the transport fleet.

The owner-driver scheme must be sustained through ongoing training and coaching of the owner drivers. Owner-drivers should be trained in business skills and financial matters and coached on issues such as how to deal with
staff and how to manage conflict.

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 B-BBEE Commission’s finding 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 respect of the fronting allegations, the court found that:

1. “not a single jurisdictional fact for fronting was established” by the B-BBEE Commission;
2. there was no misrepresentation to the complainants;
3. the complainants could participate in the main activity of the owner-driver scheme;
4. 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:

1. 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
2. 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:

1. Undertaking a careful selection process of participants;
2. Providing regular support and resources such as:
3. Operational support;
4. Skills training, including business acumen training and management training;
5. Mentoring;
6. Providing participants with reasonable independence and autonomy to be involved in and manage the core activities of its business;
7. Giving the owner-drivers preferential contracts;
8. 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;
9. 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.

A previous article published in 2020 discussed broad-based ownership schemes and can be accessed with this link https://beeratings.com/the-use-of-a-b-bos-in-b-bbee-ownership-structures/

The use of a B-BOS (broad-based ownership schemes) in B-BBEE ownership structures is common practice and in line with the objectives of the B-BBEE Act which specifically promote broad-based black economic empowerment.

Businesses and beneficiaries of collective ownership programmes derive many benefits from collective ownership schemes to manage and house the wealth created through B-BBEE share ownership. In a collective ownership scheme, the individuals of the scheme exercise those rights of ownership to the exclusive benefit of the beneficiaries.

The beneficiaries are defined as follows:

BBOS—the participation of specified and identifiable natural persons with benefits flowing from the rights of ownership. Those specified natural persons as beneficiaries are in most instances precluded from exercising voting rights on behalf of a collective programme.

ESOP means a worker or employee scheme, similar to a contribution employee benefit plan or employee share incentive programme.

The Codes of Good Practice permit the use of Trusts, BBOS, and ESOP to facilitate the transfer of ownership to multiple beneficiaries such as employees and community members, amongst others.