SEO law ruled unconstitutional

The High Court made a ruling last week that could have a huge impact on the construction sector. Sectoral employment orders (SEO) were introduced under the Industrial Relations (Amendment) Act 2015 in an attempt to introduce a statutory wage-setting mechanism. The law allows organisations that ‘substantially represent’ workers in an economic sector (such as a trade union for instance) to request the Labour Court to review rates of pay, pension entitlements and sick pay entitlements in a relevant sector.

The SEO legislation sets out that if the Labour Court considers that the relevant sector requires regulation, it may make a recommendation to the Minister for Business, Enterprise and Innovation for an appropriate SEO to be put in place. Should the Minister subsequently approve a Labour Court recommendation, the SEO takes statutory effect and all employers in the sector are obliged to provide the minimum terms and conditions of employment set out in the SEO.

Since the introduction of the legislation, three SEOs have come into effect regulating the construction, mechanical engineering and most recently, the electrical contracting sector. It was the electrical contracting SEO which was the subject of the recent High Court decision.

Judicial Review

The National Electrical Contractors of Ireland (NECI) is an employer representative body that aims to promote the interests of small to medium-sized organisations in the electrical contracting sector. NECI opposed the electrical contracting SEO from the outset when it was being examined by the Labour Court. After failing to prevent the SEO coming into effect, NECI lodged a judicial review application in the High Court arguing that the trade union and employers’ organisations seeking to implement the SEO were not ‘substantially representative’ of the electrical contracting sector as a whole as the sector includes many smaller and medium-sized operations. The NECI case stated that the minimum pay rates in the SEO would be unsustainable for smaller contractors and would reduce competition in the market which would ultimately impact the consumer.

Constitutional challenge

From a legal point of view, one of the most striking aspects of the NECI’s case was its decision to move to strike out the SEO legislation on constitutional grounds. Article 15.2.1 of the Constitution provides that the sole and exclusive power of making laws for the State is vested in the Oireachtas and no other legislative authority has power to make laws for the State. It is settled law that the Oireachtas may delegate the task of making secondary legislation to a subordinate body so long as the subordinate body is merely giving effect to principles and policies contained in the primary legislation. The High Court decision ruled that the Minister and the Labour Court had in fact made significant policy decisions in granting the SEO. The court found that making a decision with policy implications on fair competition in the sector and the employment rights of both domestic and EU workers was beyond the jurisdiction of both the Labour Court and the Minister. The High Court ruled that the policies and procedures in Chapter 3 of the Industrial Relations (Amendment) Act 2015 were not adequate to guide the Labour Court and the Minister in exercising their power to enact secondary legislation. Chapter 3 was therefore struck down.

Industrial unrest

The High Court decision renders all three existing SEOs invalid pending an appeal by any of the interested parties. Absent any further appeal, employers in the three sectors will have discretion to reduce wages for new employees below the minimum pay rates set out in the SEOs. Trade unions have already put employers on notice that they will strongly resist any attempts to reduce pay below the levels agreed under the SEOs.

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