• EIRO
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Ireland: 2010 Annual Review

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This annual review considers Irish industrial relations and working conditions developments in 2010. Irish industrial relations have been negatively affected by the gravity of the country’s financial and economic crisis. Notable events in 2010 with major industrial relations implications were the breakdown of social partnership and, later in the year, a €90 billion ‘bail-out’ by the EU and International Monetary Fund. Many Irish workers are experiencing unemployment or erosion of pay and terms and conditions of employment.

1. Political developments

The last general election took place in May 2007. The larger centrist Fianna Fail party, which has been in power since June 1997, was joined in a coalition government with the Green Party. However, the popularity of the current government has plummeted as a result of the financial and economic crisis that has gripped Ireland since 2008. In November 2010, mounting debt problems forced the Irish government to apply for a €90 billion bail-out from the EU and the International Monetary Fund. The government announced a four year ‘National Recovery Plan’ in November, approved as part of the EU IMF programme of financial support for Ireland. The plan incorporates a cut in the national minimum wage (NMW) of €1 per hour to €7.65 per hour (IE1012029I). The idea is that the new lower rate should apply to new employees only. The plan also proposes a review of the current system of legally binding sectoral wage agreements - Registered Employment Agreements (REAs) and Joint Labour Committees (JLCs). Other proposed changes in the plan include a 10% reduction in pay for new entrants to the public service, who will also start on the minimum point of the scale. The big change at the top in the public sector is the salary cap of €250,000, which the government is to try to implement in the commercial semi-state sector as well as the public service. The government aims to save a total of €15 billion in order to bring the deficit below 3% by 2014. The government imposed an austerity budget (‘Budget 2011’) on December 7 to achieve some of its objectives in the plan.

A general election is to occur in 2011. It is widely expected that the electorate will remove the current government and that a new Fine Gael/Labour Party coalition will be elected. If elected, the new coalition has indicated that it would seek to change certain aspects of the ‘National Recovery Plan’. A new incoming administration would likely have some employment relations implications. For example, the Labour Party has made general commitments in the area of union representation rights.

2. Legislative developments

In December 2010, the Dáil (Irish Parliament) passed all stages of the Financial Emergency Measures Bill, that cuts the minimum wage by €1 to €7.65 (a reduction of 11.7%) as part of the aforementioned ‘National Recovery Plan’. The Financial Emergency Measures Bill will also reduce government minister’s salaries and cut the pensions of retired public servants, among other pay-related measures.

More generally, the formal collapse of social partnership early in 2010 (see 3 and 4 below) has placed considerable uncertainty around the future of some legal matters agreed by the government and social partners under national agreements. The last national pact, the Transitional Agreement (concluded in September 2008), included commitments on employee representation rights, in particular. Deadlines originally agreed in relation to some commitments have long since passed after the economic and financial crisis gripped the country; with the government subsequently having more pressing priorities. However, the commitment to review employee representation rights has not totally been kicked into touch, with some informal meetings taking place in 2010. But, ultimately, it will be up to a new administration after the general election to decide what to do about legislating for employee representation rights. Employer groups remain vociferously opposed to mandatory trade union recognition for collective bargaining purposes, fearing it will jeopardise foreign direct investment (FDI) from multinationals.

One area where Ireland will definitely have to introduce new legislation in 2011 is for temporary agency workers. With the EU’s agency worker directive due to be implemented into Irish law by December 5, 2011, the government has set out a list of questions on the choices it must make in framing the legislation, seeking the views of interested parties. The EU directive – which will regulate on equal pay and conditions to temporary agency workers - is now the subject of a public consultation process in Ireland. In the meantime, the Irish Business and Employers Confederation (ICTU) and the Irish Congress of Trade Unions (ICTU) continue to discuss what qualifying period for workers, if any, will be inserted into Irish law. In the UK, the social partners at national level – the TUC and the CBI – agreed a 12-week qualifying threshold some time ago, which means that the new equal rights for agency workers only came into effect after 12 weeks. This puts significant pressure on Irish employers to achieve a similar threshold. If no agreement is reached, the maximum protection of instant equal treatment on the first day of a temporary agency assignment is provided in the directive, giving unions in social partner negotiations a strong hand to play with. It may be that in exchange for agreement to a longer qualifying period, some other concession may have to be made by employers. If agreement cannot be reached, the government will have to legislate by December 2011 – although deadlines for transposing EU legislation have often been missed in the past.

