High Court rules SEO law unconstitutional

Alan Hickey

June 25 2020

Last year, the National Electrical Contractors of Ireland (NECI) lodged proceedings in the High Court seeking to challenge the validity of a sectoral employment order (SEO). If left unchallenged, the SEO would have dictated the minimum rates of pay, pension entitlements and sick pay entitlements electrical contractors must pay to employees. This week, the High Court delivered its judgment in favour of NECI by ruling that the electrical contracting SEO is invalid for both procedural and constitutional reasons.

What is a Sectoral Employment Order (SEO)?

Under the Industrial Relations (Amendment) Act 2015, 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.

Why did the National Electrical Contractors of Ireland fight 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.

Why was the SEO invalid?

The High Court first focused on procedural flaws in the SEO process, noting that the Labour Court must comply with certain statutory obligations before recommending an SEO. The High Court identified two major deficiencies in the statutory report provided to the Minister by the Labour Court as part of its recommendation of the electrical contracting SEO. Firstly, it was concluded that the Labour Court failed to address the submissions made by interested parties who opposed the SEO. None of the issues raised by the NECI, like the question of whether the trade union and employers’ organisations were “substantially representative” of the electrical contracting sector, the implications for small to medium-sized electrical contractors and the potential anti-competitive effect of fixing a minimum wage for electricians, were included in the statutory report delivered to the Minister. As a consequence, the Minister had approved the SEO based on a flawed report which in turn meant that the SEO itself was invalid. A second major deficiency was that the Labour Court’s report did not set out why the SEO was “reasonably necessary” for the industry, which is a requirement of the parent legislation.

Why did the High Court rule that the SEO legislation was unconstitutional?

Not only was it concluded that the SEO was invalid, the High Court also concluded that the legislation which allows the creation of SEOs was also invalid. This decision therefore has very wide-reaching implications as it means no further SEOs can be introduced and it also means that all other existing SEOs are also invalid (such as the construction SEO and mechanical engineering SEO).

The issue at play here is that, essentially, the Irish Constitution specifies that only the Oireachtas can introduce legislation. The Oireachtas can, however, delegate the task of making secondary legislation to another body (like the Labour Court, local councils, etc.) provided that such a body does so in accordance with clear principles and policies. So for example, Chapter 3 of the Industrial Relations Act 2015 permits the Labour Court to recommend an SEO and for that to be allowed then the Industrial Relations Act itself must clearly set out the principles and policies that the Labour Court must consider and apply in making such a recommendation.

The High Court found that in making the SEO, the Minister and the Labour Court were in fact required 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. As the policies and procedures in the Industrial Relations Act were not adequate to guide the Labour Court and the Minister in reaching such a decision, the High Court declared that Chapter 3 of that Act be struck down.

What now for SEOs?

As well as the 2019 SEO governing the electrical contracting sector, two other SEO’s were already in force in the construction and mechanical engineering sectors. The High Court decision renders all three SEO’s invalid. We are unaware at the time of writing if the Attorney General will appeal the High Court decision.

It should be noted that the SEO system was introduced after a similar pre-existing system was struck down by the Supreme Court in 2013. Thus, the Industrial Relations Act 2015 was supposed to fix the flaws that existed previously, but it has now also been struck down as being unconstitutional.

There will no doubt be a considerable push to amend the legislation to allow such SEOs to be reintroduced and employers in the electrical, construction, and mechanical engineering industries should watch this space. However, this will require new legislation to be introduced, which will no doubt take the form of a further amendment to the Industrial Relations legislation.

As an initial observation, it is our view that this High Court judgment will open up future SEOs to enhanced legal challenge given the enhanced scrutiny of the Labour Court’s recommendations. It is also noted that the threshold that an SEO must be “reasonably necessary” will likely be a difficult barrier for interested parties to satisfy if applying for the introduction of an SEO.

Possible industrial unrest

If no appeal is lodged by any of the interested parties, employers in the three affected sectors are no longer obliged to comply with the minimum rates of pay set out in the SEOs. While employers in the relevant sectors may welcome some flexibility to reduce labour costs below the minimum rates set out in the SEO’s for new employees, reducing pay should only be confirmed with existing employees after consulting with them, explaining the need to reduce costs and seeking their agreement to change the contract of employment. Trade unions have also indicated that they will strongly resist any attempt by employers to reduce pay below the minimum levels set out in the SEOs.  

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