Court ratifies construction industry pay cut

A 7.5% pay cut for workers in the construction industry was ratified by Ireland’s Labour Court in January 2011 and is to apply from 4 February 2011. This came after a recommendation, in June 2010, by a separate division of the court that employers and unions should voluntarily reduce their legally-binding minimum pay rates in the Registered Employment Agreement by this amount. This was agreed by the social partners. Stronger compliance rules are also to be brought in.

Background

In May 2010, the Construction Industry Federation (CIF) referred a claim to the Labour Court for a 20% pay cut to Registered Employment Agreement (REA) pay rates in the sector. The CIF was also seeking reductions in various premiums and allowances**. REAs are** agreed minimum rates of pay and conditions which can be registered with the Labour Court. When registered with the court, these agreements are legally binding, not only on the parties to the agreement but also to others who are in the class, type or group to which the agreements apply.

Earnings data

In its recommendation, issued in June 2010, the Labour Court noted the latest Central Statistics Office (CSO) construction earnings data. These data related to December 2008, which showed the average hourly rate for craft workers at €21.22 and operatives at €17.65. This was higher than the minimum rates set down in the REA of €18.60 for crafts and €14.88–€18.04 for operatives. However, the Labour Court added:

It is to be assumed that the decline in the economic circumstances of the industry, and the consequential reversal of market forces in the interim, has operated to reduce the incidents and extent of enhanced discretionary payments and associated wage costs to employers. Thus, in reality, the real wage income of construction workers will have already declined significantly.

In a restatement of its policy on pay cuts, the court said that it has ‘previously taken the view that retrenchment in basic pay can only be justified where this is demonstrably necessary so as to protect employment. Moreover, the level of reduction should remain within the bounds of what is reasonable and proportionate in achieving that objective’. Therefore, it was not convinced that the full range of cuts sought by the CIF ‘would produce a proportionate increase in the numbers employed in the sector’. However, the court felt that ‘some reduction in rates is necessary and proportionate’.

Local authority pay reference

The court noted that pay in construction over the years had increased faster than in industry in general, due to the application of ‘catching-up’ increases with corresponding categories in local authorities. The court said:

This indicates that, while no formal linkage exists between the pay of construction workers and those employed by local authorities, the rate in local authorities has been used as an agreed reference point in determining construction rates.

Pay in local authorities had been reduced after the Budget pay cuts of December 2009 (IE0912029I) and, having regard to the circumstances of this case, the court recommended that similar adjustments should be made in the construction REA, and suggested a 7.5% pay cut. It also recommended that current differentials between operative and craft workers should be maintained, thus rejecting a CIF claim for a new lower entry rate for operatives. Allowances related to the basic rate should also be reduced in line with the cut in the basic rate, it said. However, the court added that these reductions should be regarded as a temporary measure or derogation from the current REA rates and they should be reviewed in January 2012 and each year subsequently.

The voluntary recommendation was accepted by the CIF and the Construction Industry Committee of the Irish Congress of Trade Unions (Congress), made up of eight construction unions. The CIF made an application to a separate division of the Labour Court to vary the REA.

Commentary

The acceptance of the 7.5% pay cut resolves a long-running issue dating back to December 2008 over rates of pay in the construction sector. A rejection of the Labour Court recommendation by either the employer or union side could have meant the end of the REA. An REA is legally binding because both the employer and union bodies party to the agreement consent to its existence. Either party can attempt to withdraw at any stage by seeking a cancellation of the agreement.

Separately, an independent review of REAs is due to report to the government in April 2010. The government committed to the review as part of the conditions for EU-IMF funding (IE1012029I). The review (74Kb PDF) will make recommendations on the ‘continued relevance, fairness and efficiency of the current ERO and REA mechanisms’ and ‘possible legislative amendments to the existing framework for the regulation of terms and conditions of employment to ensure that the framework is fit-for-purpose in the current economic climate’.

Roisin Farrelly, IRN Publishing