3. Organisation and role of the social partners

The collapse of Ireland’s centralised social partnership model in early 2010 has had, and will continue to have, significant implications for the role of the social partners. Some of the substantial architecture of social partnership that has been built up since 1987 looks set to be dismantled. Further, the social partners and their affiliates will have to sharpen their negotiating skills in the event of an increase in local pay bargaining activity.

A major change in the organisation of Ireland’s largest union, the Services Industrial Professional and Technical Union (SIPTU), has been unfolding in 2010. The union has approved various changes, which include moving to a sectoral structure from regional units, almost tripling the resources put into organising new members, and having specialised staff deal with individual grievances.

4. Collective bargaining developments

It is not possible to estimate the number of collective agreements in Ireland in 2010, as there is no official database referring to the extent of agreements.

The most important collective bargaining development in Ireland in late 2009/early 2010 was that the country’s twenty-two year old system of centralised social partnership agreements formally broke down, after the Irish government announced that talks with the public sector unions on a consensus approach to securing a €1 billion plus reduction in the public pay bill had failed (IE0912019I). After the failure to reach consensus agreement, the government decided on a straightforward wage cut for over 250,000 public servants. This unilateral pay cut was imposed by the government in Budget 2010 (which took place in December 2009) (ranging from 5% for the lower paid up to 15% for the highest paid). Moreover, in December 2009, the Irish Business and Employers’ Confederation (IBEC) formally withdrew from the terms of the private sector pay agreement that had been negotiated as part of the Transitional Agreement (2.8Mb PDF) in 2008, paving the way for the first period of company-level bargaining in Irish industrial relations since 1987 (IE1001029I, IE1002029I). Since 1987, basic pay levels for unionised workers had primarily been set by centralised wage agreements, with many non-union employers also ‘shadowing’ centrally set pay outcomes.

Yet despite the formal collapse of national wage bargaining, in March 2010, IBEC and the Irish Congress of Trade Unions (ICTU) agreed a new voluntary protocol that establishes a tripartite overarching procedure between the government, IBEC and ICTU with a view to managing future private sector pay claims (IE1005029I). The protocol provides negotiators with broad pay guidelines, using a set of criteria for issues like competitiveness. Regarding the new pay bargaining climate, IBEC and ICTU state that they are ‘operating in a new context without a formal agreement on pay determination’, which suggests that there may be some informal coordination between them. In any case, local pay claims were uncommon in private sector companies in 2010, given the severity of the recession and fears over job losses. Regardless, the protocol provides a more informal basis for the processing of pay claims if and when they emerge.

Concession bargaining became a common occurrence in 2010, frequently in the form of pay freezes. While much media attention in Ireland has focused on the appearance of pay cuts in the private sector as a feature of the Irish employment landscape, there has been a tendency to exaggerate the extent of cuts in basic pay. Reductions in average earnings do not necessarily equate to cuts in basic pay. For example, overtime hours and shift rates can be cut, leading to hourly pay declines, even if basic pay is merely frozen. In relation to this, a special analysis of wage bill change in enterprises (374Kb PDF), by the Central Statistics Office (CSO) in 2010 examined the relative importance of three components of reducing labour costs for companies between the third quarter of 2008 and the third quarter of 2009: employment levels, average working hours and average hourly earnings. The survey found that most labour cost savings came through redundancies, followed by reduction in working time, and then falling average hourly earnings IE1009019I. Cutting the number of employees was the means used by most employers to reduce wage costs, with 66% reducing employment by more than 2% over the year, with just 21% increasing employment by more than 2%. Average weekly paid hours were reduced by more than 2% in 51% of companies, and increased by more than 2% in 31% of enterprises. Average hourly earnings, which can include overtime, was the smallest component of the wage bill reduction, with 35% of employers reporting decreases of 2% or more. The salient issue emerging from the CSO survey is that when employers seek to cut costs during the recession, they are more likely to cut employee numbers or hours of work, before they focus on regular earnings.

In addition, the specialist independent publication Industrial Relations News has charted pay trends during the recession. According to IRN, the practice of cutting basic pay and salaries has become a more regular feature of the Irish industrial relations landscape since 2008, even if its extent has been exaggerated at times. In late 2010, IRN conducted a review of pay cutting featuring a sample of over 50 employments where pay cuts of one kind or another were agreed, implemented or attempted over the past two years. The deepest recession in decades has clearly been the main reason for increased pay cuts, but also playing a role, IRN suggest, was a period of price deflation that began in January 2009, peaked in October 2009 at -6.6% and only ended in August 2010. Accordingly, the pay cuts of recent years have to be set against the fact that both consumer prices indices (the domestic CPI and the EU’s HICP) show that prices are now at the same level that they were in April/May 2007, almost three and a half years ago. Yet, IRN emphasize, the relatively novelty of pay cutting as a cost reduction option has led to something of an exaggerated impression in the media of the extent to which it has been used on the ground in the private sector.

