The 2 questions requiring Legal verification / clarification since the Supreme Court Decision that the REA was unconstitutional on the 9th May 2013, are as follows:
1. Since the 9th May 2013 an Employer can, by mutual consent alter the terms and conditions of Employees .
2. Since the 9th May 2013 Employers taking on new Employees can create / offer their own terms and conditions.
Querist: Chris Lundy
Association of Electrical Contractors (Ireland)
Matter: Supreme Court Decision that the Electrical REA is unconstitutional
I refer to the above matter and attach herewith opinion in respect of same.
The decision to be reviewed is referenced as a judgment known as McGowan & ors -v- Labour Court Ireland & anor  IESC 21. The decision was delivered and summarised by Mr. Justice O’Donnell, of the Supreme Court.
Background to the Dispute:
As Querist and Agent are well aware, the legal challenge before the Supreme Court concerned a group of electrical contractors who had brought steps to have the Electrical Contracting Registered Employment Agreement cancelled at the Labour Court (after other employees had sought to vary the REA and increase the minimum pay of electricians and after the prosecution of an Employer, Camlin Limited under the Act). Upon the Labour Court’s decision to refuse to cancel the agreement, the contractors appealed the said outcome to the High Court.
When the matter was heard and argument advanced before the High Court, Mr. Justice Hedigan rejected the application on several grounds. However, the predominant reason for the decision was because of the delay in prosecuting the claim. In this regard, the High Court had specifically noted that the Electrical Contracting Registered Agreement had been first registered on 24th September 1990 pursuant to the provisions of Part III of the Industrial Relations Act, 1946 and had not been challenged for some nineteen years thereafter. Having rejected the appeal, the High Court did not consider the main arguments raised by the contractors. Thereafter the contractors appealed the matter to the Supreme Court.
One of the Electrical contractors’ main arguments outlined to the Supreme Court could be summarised as follows:
“Does Part III of the Industrial Relations Act of 1946 or any section thereof contravene Article 15.2.1 of the Constitution by delegating the making, variation and cancellation of registered employment agreements to the Labour Court and the parties to such agreements?”
- All Registered Employment Agreements, before the Industrial Relations Act 2012, were created under a system outlined in Part III of the Industrial Relations Act 1946. Under that regime, once a Registered Employment Agreement was registered with the Labour Court, it could legally bind individual employers and/or entire industries. If an employer neglected and/or failed to comply with the Registered Employment Agreement they could be criminally prosecuted;
- It was advanced that Part III system of the Act was in breach of Article 15.2.1 of the Irish Constitution. More specifically Article 15.2.1 states that, “the sole and exclusive power of making laws for the State is hereby vested in the Oireachtas: no other legislative authority has power to make laws for the State“. On behalf of the contractors, it was posited that the Registered Employment Agreement amounted to the Labour Court or private individuals “making laws.” However, they were not permitted to do so as only the Oireachtas can make laws.
Supreme Court Decision
The Supreme Court considered the contractors’ argument and basically had to deliberate as to whether or not the formation of a Registered Employment Agreement effectively equated to making law. Should this be so, the Registered Employment Agreements would in all likelihood be deemed unconstitutional.
In considering this question, the Supreme Court summarised what exactly a Registered Employment Agreement has the power to do:
“A REA can make provision not merely for remuneration … but can make provision for any matter which may be regulated by a contract of employment. Thus, it can determine wages, pensions, pension contributions, hours of work, health insurance, grievance procedures, discipline procedures, staffing levels, production procedures, approved machinery or equipment, and anything else in the employment relationship… It involves a fundamental part of the person’s life (if an employee), and their business (if an employer).”
Section 30(1) of the Act provides:
“A registered employment agreement shall, so long as it continues to be registered, apply, for the purposes of this section, to every worker of the class, type or group to which it is expressed to apply, and his employer, notwithstanding that such worker or employer is not a party to the agreement or would not, apart from this subsection, be bound thereby.”
The Supreme Court further noted that the Registered Employment Agreements were not created by the Labour Court but instead they were created and agreed by private persons (i.e. employers and employees and that these person were unidentified and unidentifiable at the time of the introduction and enactment of the act). The Court noted that the Labour Court simply registers that agreement and has no power of consultation or even to comment to return the proposed order to the join industrial council.
The Court stated:
“the degree of autonomy and discretion afforded to that body and the lack of a mechanism for appeal or review on the merits, means that any control of the exercise of the regulation making power is necessarily attenuated. A further noteworthy feature of s. 27 is that the only limitation imposed upon the regulating power is limited, indirect and negative. The structure of the section is such that registration is mandatory subject only to compliance with the subheadings of s.27. Section 27(3) provides that on an application being made to the Labour Court, that body “shall, subject to the provisions of this section, register the agreement”. There is therefore almost a double delegation: first of the power to set the terms; and second of the power to control those terms by refusing registration. Given the scope of any possible regulation, it is particularly significant that the power of the Labour Court in this regard is essentially limited and negative.”
