Supreme Court upholds Sectoral Employment Orders

After long-running litigation, the Supreme Court has ruled that legislation governing Sectoral Employment Orders (SEOs) remains valid and binding.

NECI litigation

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. The NECI appealed the decision to the Supreme Court.

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.

Legislation governing SEOs

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 Minister for Business, Enterprise and Innovation 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.

Supreme Court judgment

In a comprehensive judgment, the Supreme Court examined five areas of the High Court judgment including the following two central questions:

i) Is Chapter 3 of the Industrial Relations (Amendment) Act 2015 constitutional?

Article 15.2.1 of the Constitution vests sole legislative power in the Oireachtas. 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 Chapter 3 of the 2015 Act be struck down as an unauthorised delegation of legislative powers.

It was this part of the High Court ruling that the Supreme Court overturned. The Supreme Court concluded that there was no impermissible delegation of legislation in this instance. While the court accepted that the extent of the delegation under Chapter 3 is significant, it highlighted that the power to make SEO recommendations must also take place in conformity with the statutory procedure, each step of which is laid down by the Oireachtas. The Supreme Court ultimately determined that Chapter 3 of the 2015 Act does not offend the sole legislative powers vested in the Oireachtas by Article 15.2.1 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 regarding deficiencies in the Labour Court’s statutory report. The Supreme Court examined the legal principles around the duty to give reasons. In reaching its conclusion, the court ruled that as the Labour Court is engaged in a statutory role involving compliance with statutory duties to protect rights, it 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.

The matter was returned 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 the electrical contracting SEO.

What does this mean for employers?

The Supreme Court decision removes the threat of the SEO system completely unravelling. The decision also restores certainty to the existing SEOs in the construction and mechanical engineering sector. Although the SEO wage-setting powers can impact a wide range of employers who face different challenges around an increase in labour costs, the Supreme Court decision at least confirms the legality of the legislation and confirms that more SEOs may be negotiated in the future.

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