In the public sector, government and the public sector trade unions negotiated a bi-partite deal on public service reform in June 2010 in exchange for a promise of no pay cuts prior to 2014 – which was called the ‘Croke Park agreement’ IE1007039I. Employer associations were not party to the agreement. The four-year deal, which potentially covers 330,000 Irish public servants, was accepted by the Public Services Committee of the ICTU. The agreement was voted through by a majority of almost two to one and incorporates a four-year pay freeze, commitments by the government not to implement compulsory redundancies, and to maintain existing pension arrangements. In return, unions have signed up for a ‘transformation’ programme, expected to yield major productivity improvements and efficiencies – as well as a broad commitment to maintain industrial peace. The wide range of workers affected by the deal includes civil servants, health workers, teachers and employees in the security services.

The latest CSO earnings data (up to September 2010) show the effect of the Budget 2010 public service pay cuts, while private sector earnings remain relatively static. Average weekly earnings fell to €685.10 in Q3 2010, down from €694.69 a year earlier, representing a fall of 1.4% over the year. The fall in weekly earnings reflects the decrease in both average hourly earnings (-1.2%) and average weekly paid hours (-0.3%) year on year. Across economic sectors, average weekly earnings fell in 8 of 13 sectors, with the largest decreases in the education (-12.3%) and construction (-6.2%) sectors. Weekly earnings in the public sector fell by 4.5%, compared with a fall of 0.3% in the private sector. This public sector earnings data was, however, calculated before deduction of the pension levy introduced in March 2009.

5. Responses to economic downturn

Among the most important policy responses in Ireland with regard to the economic downturn are i) general instruments by national and regional state development agencies to attract foreign direct investment by multinationals, and ii) explicit state restructuring instruments to assist redundant apprentices in the ailing construction sector.

In terms of changes in orientation of policy instruments emanating from the global recession, there has been a discernible shift towards funding of passive labour market policies during the crisis, and away from active labour market policy - this reflects the massive increase in unemployed people seeking unemployment benefits between 2008-2010. Also, since the recession began, company-level restructuring initiatives to deal with economic crisis, like short-time working and pay freezes, have become much more common in Ireland. Ireland looks set to experience the harsher aspects of the crisis for some time to come; with some sectors of the economy like construction more exposed than others (large high-valued added exporting pharmaceutical multinationals tend to be more ‘recession proof’).

By way of overall commentary, the labour market climate has changed dramatically since the economic crisis hit Ireland particularly badly from 2008. Since then the Irish government’s policy focus has been on attempting to restore a failed financial system and (a knock-on impact of this) implementing severe cuts in public spending aimed at reducing the country‘s debt. Yet, unemployment has risen rapidly from just over 4% in 2008 to over 14% in December 2010 together with a contraction in private sector employment. There is little evidence of the government constructing a large-scale coordinated national labour market plan to address the jobs crisis (with or without the involvement of the social partners), focused on preserving/creating jobs.

The breakdown of Ireland’s tri-partite social partnership model has hampered engagement between government and social partners with regard to dealing with the economic downturn. Budget 2011 contains a number of new work placement measures devised by the government. But, they are only small-scale, only totalling up to 15,000 places. The new work placement schemes in Budget 2011 consist of:

The Irish Congress of Trade Unions have advocated a coordinated large-scale jobs plan to create employment. But the country’s budgetary crisis and a deteriorating debt situation means the government is unlikely to devote the necessary resources for this to happen. Plus, the stringent conditions set by the EU-IMF ‘bail-out’ are obviously a constraining factor. In the meantime, the labour market participation rate of young men, in particular, continues to decline, with the spectre of mass emigration returning.

6. Pensions

Budget 2011 introduced the largest changes in pension tax treatment for many years. Chief among these is the termination of relief from employee Pay-Related Social Insurance (PRSI) on employee pension contributions, which was announced in the four-year plan and will save €60 million in a full year. This will affect all pension contributors, but will hit public servants more than most, as their tax-deductible pension contributions are very large, when the pension levy is included. Another major change on the pension front, which will save the government €90 million in a full year, is the halving of the current employer PRSI exemption for employee contributions to occupational pension schemes and other pension arrangements, with effect from January 1, 2011. The employers group IBEC reserved strong criticism for this particular measure.