The five Judge Supreme Court ruled the Industrial Relations Act of 1946 raised issues of incompatibility with the Constitution. The Court contended that there was no obligation on the Labour Court or the parties to the agreements to consider the interests of those who would be bound by them and who are not parties to them. The Court went on to note that if an employer then does not comply with or fails to adhere to that Registered Agreement then they may be criminally prosecuted. Furthermore the agreement once registered is binding on everyone in the sector but it may only be varied on the application of the original parties.
“the most striking feature of Parts III and IV of the 1946 Act to modern eyes is the fact that both EROs and REAs are made part of the criminal law and bind everyone who participates in the relevant sector. Furthermore, the relevant provision of the criminal law is made not by the Oireachtas, but rather by private individuals, themselves participants in the industry to be regulated it provides no guidance on something which might be considered fundamental, being the representative nature of an agreement which will have the effect of binding persons who are not parties to it. Accordingly, most attention on this appeal was directed towards the requirements imposed by s.27(3)(d). There is no doubt that it imposes certain limitations of substance upon the Labour Court’s power to register an agreement, and therefore can indirectly be said to give guidance to the parties to the agreement as to the content thereof. The question is however, whether in the light of the extensive scope of the power conferred, such guidance is sufficient.”
The judgment said “wholesale grant, indeed abdication of law making power to private persons unidentified and unidentifiable at the time of grant to make law in respect of a broad and important area of human activity and subject only to a limited power of veto by a subordinate body”.
The Supreme Court in its examination of the law also noted that the Oireachtas can delegate their powers to subordinate bodies, for example, county councils and these entities then can make rules and laws within the limits prescribed by the Oireachtas. The Oireachtas may delegate a power to put flesh on the bones of an Act but anything going beyond this will be constitutionally suspect.
However, the Court noted that the Labour Court had very limited involvement in the creation of a Registered Employment Agreement, save for the act of registering it. The Labour Court could not itself initiate any process of variation. They also noted that the Oireachtas had no involvement in the process and did not even have the power to review the agreement after it is registered.
The decision states the foregoing:
“The process permitted by Part III cannot be said to be merely the filling in of gaps in a scheme already established by the Oireachtas: in truth the Oireachtas which enacted the 1946 Act could have no idea of even those areas which may be subject to regulation in an employment agreement sought to be registered under the Act, and no conception still less control of the possible range of regulation that might be made in respect of each such matter. Nor did the Oireachtas retain any capacity for review either by the Oireachtas or by a member of the Executive responsible to it, of the agreements actually made. Whatever may be thought of a scheme which permits parties to an agreement to clothe that agreement with certain legal consequences including the possibility of enforcement by criminal proceedings, once such an agreement purports to become binding on non-parties pursuant to s.30 of the Act, it passes unmistakably into the field of legislation which by Article 15 is the sole and exclusive preserve of the Oireachtas. The limited and essentially negative limitations imposed by s.27(3)(d) are plainly inadequate to bring the exercise of such power within constitutional limits”.
As a result of the foregoing, the Supreme Court agreed with the contractors’ argument and concluded that the system was unconstitutional. In view of all of these arguments they declared that Part III of the 1946 Act was unconstitutional.
While the ruling meant that the agreements were no longer valid or made in a manner which is constitutional, contracts of employment which were based on the terms set out in such contracts are still valid. These contracts are offered by the Employer and accepted by the Employee, most notably by signing such and acting on foot of same. These individual contracts/agreements (although they may have been originally offered by the employer to comply with its obligations under the Registered Employment Agreement) cannot now be unilaterally altered without agreement as they form part of a private contract between the employer and employee. The contractual rights and conditions of employees can only be altered by the agreement of the parties involved. As a result, any terms already privately agreed between employers and workers were and are not affected.
The removal of the minimum pay rates set by the Registered Employment Agreement (which by virtue of the declaration and decision of the Supreme Court is no longer valid) allows contractors to undercut and/or reduce the current rates paid to technical workers covered by the Registered Employment Agreement registered with the Labour Court.
Impact of the Supreme Court Decision:
As stated above, this successful challenge concerned electrical contractors governed by the Electrical Contracting Registered Employment Agreement. The decision, however, does not simply render the Electrical Contracting Registered Employment Agreement to be invalid. As the Supreme Court found the system that created the Agreements to be unconstitutional (i.e. Part III of the 1946 Act), all Agreements created through that system are therefore invalid as they were made under an unconstitutional regime. This means that many other Registered Employment Agreements are no longer valid (made in the same way as the Electrical Contracting Agreement. This also applies to the following six industry-wide REAs: Construction; Contract Cleaning; Drapery, Footwear and Allied Trades; Electrical Contracting; Overhead Powerline Contractors; and Printing). As these agreements are based on an unconstitutional system of enforcement and creation, employers and employees are no longer bound by them. However, the fact is that current terms and conditions signed by individuals by parties and agreed by employers and by employees continue to apply until re-negotiated.
What does this mean for staff employed before 9 May 2013?
Querist has posed the question as to whether Employers can, by mutual agreement alter Terms and Conditions of existing Employees prior to the 9th May 2013 and more specifically can Employers, by mutual agreement alter Terms and Conditions of existing Employees prior to 9th May 2013.
