Independent experts call for reform of wage setting

Reforms to laws on sectoral wage-setting mechanisms have been called for by independent experts. The review of the Employment Regulation Orders and Registered Employment Agreements framework has also recommended exemptions for collective agreements, and more easily enforceable Employment Regulation Orders. However, any reforms are likely to exceed these suggestions after a High Court ruling in July found current wage-setting mechanisms to be unconstitutional.

Background

The review of the framework of Registered Employment Agreements (REAs) and Employment Regulation Orders (EROs) was initiated as part of the four-year economic plan announced in November 2010 and approved as part of the EU/IMF Programme of Financial Support for Ireland (994Kb PDF). The review was carried out by Kevin Duffy, Chair of the Labour Court (acting in an ad hoc capacity) and economist Dr Frank Walsh of University College, Dublin. Over 360 submissions were made to the review by unions, employer bodies, state bodies and other interested parties.

Joint Labour Committees (JLCs) are independent bodies which determine minimum rates of pay and conditions of work for workers in certain sectors. Each JLC is composed of representatives of workers and employers in the sector concerned. The pay and conditions agreed by the representatives on the JLCs are given force of law in Employment Regulation Orders (EROs). EROs are mainly in low-paid sectors such as hotels, catering, cleaning and retail.

Registered Employment Agreements (REAs) are minimum rates of pay and conditions agreed between employers and workers/unions in a sector or enterprise, which are then registered with the Labour Court to make them legally binding. REAs exist in sectors such as construction and electrical contracting.

Findings

The ‘Duffy-Walsh’ review (521Kb PDF) found that workers covered by the sectoral wage agreements do not earn a premium compared with workers in who are not covered. The review also found that ‘lowering the basic JLC rates to the level of the minimum wage rate is unlikely to have a substantial effect on employment’.

The authors used a regression analysis of data in the Central Statistics Office Survey of Income and Living Conditions (SILC) 2009 (495Kb PDF) to understand the extent to which the JLC and REA systems affect labour costs and competitiveness. Controlling for job and worker characteristics – such as education, experience, tenure, gender, firm size, nationality, region of residence – the authors were able to estimate the impact of JLCs/REAs on the average wage.

Duffy and Walsh found that, controlling for such factors as hours, experience, tenure, education, the broad occupation and industry, the weekly wages of workers in JLC sectors are typically 7% less than other workers not covered by a JLC/REA. In the case of those covered by REAs, they earned 3% less on average than workers who are not covered. The authors conclude that, for the covered workers, ‘the regression results do not provide evidence that there are positive wage premiums’.

The report also states that ‘many of those who advocated the abolition of the present system contend that it acts as a barrier to job creation and retention’. However, Duffy and Walsh reviewed literature in the area and concluded that: ‘Lowering the basic JLC rates to the level of the minimum wage rate is unlikely to have a substantial effect on employment.’

Coverage

Duffy and Walsh estimate that between 150,000 and 205,000 workers were covered by the JLC system in 2009, while between 61,900 and 78,700 workers were covered by REAs. On these estimates, workers covered by JLCs account for 15% of private sector employees, with the retail grocery and catering JLCs accounting for over half of them. They estimate that REAs account for just under 8% of private sector employees, with the bulk of them in the construction and electrical industries.

The authors estimated that:

  • up to 58,000 workers are covered by the retail grocery JLC;
  • up to 57,000 are covered by the two catering JLCs;
  • up to 28,800 are covered by the hotels’ JLC;
  • between 49,000 and 62,500 workers are covered by the construction REA;
  • 9,900–12,500 workers are covered by the electrical REA.

Recommendations

The report made 19 recommendations, including the following key points.

The Labour Court should report on the scope of all remaining JLCs to ensure that the range of establishments to which they apply remains appropriate, with any necessary amendments made to the establishment orders by which they were created.

The two catering JLCs should be amalgamated, and the future regulatory arrangements in other sectors governed by geographically based JLCs should be applied.

Certain JLCs should be abolished, because a number cover sectors which have now have relatively small numbers of employees, or which have effectively ceased to function. These include aerated waters and wholesale bottling, provender milling and clothing.

Collective agreements should override the powers of any relevant JLC and, subject to certain conditions, the Labour Court should be authorised to exclude any undertaking to which a collective agreement applies from a JLC’s jurisdiction.