An announcement in the Budget documents that will be welcomed by both IBEC and the ICTU, however, is the government’s intention to proceed with a proposal to issue Irish sovereign annuities, which had been strongly backed by both bodies. Since pension funds need long-term sovereign bonds against which to price their pension liabilities, and the cost of German and French bonds has risen this year, this has led to increases in pension fund liabilities, hence worsening pension deficits. Long term Irish bonds - not available until now – are cheaper and can be used to reduce the liability calculations of pension funds. Changes in the regulations will allow funds to re-price their liabilities to pensions to the extent that they purchase Irish bonds. The Minister for Social Protection is to announce details of the measures and the legislative and other regulatory changes it involves. Given the doubts over the Irish government’s ability to pay its debts, however, the use of Irish sovereign bonds may raise eyebrows among pension trustees.While annuities benefit those on defined benefit (DB) pensions, those on defined contribution (DC) pensions can look forward to measures in the Finance Bill that will give them more flexible options on retirement. Also, some pension lump sum gratuities – those over €200,000 – will now be subject to tax, as recommended last year by the Commission on Taxation. This will be at the standard income tax rate of 20% up to €575,000, after which the taxpayer’s marginal rate of income tax will apply. The Standard Fund Threshold (SFT) – the maximum allowance pension fund on retirement for tax purposes – is to be almost halved, from €5.4 million to €2.3 million, with effect from Budget Day.

Cuts for the first time in public service pensions have also now been confirmed in Budget 2011, with an average cut of 4% for those with pensions over €12,000. These are in three bands: 6% from €12,001 to €24,000; 9% from €24,001 to €60,000; and 12% above €60,001. In addition, proposals for a new pension scheme for future entrants to the public service, based on ‘career average’ earnings rather than final salary as applies at present, had already been drawn up by the Labour Relations Commission. New entrants will include those in the civil service, education sector, health sector, local authorities, Gardai, Defence For c es, other regulatory or similar bodies and non-commercial state bodies. These changes were signalled in Budget 2010, when the Minister for Finance said he would introduce a single new scheme to apply to all new entrants from January 1, 2011. The new scheme will also raise the minimum retirement age for new entrants to 66 from 65 at present, bringing it into line with planned changes in the state pension age. However, the new pension will not affect current public servants.

A number of company-level collective agreements on pensions were concluded in 2010, as employers and unions continue to grapple with pension deficits. Increased employer and employee contributions were prominent in pension scheme restructurings, along with career averaging and caps/freezes on pensionable pay. In a number of cases, companies and unions tried to address deficits in older defined-benefit (DB) schemes. It appears that 2011 will see serious debate about changing the model for DB pension schemes, with currently contentious issues such as investment risk policy, access to long-term Irish Government bonds and the strictness of the funding standard being up for discussion. Therefore, while the extension of Pensions Board deadlines for restructuring defined benefit pension schemes to July 1, 2011, may bring short-term relief to unions, employers and trustees, focus will soon switch to the ‘new’ pension model for the future.

In terms of specific examples of notable company-level pension reform in 2010, Bank of Ireland workers voted to accept changes to the bank staff pension fund, which has a €1.6 billion deficit. The changes include a temporary freeze and cap on their pensionable salary, plus a post-retirement pension freeze for three years from retirement date. Current pensioners and deferred members will have their annual pension increases capped at the level of the annual percentage increase in the consumer price index, to a maximum of 4%. Furthermore, telecommunications company Eircom’s contribution to its DB scheme is to increase to a minimum of 8.5% for a period of three years up to December 31, 2013.

7 Developments in working conditions

With regard to working conditions area, two major linked National Workplace Surveys relating to working conditions, covering 3,000 employers and 5,100 employees in Ireland, were published in September 2010. The surveys were conducted in 2009 by the Economic and Social Research Institute (ESRI), assisted by Amarach Research, and published by the National Economic and Social Development Office (NESDO).

The employer survey, entitled ‘The Changing Workplace: A Survey of Employers’ Views and Experiences’, covers organisations employing almost 271,000 private sector and nearly 297,000 public sector workers. It was designed to allow comparison to the first survey of this type conducted in 2003, so the ESRI could track the development of working conditions in that period and compare the situation of workplaces during a recessionary period to those in a period of economic growth. The employer survey paid particular attention to employment practices in public and private sector workplaces. The authors distinguished three groups of practices:

Adoption of each of these practices tended to be higher in the public sector than in the private sector. On a scale of 0 (low adoption) to 10 (high adoption), the score was higher in the public sector for human capital development (8.7 vs. 7.6 in the private sector); employee involvement (7.8 vs. 7.1) and ‘co-working’ (5.7 vs. 5.1). Adoption was also higher in large firms than in small firms. It was found that firms who combined all three practices (28% of firms) or who combined employee involvement with human capital development (21% of private sector employers) tended to have better business outcomes. The impact of the recession is evident in the increased use of temporary lay-offs or involuntary reduction in working time and the reduction in use of temporary staff.

