In McGowan v Labour Court Ireland the Supreme Court found the well-established regime of registered employment agreements to be unconstitutional. Uncertainty regarding the level of protection for wages and benefits of workers in the construction sector followed this decision.
This uncertainty has been addressed by:
- the Sectoral Employment Order (Construction Sector) 2017 (the general order) (announced on October 19 2017); and
- the Sectoral Employment Order (Mechanical Engineering Building Services Contracting Sector) 2018 (the mechanical order) (announced on March 9 2018).
Effective immediately, both sectoral employment orders provide for binding terms and conditions for employees in the construction sector in relation to:
- rates of pay;
- unsocial hours;
- pension schemes;
- sick pay; and
- a procedure for the resolution of disputes between construction workers and their employers.
This update looks at the key provisions of sectoral employment orders and how their implementation is catered for in some of the standard form contracts in the Irish construction industry.
General sectoral employment orders apply to building and civil engineering firms (both of which are very broadly defined) and categorise workers employed by those firms into five groups based on level of skill and experience.
Mechanical sectoral employment orders apply to the following categories of worker (directly employed or employed through an employment agency in the mechanical engineering building services contracting sector):
- qualified plumbers and registered apprentice plumbers (craftspeople); and
- qualified pipefitters and registered apprentice pipefitters (craftspeople).
General sectoral employment orders:
- new entrant worker: €13.77;
- Category 1 worker (with one year experience): €17.04;
- Category 2 worker (skilled operatives): €18.36;
- craft worker: €18.93; and
- 33.3% of the craft rate (year 1);
- 50% of the craft rate (year 2);
- 75% of the craft rate (year 3); and
- 90% of the craft rate (year 4).
Mechanical sectoral employment orders:
- Category 1 (newly qualified): €22.73;
- Category 2 (third year): €23.33;
- Category 3 (sixth year): €23.60; and
- 33.3% of Category 1 (year 1);
- 50% of Category 1 (year 2);
- 75% of Category 1 (year 3); and
- 90% of Category 1 (year 4).
The rates of pay set out in sectoral employment orders for the various categories of worker are the base rates. Additional pay will be required for unsocial hours, rising to time-and-a-half or double time, depending on the time or day of the week.
Pension entitlements Pension entitlements provided for in sectoral employment orders will mirror the current Construction Workers Pension Scheme, although entitlements will begin for workers from the age of 18 (or 21 under the scheme). Both sectoral employment orders set minimum contribution rates and provide for a death-in-service benefit scheme.
Sick pay scheme Sectoral employment orders require a sick pay scheme to be in line with the Construction Industry Sick Pay Scheme and to include no fewer comparable benefits and contributions than the scheme.
Dispute resolution Dispute resolution under sectoral employment orders provides for access to the Workplace Relations Commission (WRC) Adjudication Service (for individual disputes) and the WRC Conciliation Service (for collective disputes) where matters cannot be resolved at an employer or trade union level. An appeal is available by application to the Labour Court.
Travel allowance While sectoral employment orders include no travel allowance for workers, the general sectoral employment order specifically states that this will not affect those workers who have a contractual right to payment for travel time.
Notably, neither sectoral employment order includes the electrical sector. However, it is likely that in the short to medium term a sectoral employment order will also be put in place for the electrical sector.
Both sectoral employment orders (particularly the mechanical sectoral employment order) will affect any contracts live at the date of announcement of that sectoral employment order and contracts will need to be checked to see whether additional sums to cover these wage increases can be claimed under the contract. However, stakeholders also need to be aware of future contracts and how these would be effected by a future order (eg, in the electrical sector).
Clause 4 (variations arising from legislative enactments) of the Royal Institute of the Architects of Ireland (RIAI) standard form provides that any legislative enactment after the designated date (including any enactment affecting the cost of labour) will be at the employer's risk. This is confirmed by Clause 36 (wages and price variations), which provides that any increases in the rates of wages or other emoluments, expenses and labour on-costs will be added to the contract sum. However, Clause 36 is commonly deleted and often replaced by drafting which states that the contractor will be entitled to no increase due to changes in wages. Clause 4 can also be amended, but more typically remains unamended. While it could be argued as a matter of legal interpretation that the specific wording of an amended Clause 36 trumps the general obligation in an unamended Clause 4, there is no certainty that this interpretation might prevail.
Care need also be taken in a subcontracting arrangement. While a main contractor may have a right to an increase in the contract sum from the employer in respect of changes, subcontracts might not be so clear. While the RIAI form of subcontract closely follows the main contract in rendering these a contractor risk, these subcontracts are often amended.
In contrast to the RIAI, the public works contracts place change of law for labour cost inflation as largely a contractor risk. While Clause 5.3.2 (pay and conditions of employment) requires the contractor to ensure that the rates of pay and conditions of employment comply with all applicable law (regardless of tendered rates), the two price-variation mechanisms provided for under the public works contract (PV1 and PV2) allow for adjustments only to the contract sum for an increase in wage rate after the base date (defined as "the first date of the 31st month after the Contract Date" under PV1 and "the first day of the 37th calendar month after the Designated Date" under PV2).
In many instances, the contract will have completed in advance of reaching the relevant base date, which limits the application of this provision to a narrow set of contracts.
For additional, substituted and omitted work there may be an entitlement to some uplift, but only if the employer's representative directs that valuation of such works takes place under Clause 10.6.4. Where tendered hourly rates are less than 75% of the relevant rate in the construction industry registered employment agreement current on the designated date (to be interpreted as the relevant sectoral employment order), these rates will be read as 75% of the relevant rate. This is likely to provide relief to a contractor in only very limited circumstances.
The wording in the forms of subcontract prepared for use with the public works contract (eg, the Agreement and Conditions of Subcontract, February 2016, and the Agreement and Conditions of Subcontract (Domestic), October 2016) largely follow the wording of the main contract, but again it is important that subcontractors track the terms of each particular subcontract.
Since the striking down of the registered employment agreement regime, there has been a lacuna in terms of worker protection – the sectoral employment orders have sought to address this. While in respect of wages and other benefits, they are no doubt a good thing for workers and their employers. Inevitably there is a period of uncertainty which follows while live contracts are being completed. The reality is that contractor, subcontractor and employer are unlikely to be enthusiastic about shouldering the burden of wage increases where they differ substantially from tendered rates and will significantly affect the price at which a construction project can be completed. Depending on the strength of the contractual terms, a collaborative approach may be required to ensure that neither party suffers unduly during this period.
For further information on this topic please contact Niav O'Higgins, Karen Killoran or Mary Liz Mahony at Arthur Cox by telephone (+353 1 618 0000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Arthur Cox website can be accessed at www.arthurcox.com.
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