The Supreme Court has delivered a judgment upholding the constitutionality of legislation governing Sectoral Employment Orders (SEOs). The ruling means that SEOs covering rates of pay in the construction and mechanical engineering sectors remain lawful and binding.
Constitutional challenge
In 2019, the National Electrical Contractors of Ireland (NECI) lodged proceedings in the High Court seeking to challenge the validity of an SEO governing the electrical contracting sector. If left unchallenged by the NECI, the SEO would have dictated minimum rates of pay, pension entitlements, and sick pay entitlements that electrical contractors must pay to employees. The High Court delivered a judgment in favour of the NECI in June 2020 which ruled that the electrical contracting SEO was invalid for both procedural and constitutional reasons.
Although the recent decision overturned the High Court’s determination concerning the constitutionality of the SEO wage-setting mechanism, the Supreme Court nonetheless concurred that procedural failures in the development of the electrical contracting SEO rendered that particular wage agreement invalid. The Labour Court must now reconsider their recommendation in light of the Supreme Court’s instructions.
What is a Sectoral Employment Order (SEO)?
Under the Industrial Relations (Amendment) Act 2015 (2015 Act), organisations that substantially represent workers in an economic sector (such as a trade union for instance) are entitled to make a request to the Labour Court to review rates of pay, pension entitlements, and sick pay entitlements in that sector.
If the Labour Court considers that the sector requires regulation, it may make a recommendation to the relevant Minister of State that an appropriate SEO be put in place. If the Minister then approves the Labour Court recommendation, this gives statutory effect to the SEO and all employers within the sector must comply with the minimum terms and conditions of employment set out in the SEO. For example, this meant in practice that all newly qualified electricians were entitled to a minimum wage of €23.49 per hour.
Why did the National Electrical Contractors of Ireland contest the SEO?
The NECI represents small to medium-sized employers who provide electrical contracting services. One of their primary reasons for resisting the SEO was their contention that the trade union and employers’ organisations that requested the SEO were not ‘substantially representative’ of the electrical contracting sector as a whole which includes many small to medium-sized operators. The NECI argued that what might be financially viable for large or even medium-sized businesses would be unsustainable for smaller contractors and may have unintended anti-competitive consequences. Furthermore, the NECI argued the process of the Labour Court recommending an SEO was unconstitutional on the basis that in doing so, the Labour Court was effectively introducing legislation, whereas the Constitution requires legislation to be introduced by a democratically elected Oireachtas.
What did the Supreme Court decide?
In a comprehensive judgment, the Supreme Court examined three key questions in its ruling. We take a look at each one in turn below.
i) Is the power to recommend SEOs under the 2015 Act constitutional?
As referenced above, Article 15 of the Constitution clearly sets out that the Oireachtas has the sole power to legislate in Ireland. Whilst the Oireachtas can delegate this power (e.g., to local councils), they must only do so where they have provided sufficient guidance and clarity to the delegate in how to use that power. The High Court ruled that the procedure followed to agree the electrical contracting SEO required the Minister and the Labour Court to make significant policy decisions in relation to promoting fair competition and ensuring appropriate terms and conditions of employment for both domestic workers and EU workers. The High Court deemed that the policies and procedures in the 2015 Act were not adequate to guide the Labour Court and the Minister in reaching such a decision and declared that the entire system of creating SEOs was unconstitutional as a result.
It was this part of the High Court ruling that the Supreme Court overturned. The Supreme Court concluded that while the extent of the delegation under the 2015 Act is significant, it highlighted that the power to make SEO recommendations must also take place in accordance with a statutory procedure, each step of which is laid down by the Oireachtas. Furthermore, both the Dáil and the Seanad had to positively approve the introduction of an SEO which meant there was “a high degree of continuing review of any SEO.” The Supreme Court ultimately determined that the ability to create SEOs under the 2015 Act does not offend the sole legislative powers vested in the Oireachtas by Article 15 of the Constitution.
ii) Did the Labour Court furnish sufficient reasons for its recommendation?
The Supreme Court did agree with the High Court’s ruling that there were serious deficiencies in the process which led to the introduction of the electrical contracting SEO. The Supreme Court reiterated the longstanding principle that any administrative decision which impacts upon the rights and obligations of individuals, such as the Labour Court recommending an SEO which then impacts upon that entire sector, must at least set out the basis and rationale as to how that decision was reached. In reaching its conclusion, the court ruled that as the Labour Court had a statutory duty to provide reasons for its recommendation that were “sufficient not just to satisfy the participants in the process, but also the Minister, the Oireachtas, other affected persons or bodies, and the public at large.” The Supreme Court concluded that the Labour Court’s report lacked any full description of the “reasons as to how or why” the recommendation of the SEO was arrived at and that it did not fully engage with and respond to the objections raised by the NECI at the time. As the Labour Court had not done so, it had not met the standard required and as a consequence, the Minister should not have approved the Labour Court’s recommendation in respect of the electrical contracting SEO.
iii) Could pension entitlements under the SEO be aligned with a third-party pension scheme, namely the Construction Workers Pension Scheme?
A central issue to the NECI’s argument was that the SEO specified that employers must operate a pension scheme which is “no less favourable” than the terms set out in the Construction Workers Pension Scheme (CWPS). The NECI argued that this meant that statutory rights and obligations under the SEO could be unilaterally amended by a third party, namely the CWPS, and that this was unconstitutional. Both the High Court and now the Supreme Court agreed with the NECI on this point. The court noted that the 2015 Act required an SEO to set out the “minimum daily rate of contribution to the scheme” and that this did not occur in respect of the electrical contracting SEO.
What happens next?
The matter now returns to the Labour Court to be heard by a different panel who must take the Supreme Court’s ruling into account before delivering its recommendation on any future electrical contracting SEO.
The SEO wage-setting system remains in place
More importantly, the Supreme Court decision means that the system of creating SEOs is compliant with the Constitution and can remain in place. Whilst this decision will have a mixed reception amongst the key stakeholders, at the very least the decision provides clarity for all such stakeholders on the legal position. In addition, the Supreme Court judgment clarifies the procedural elements that must precede the finalisation of any new SEO wage agreements.
Ireland’s workplace relations framework is based on a voluntary bargaining system supported by certain statutory provisions, like the SEO wage-setting mechanism. The Supreme Court’s decision to endorse the constitutionality of the 2015 Act alongside the Government’s recent establishment of a working group to examine collective bargaining may signal the advent of a more collectivist approach in the Irish industrial relations landscape.
Labour Court invites submissions on new construction SEO
Soon after the Supreme Court handed down its decision, the Labour Court announced that it’s seeking submissions from interested parties on a new SEO for the Construction industry. This announcement follows an application from five different unions to examine the terms and conditions in the section. The deadline for entering a submission is 5pm on 27 July and submissions may be sent by email to info@labourcourt.ie or by post to: The Secretary, The Labour Court, Lansdowne House, Lansdowne Road, Dublin 4.
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