The employee survey covered 5,110 employees, who were interviewed by telephone between March and June 2009. The main findings show that the effects of the economic downturn are evident in employees’ reports of their experiences in working conditions over the preceding two years:

According to the employee survey, the level of organizational commitment increased compared to 2003, as indicated by the fact that:

There was also a ‘marked increase’ in the willingness of employees to accept change since 2003. Positive changes, such as ‘willingness to take on greater responsibility, to innovate and to up-skill’ may ‘indicate a level of agreement between employee attitudes and high-level policy objectives’. However, the authors caution that ‘the increase in employees’ willingness to accept poorer conditions, for example: increased pressure, increased supervision, and having to work unsocial hours, is likely to reflect the reduced bargaining power of employees’.

Part-time working and flexitime/flexible working time were found to be the most common forms of flexibility in the Irish labour market. The proportion of workplaces using part-time hours increased from 53% to 62% between 2003 and 2009 and personal involvement in part-time work increased from 20% to 26%.

8. Major conflicts and restructuring cases

Just over 6,500 days were lost to industrial disputes in the first nine months of 2010, as compared to over 80,000 in the same period in 2009. This indicates that despite the break-up of social partnership and the current economic climate, levels of industrial strife, particularly in the private sector, remain at the relatively low levels experienced over the past decade or so. The spike in figures in 2009 – to a total of 329,593 days lost - was mainly due to industrial action in the public sector. In the first nine months of 2010, there were thirteen disputes involving 480 workers and resulting in a total of 6,575 days lost. A high profile dispute occurred in the third quarter at Otis and Irish Lift Services, in which about 60 workers were on strike for three weeks over redundancy selection.

There have been a number of notable restructuring cases in 2010. A €97 million survival plan was agreed by management and unions at the Irish airline Aer Lingus in 2010 (IE1007019I). Cabin crew – members of the IMPACT trade union – had initially rejected the agreement. However, following bilateral talks at the Labour Relations Commission, the cabin crew voted again, this time in favour, after receiving ‘deeper clarification in certain areas’. The ‘greenfield’ plan involves 676 voluntary redundancies comprising: 230 cabin crew; 100 pilots; 160 ground staff; and the rest in back office operations. In addition, there will be pay cuts ranging from 7.5% for those earning between €40,000 and €50,000 annually to 10% for those earning more than €50,000. Workers earning less than €40,000 a year will not have their pay cut. A pay freeze until at least the end of 2011 has been agreed, as well as an end to long-held ‘legacy’ working conditions which the company says make the airline uncompetitive. The working week will also be increased by more than 1.5 hours and new work rosters will apply.

Also in the airline industry, Dublin Airport Authority (DAA) workers accepted a €40m cost reduction programme, which includes a novel scheme that will allow for repayment of savings if a strict set of profit targets are achieved. Under what is known as the Employee Recovery Investment Contribution (ERIC) scheme, money will be deducted from earnings, but if targets are met, then money will be reimbursed to staff and pay levels could be restored. A total of 275 permanent jobs and 100 temporary positions are to go across the three airports run by DAA – Dublin, Cork and Shannon. The severance formula is based on 6.75 weeks’ pay per year of service. A pay freeze was put in place until the middle of 2011. An Internal Disputes Tribunal was to be established, comprised of one senior union official, one senior manager and an independent chairperson (to be agreed).

9. Other relevant developments

The ongoing financial crisis means that many of Ireland’s banks became state-owned or majority state-owned during the course of 2010. One of the conditions of the EU-IMF ‘bail-out’ was that Ireland’s banks be restructured and broken-up into smaller entities. The message from the powers that be was that, in the current form, the banks are too big relative to the size of the Irish economy. The government subsequently unveiled a Bank Restructuring Bill. Therefore, a restructuring of the banks is expected from 2011, with subsequent employment relations implications. More generally, the terms of the ‘bailout’, and related government policy actions, will have a ripple affect across the Irish labour market. An incoming new government will likely have to operate in the context of a very austere economic and industrial relations climate for some time to come.

Tony Dobbins, NUI Galway

• ID: IE1105049Q
• Author: Tony Dobbins
• Institution: NUI Galway
• Country: Ireland
• Language: EN
• Publication date: 12-10-2011