The Legal Sector Code (LSC) – Part 3

In September 2024, the Minister of Trade, Industry, and Competition (the dtic) approved the Legal Sector Code in terms of section 9(1) of the B-BBEE Act. Two previous articles discussing this recent approval and the basic requirements of the Sector Code are available to read too.

This article discussed the Priority Elements, Sub-Minimum Requirements, and Key Measurement Principles, amongst others.

PRIORITY ELEMENTS AND SUB-MINIMUM

The priority elements are as follows:

Ownership – The sub-minimum requirement for ownership is 40% of the total weighting points for ownership;

Skills Development – The sub-minimum requirement for skills development is 40% of the total weighting points or skills development; and

Enterprise and Supplier Development – The sub-minimum requirement for enterprise and supplier development is 40% of the total weighting points for each of the three categories within the enterprise and supplier development elements, namely, preferential procurement, enterprise development, and supplier development.

COMPLIANCE WITH PRIORITY ELEMENTS

1. A Large Enterprise is required to comply with all the Priority Elements.
2. A QSE is required to comply with Ownership as a compulsory element and either Skills Development or Enterprise and Supplier Development excluding QSEs that are black-owned and only required to obtain a sworn affidavit on an annual basis confirming the annual total revenue of between R5 million (five million rand) and R25 million (twenty-five million rand) and level of black ownership.

DISCOUNTING PRINCIPLE EFFECT

1. A QSE or Large LSME (Legal Sector Measured Entity) that fails to meet the 40% sub-minimum requirement for any or a combination of the priority elements will have their B-BBEE status level discounted by one level.
2. The discounted level will be recorded and be the applicable status level for such an LSME.
3. Despite the provisions of point 1 above, the actual points achieved by an LSME below the 40% sub-minimum will be recognised.

KEY MEASUREMENT PRINCIPLES

1. The fundamental principle for measuring B-BBEE compliance by any LSME is that substance takes precedence over legal form.
2. In interpreting the provisions of the LSC, any reasonable interpretation consistent with the objectives of the B-BBEE Act and the B-BBEE strategy must take precedence.
3. The formulae used for measurement of initiatives, criteria, and indicators in the scorecards in this LSC shall be aligned to the formulae in the Generic Codes.
4. The basis for measuring B-BBEE initiatives under the LSC shall: 4.1 For the ownership and management control elements, be the B-BBEE compliance of the LSME at the date of measurement (as defined); and
   4.2 For skills development and ESD elements, be the B-BBEE compliance of the LSME throughout the measured period.
5. Initiatives that split, separate, or divide an LSME with the intent of ensuring eligibility as an LSME, a QSE, or a new entrant enterprise shall constitute an offence and shall be dealt with in accordance with the provisions of the B-BBEE Act.
6. Any representation made by an LSME regarding its B-BBEE compliance must be supported by suitable evidence or documentation. An LSME that does not provide suitable evidence or documentation supporting any initiative shall not receive any recognition for that initiative.
7. Throughout the interpretation of the LSC, effect shall be given to the following underlying principles: 7.1. In the event that there is uncertainty or conflict, any reasonable interpretation consistent with the objectives of the B-BBEE Act must take precedence; and
   7.2. any misrepresentation or attempt to misrepresent an LSME’s true B-BBEE status shall be dealt with in accordance with the provisions set out in the B-BBEE Act and may lead to the disqualification of the entire scorecard of the entity concerned.

INTERPRETATION OF B-BBEE INITIATIVES IN THE LSC

1. LSMEs are only measurable regarding their South African operations and not their global operations and partnerships. This applies to the measurement of all the elements and indicators of the scorecard. The LSC is the applicable sector code for all activities listed in section 10 of the B-BBEE Act. This means that all LSMEs who elect to the measured in in terms of the B-BBEE Act are, unless exempted, obliged to be measured in terms of this LSC.
2. The requirement to submit data to the Department of Labour under the Employment Equity Act 55 of 1998 is only applicable to ‘designated employers’ who employ 50 or more employees. However, for the purpose of measurement in terms of this LSC, both SMEs and QSEs that employ fewer than 50 employees are required to submit sufficient evidence for verification purposes.

THE LEGAL SECTOR TRANSFORMATION FUND (LTSF)

A Legal Sector Transformation Fund is to be established in terms of paragraph 37 of this LSC, by the Charter Council, for the purpose of receiving and administering contributions made by qualifying LSMEs and advocates and any ELEs seeking enhanced recognition in terms of this LSC, to provide financial assistance and support to black legal practitioners and for transformation-related purposes as may be determined by the Charter Council from time to time.

1. The stakeholders hereby agree to establish an LSTF.
2. The objective of the LSTF is to provide financial assistance and support to black legal practitioners, especially black women and other black people from designated groups.
3. The LSTF shall be administered by the Charter Council which may outsource the management of the LSTF to any entity with the requisite skills, experience, and capacity subject to such entity complying with the Charter Council’s directives and the aims and objectives of this LSC.
4. The Charter Council shall ensure that costs for the administration and management of the LSTF do not exceed 5% (five) percent of the total income of the LSTF in any financial year.
5. The Charter Council will limit rollover for investment purposes and will require that any rollover is not effected for a period exceeding 3 (three) years.
6. The Charter Council shall ensure that the annual financial statements of the LSTF are audited in accordance with prevailing, recognized accounting standards. Such financial statements shall be made available to stakeholders in the legal sector.
7. The LSTF will be utilised for Skills Development and Enterprise and Supplier Development initiatives including, but not limited to, the following: 7.1. Funding of black-owned LSMEs, especially new entrants, including the provision of technical equipment, library facilities, office rental, and training in specialised areas of law;
   7.2. Providing financial assistance and support to black candidate legal practitioners during their pupillage, including the giving of stipends;
   7.3. Providing financial assistance, training, and support to black junior advocates, including subsidising their rental and/or membership fees of voluntary associations or subscription fees;
   7.4. Providing financial assistance to a black junior advocate or attorney to acquire and develop skills in specialised areas of law through training and other initiatives; and
   7.5. Providing financial assistance and support to black women attorneys and advocates during maternity leave from their law firms and chambers, respectively.
8. The Charter Council shall, upon its establishment, develop a policy and criteria for the access of intended beneficiaries of the LSTF and the quantum of support as well as the manner of disbursement. Such policy shall be drafted after consultation with stakeholders in the legal profession and the Charter Council shall ensure that the criteria are based on the guidelines and criteria set out in the compliance monitoring framework issued from time to time by the DTIC or the B-BBEE Commission.
9. The LSTF shall also contribute to the funding of the Charter Council.

The next article will focus on the Ownership Scorecard.