Constitutionality of wage-setting method in hotel industry challenged

A High Court challenge by the Irish Hotels Federation and an individual hotelier to the hotel industry’s wage-setting system has been settled out of court – a move that avoided the question of the constitutionality of the entire sector-based minimum wages and conditions system. The settlement was reached after a procedural lapse brought the case to a halt. This is not the first time that the Labour Court has fallen short in terms of evidential standards.

Legal challenge to wage setting

A recent out-of-court settlement of a legal challenge to what is known as the Hotels Joint Labour Committee (JLC) provides at least a temporary respite to the Labour Court and trade unions on the question of the constitutionality of wage-setting orders in specific sectors (IE0801039I). The challenge was made by the Irish Hotels Federation (IHF) and a named hotelier – Michael Vaughan of Vaughan Lodge, County Clare in the west of Ireland.

JLCs set legal minimum rates of pay and conditions of employment for workers in specific categories. The Labour Court confirms these JLC rates by means of Employment Regulation Orders (EROs), before they become the statutory enforceable minimum rates and conditions for the workers concerned. These rates are separate and distinct from Ireland’s national minimum wage, which covers all employees.

It was believed that a successful legal challenge to the JLC in question would have had far-reaching implications for all similar pay-setting regulations, including what are known as Registered Employment Agreements (REAs). An REA is a collective agreement, reached after consultation, which relates to the pay or conditions of employment of a specific group of workers and is binding on all categories that it covers.

The IHF is not a member of the Irish Business and Employers’ Confederation (IBEC), which represents the majority of employers within Ireland’s social partnership process at national level. Industrial relations experts believe that IBEC would not take such a case as it supports the current industrial relations system.

Constitutional issue not addressed

The key question at issue in the original IHF High Court challenge to the JLC system was whether the 1946 Industrial Relations Act was unconstitutional, in that it gives the Labour Court the power to set legal minimum wages for particular sectors. However, while counsel for the IHF and the hotelier concerned did set out arguments on this point, the case was settled before counsel for the state responded on the matter.

The Labour Court and JLC agreed to pay the costs of the employer side in the action and conceded on a key argument made by the employers’ legal team: that the correct procedures had not been followed in the case in question. Specifically, an economic report on labour costs in the hotel industry should have been forwarded by the JLC to the Labour Court before the ERO was made. This procedural lapse led to the quashing of the proposed ERO by the High Court. The case is, therefore, expected to be re-heard by the Labour Court.

Essentially, the Labour Court and the JLC decided that, given that the constitutional issue could have seriously undermined the employment rights machinery of the state, it was prudent to engage in what experts agreed was an out-of-court ‘tactical retreat’ on the procedural ground referred to above.

If the JLCs or even the REAs were ruled to be unconstitutional, this would remove two of the key legal tools for enforcing employment standards, which for the trade unions stand at the heart of Ireland’s social partnership system. In the event of that happening, the only remaining legally-binding control on wage rates would be the national minimum wage. To give effect to the latter, the Labour Court issues a recommendation, which the Minister for Enterprise and Employment must then pass into law before any pay increase is implemented.

Higher standards required

Leaving the potential of a future constitutional challenge to the JLC system aside, one practical change that is likely to occur after the recent case is that all relevant information must in future be made available to the Labour Court before the final ERO is made. Counsel for the IHF had argued that the JLCs were not there simply to update EROs in line with national wage agreements, but that they also had to consider the economic circumstances of each sector.

The Labour Court, therefore, will have to be careful to ensure that all relevant arguments are presented and considered before it endorses a JLC decision in future. This is in line with the ruling in January 2007 of the Supreme Court in the so-called ‘Ryanair case’, in which the Labour Court was told that it would have to ensure better procedural and evidential standards in cases that involve the setting of legally enforceable wages and conditions of employment (IE0702019I).

Brian Sheehan, IRN Publishing