Employers are now permitted to enter into negotiations with their employees in order to vary their existing terms and conditions in this respect. Prior to 9th May 2013, an employer could not give their employees any terms or condition that did not equal the minimum standards outlined in the Registered Employment Agreement. However, for the reasons aforesaid, there is no longer a necessity to offer employees these minimum terms and conditions. Where there is a contract of employment in place, those terms and conditions have been privately agreed between the Employer and Employee and so they continue to apply as agreed pursuant to the law of private contract. More specifically because of the unconstitutional system of Part III, the registered employment agreements are no longer valid and enforceable. Instead, employers may negotiate with their employees to obtain their consent to vary and change these terms and conditions, if the employees are amenable to such. The view has not been tested and/or there has been no specific judicial decision/comment on it but generally, this follows logically from the rationale and reasoning of the decision of the Supreme Court. There is overall consensus in the view that the Registered Employment Agreements are no longer valid and that the terms of contracts including the specific minimum terms of those agreements may be altered by mutual acceptance by all parties. However, it may be difficult to create any incentive and/or to enter into bargaining with individual employees and trade unions who have contracts which assure a higher rate of pay or better terms and conditions (namely those set out in the Registered Employment Agreement) than the minimum rate of pay.
Importantly, as outlined above, as these Registered Employment Agreement terms form part of the employee’s contract of employment, an employer will need to secure the employee’s agreement to change those terms if they wish to change them lawfully.
It is clear that the Registered Employment Agreement cannot be enforced in law subject to the same civil law and criminal law consequences as previously. The regime used to establish them no longer exists or to be more precise is legally enforceable; therefore the acts are no longer valid. This means that employers are enabled to employ new employees on less favourable terms and conditions than those of existing employees. The result may be a more competitive market or a race to lower rates in terms of wage setting in certain sectors. Any amendment to current contracts requires negotiation and the consent of the workers. It is not illegal and/or contrary to employment law to negotiate or reduce with mutual agreement the terms and conditions and more specifically pay with respect to contracts of employment. In order to express and/or explain why this is no longer illegal (if agreement can be obtained), Querist should use the reasoning of Judge O’Donnell when negotiating.
In consequence the Labour Court no longer has jurisdiction to enforce, interpret or otherwise apply these agreements. As a result, all such agreements and contracts made thereunder no longer have any application beyond the subscribing parties.
Querist poses the question that employers can offer any terms they wish to new Employees providing it is not below the stated minimum wage? (i.e. staff employed after 9 May 2013)?
As the system that created the Registered Employment Agreements, is now declared to be unconstitutional, the agreements are not valid and constitutional, and an employer does not have to pay the rates in those Agreements to new employees. All such new employees are simply governed by current national employment legislation. As a result, they must be paid in line with the National Minimum Wage Act. Further. Further, they must receive holidays and rest periods and breaks in line with the Organisation of Working Time Act and comply with other areas of employment law.
Basically, all such employees are entitled to normal and standard minimum employment terms and conditions in the industry. The new contracts as issued to new employees no longer have to be the amounts as laid out within the Registered Employment Agreements as they have no legal standing. In law, employers are entitled to offer new contracts to new individual workers. However, trade unions may still try to picket and create industrial action as a result of such.
The decision may lead to more collective bargaining and may, pending further legislative clarification lead to a reduction in wage rates for future employees employed after 9th May 2013 and particularly this may be so in some of the sectors in the economy, which have experienced harshest pressures as a result of the recession.
As outlined above, only agreements created under the 1946 Act have been rendered unenforceable and invalid (where they were created by an unconstitutional regime). This means that any Registered Employment Agreemtn that is created under the Industrial Relations Act 2012 will still be valid. There may be a vast array of trade union activity to seek that employers create new Registered Employment Agreeemtns under the 2012 Act.
For the moment, terms and conditions in current contracts (which comply with the higher rates in the Registered Employment Agreements) can only be altered by the employer with the mutual consent of the employee. As for new employees, they do not necessarily have to be offered the rates of the Registered Employment Agreements – this is the accepted interpretation of the outcome of the Supreme Court case, where there has been no judicial specific and direct comment on that very point.
If Querist wishes to advance any of the arguments to Counsel that the trade unions are using, please furnish same and Counsel shall revert. For many employers, this will be a very severe burden removed from their business endeavours and will be viewed as an opportunity to limit costs in times of recession and accordingly to protect their business interests and long-term economic viability.
I note that the Association of Electrical Contractors (Ireland) is concerned regarding action that may be taken by the Trade Unions with regard to picketing and/or industrial dispute. The foregoing, however, is the legal position with regard to the outcome of the decision of 9th May 2013. Has it been agreed that the association will negotiate with the trade unions on behalf of workers?
Should Mr. Lundy wish me to revert with any further clarification and/or wishes me to address any specific threats or arguments made by trade unionists or industrialists and the reasoning why the trade unions feel that they can persist with same, please do not hesitate to contact me and I will do further advices without delay.
Many thanks for your instructions herein,