Déjà Vu - Sectoral Employment Orders (SEOs) Declared Unconstitutional
The High Court has struck down the Electrical Contractors SEO and declared the relevant parts of the Industrial Relations Act 2015 unconstitutional, heralding confusion in the construction, mechanical engineering and electrical contracting sectors.

 

Sectoral Employment Orders (SEOs) allow for the setting of minimum terms and conditions that apply across entire sectors (e.g. construction), which terms are typically far in excess of statutory minimum terms for employees outside those sectors.  In May 2019, the relevant Minister of State formally accepted two recommendations from the Labour Court regarding new minimum pay rates for the construction and electrical contracting sectors respectively. The SEO for the construction sector subsequently came into force in September 2019, and the electrical contracting SEO was subject to a judicial review in a case brought by National Electrical Contractors Ireland (we reported on this in May 2019).  In June of this year the High Court delivered its judgment on this judicial review.

Legislative Background

The SEO system was established under the Industrial Relations (Amendment) Act 2015 (the 2015 Act), its precursor being Registered Employment Agreements (REAs). The 2015 Act and the SEO system were brought into force following the Supreme Court's declaration in 2013 that the REA system under the Industrial Relations Act 1946 was unconstitutional (we reviewed this decision in detail in 2013).

SEO & 2015 Act Unconstitutional

In this decision the High Court reviewed the electrical contractor SEO and the 2015 Act in detail. On the specific SEO, the Court held that the procedures introducing the SEO and the content of the SEO itself were flawed and not compliant with the requirements of the 2015 Act.  Therefore, the SEO was ultra vires or beyond the legal power of the 2015 Act and was accordingly struck down by the High Court. 

The Court did not stop there and reviewed the constitutionality of the Oireachtas' ability to make SEOs under the 2015 Act. The case is noteworthy for the Court's decision to go beyond the usual principle of judicial self-restraint in cases with potentially constitutional issues. The Court held that the 2015 Act "does not contain sufficient principles and policies to guide the very broad discretion conferred upon the Minister (and, indirectly, upon the Labour Court)", and generally held that Chapter 3 of the 2015 Act "involves a standard-less delegation of law making to the Minister". The Court held that the 2015 Act is invalid by reference to Article 15.2.1 of the Constitution, that Chapter 3 of the 2015 Act should be struck down and that the provisions made for making SEOs under Chapter 3 of the 2015 Act are invalid. 

Impact on the Affected Sectors

The High Court's decision is open to appeal, but in the interim the direct result of the decision is that all SEOs under the 2015 Act are void, including the construction sector SEO in force since September 2019. It's not unusual for legislative changes, and in particular SEOs, to have a direct effect on the contract price of a construction contract, even after it has been entered into. Therefore, this decision may lead to conflict in the construction industry between developers and contractors and has resulted in a lack of clarity for contractors and their employees.

REAs in 2013 

In assessing what the outcome may be consideration should be had to the practical reaction to REAs being declared unconstitutional in 2013. At that time the Government flagged relatively quickly that it would seek to rectify the issue (though that took nearly 2 years), and rather than risk industrial conflict, the majority of affected employers chose to continue with the REA terms or reached a negotiated agreement with unions for the interim period.  For employers willing to bear that risk of conflict, the striking down of the SEO terms provides the possibility of offering amended terms to workers; from a legal perspective this would be more straightforward to effect for new workers than existing workers.

Future Negotiations

The decision has the potential to impact future contract negotiations in the construction industry. Its impact will likely be considered by contractors and developers in relation to both the contract terms and the tender price. In an effort to win tenders and be more competitive than rivals, there may be temptation for contractors to ignore the SEO terms following the High Court's decision. History shows however that this decision should be carefully thought through, not least because of employee relations issues (with the Connect trade union warning of "war" in such circumstances), but also because of the political pressure that will come upon the Government to "fix" the SEO system meaning a restoration of its terms may result in the near future.

 

Contributed by Darran Brennan and Killian Maher 

Key Contacts

Jeffrey Greene Partner

Bryanna Ryan Partner

Liam McCabe Partner

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