Mechanisms for fixing pay should be determined by legislation setting out principles in line with those proposed in the Industrial Relations (Amendment) Bill 2009, and which JLCs and the Labour Court must consider when fixing the terms of an ERO. In the absence of a national agreement, the Labour Court may provide general guidelines to JLCs on appropriate pay increases. In the event of national wage agreements being concluded in the future, parties to the agreement should make specific provision for the way increases are introduced in the case of JLCs vis-à-vis increases in the national minimum wage.

If the national minimum wage is adjusted downwards, the JLCs should have to consider, within a set time, also revising the rates prescribed by EROs.

As far as possible, rules on overtime and the Sunday premium should be standardised.

Procedures of Joint Labour Committees

Decision-making procedures of JLCs should be revised, as should the circumstances in which the Chair of a JLC can exercise a casting vote. The language in which EROs are drafted should be clearer.

The 1946 Industrial Relations Act which first introduced REAs should be amended to clarify the extent to which parties can be regarded as ‘substantially representative’, and this should be measured by the degree to which they will be affected by any agreement registered.

It should be possible to cancel the registration of an REA where either the trade union(s) or employer parties have ceased to be substantially representative of workers or employers in the sector to which the agreement relates.

New procedures should make it possible for a party to an REA to vary an agreement and to provide that, in exceptional circumstances, the Court can make a variation order in the absence of full agreement on any proposed changes.

There should be simpler procedures by which the Labour Court could cancel the registration of an REA if circumstances changed, making the continued registration of the agreement undesirable.

Statutory provision should make it possible for derogation from the terms of either an ERO or an REA on economic grounds.

Commentary

Some of the changes recommended in the report were expected, such as:

  • the abolition of geographical distinctions and of multiple JLCs for sectors with very few workers;
  • the standardisation of overtime and Sunday payments;
  • the introduction of a limited ability to derogate from sectoral minimum pay and conditions on economic grounds.

However, other, less predictable, recommendations could have far-reaching implications if they are acted upon. These include changes in the criteria for REAs and the ability to exempt industries covered by collective bargaining from EROs.

The Government will now finalise proposals for the reform of JLCs and REAs based on the Duffy-Walsh report. Proposals made last May by Richard Bruton, the Minister for Jobs, Enterprise and Innovation, would have prevented JLCs from recommending Sunday premium rates and any enhanced rates of pay for skills or experience. Unions and other commentators have expressed some concern that initial proposals issued by the minister have gone beyond the Duffy Walsh report. However, he says his proposals derive directly from the recommendations and the report.

A High Court ruling on 7 July 2011 found that the 1946 Industrial Relations Act establishing EROs was unconstitutional because it did not set out legislative guidance for JLCs about the principles they should follow when deciding pay and conditions. Since the ruling was delivered, all existing EROs have ceased to be legally binding, and new legislation will be needed to reinstate the jurisdiction of the JLCs.

Richard Bruton has ruled out bringing in temporary measures to protect workers while new legislation is being prepared, saying it would be too complex and would run the risk of further legal challenges, and that these workers already have the protection of their employment contracts. However, it is feared that workers in many sectors could be subject to wage cuts as there will be little legislation to protect them.

The government has drafted a bill on a new wage-setting mechanism which will be debated in the Dail (parliament) in the coming weeks. Key elements include:

  • considering competitiveness and the wages of trading partners when setting pay rates;
  • a provision for derogation from JLCs on economic grounds;
  • the ending of the role of JLCs in setting Sunday premiums;
  • reducing the number of committees.

While the Government has been criticised by the trade unions for going further in its proposed reforms than recommended in the Duffy-Walsh review, the EU Commission supports this approach.

The finding by the High Court that some sectoral wage-setting arrangements are unconstitutional redoubles the urgency of reform in this area. The authorities’ commitment to seek a radical reform, going even beyond what is recommended by the recent independent review of the EROs/REAs, is welcome, as eliminating any impediments to job creation/ reallocation, while safeguarding basic workers’ rights, is essential to ensure that the emerging recovery benefits all.

The updated EU/IMF memorandum has insisted on a time-tabled action plan, taking into account the views of the social partners and other stakeholders in time for the reforms to be presented to the EU/ECB/IMF troika by the end of September 2011. Reforms will be debated in the coming weeks.

Roisin Farrelly, IRN Publishing

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