Following the Supreme Court decision in McGowan & Ors v Labour Court Ireland & Ors which found the well established regime of registered employment agreements to be unconstitutional, there had been uncertainty regarding the level of protection for wages and benefits of workers in the construction sector.
This has been addressed somewhat by (i) the Sectoral Employment Order (Construction Sector) 2017 (the "General SEO") (announced 19 October 2017) and (ii) the Sectoral Employment Order (Mechanical Engineering Building Services Contracting Sector) 2018 (the "Mechanical SEO") (announced 9 March 2018).
Effective immediately, both SEOs 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 briefing looks at the key provisions of the SEOs and how their implementation is currently catered for in some of the standard form contracts in the Irish construction industry.
APPLICATION OF THE SEOS
The General SEO applies to both "Building Firms" and "Civil Engineering Firms" (both of which are very broadly defined) and categorises workers employed by those firms in five categories based on the level of skill/ experience.
The Mechanical SEO applies 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 (Craftsperson) and Qualified Pipefitters and Registered Apprentice Pipefitters (Craftsperson) working in the Sector (which is itself broadly defined).
The rates of pay set out in the SEOs for the various categories of worker are the base rates. Additional pay will be required for unsocial hours rising to either time and a half or double time depending on the time/day of the week.
Pension entitlements provided for in the SEOs will mirror the current Construction Workers Pension Scheme, although entitlements will begin for workers from the age of 18 (21 under the CWPS). Both SEOs set minimum contribution rates and provide for a death in service benefit scheme.
A sick pay scheme is also required by the SEO to be in line with the Construction Industry Sick Pay Scheme (CISPS) to include no less comparable benefits and contributions than the CISPS.
Dispute Resolution under the SEO provides for access to the WRC Adjudication Service (for individual disputes) and the WRC Conciliation Service (for collective disputes) where matters can not be resolved at an employer/trade union level. An appeal is available by application to the Labour Court.
While the SEOs do not include any travel allowance for workers, the General SEO specifically states that this will not affect those workers who have a contractual right to payment for travel time.
REMIT OF THE SEOS
Notably neither SEO includes the electrical sector. It is likely, however, that at some point in the short to medium term, an SEO will be put in place for this sector also.
Both SEOs (particularly the Mechanical SEO) will impact on any contracts live at the date of announcement of that SEO and contracts will need to be checked to see whether additional sums to cover off these wage increases can be claimed under the contract. But stakeholders also need to be aware of future contracts and how these would effected by a future order (e.g. in the electrical sector).
Clause 4 (Variations Arising from Legislative Enactments) of the RIAI standard form provides that any legislative enactment after the designated date, including any affecting the cost of labour shall 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/or labour on-costs shall be added to the contract sum. However, Clause 36 is commonly deleted and often replaced by drafting which states that the contractor shall not be entitled to any 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 this interpretation might prevail.
Care also needs to be taken in a sub-contracting arrangement. While a main contractor may have a right to an increase in the contract sum from the employer in respect of changes, sub-contracts might not be so clear. While the RIAI form of sub-contract closely follows the main contract in rendering these a contractor risk, these subcontracts are often amended.
PUBLIC WORKS CONTRACT
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), only allow for adjustments 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 and where tendered hourly rates are less than 75% of the relevant rate in the current construction industry registered employment agreement current on the Designated Date (to be interpreted as the relevant SEO), these rates will be read as 75% of the relevant rate. This is likely to provide relief to a contractor only in very limited circumstances.
The wording in the forms of sub-contract prepared for use with the Public Works Contract (e.g. Agreement and Conditions of Sub-Contract (NN), February 2016 and Agreement and Conditions of Sub-Contract (Domestic), October 2016) largely follow the wording of the main contract but again it is very important that sub-contractors track the terms of each particular sub-contract.
Since the striking down of the registered employment agreement regime there has been a lacuna in terms of worker protection – the SEOs have sought to address this. While certainty in respect of wages and other benefits are no doubt a good thing for workers and their employers, inevitably a period of uncertainty follows while live contracts are being completed. The reality is, neither contractor, subcontractor nor employer will be enthusiastic about shouldering the burden of wage increases where they differ substantially from tendered rates and will significantly impact 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.