As part of its 2010 budget process, the Ontario government introduced the Public Sector Compensation Restraint to Protect Public Services Act (the "Restraint Act"). The Restraint Act retroactively froze the compensation of non-union workers and office-holders employed by the provincial government and (among others) by agencies, boards, commissions or organizations that received at least $1,000,000.00 in public funding. So, for the past two years, the vast majority of non-union, public sector workers have seen no general increase in their salary, rate of pay, benefits or perquisites, beyond those permitted by their compensation plans as they existed on March 24, 2010. The same was not necessarily true for unionized workers of those employers. For that and other reasons, the Restraint Act has been unpopular for almost everyone affected by it.
The restraint measures mandated by the Restraint Act are set to expire on March 31, 2012. With the province's financial situation more dire now than it was in 2010, for months now, there have been widespread rumours and discussion about the government choosing to extend the Restraint Act for another two years. An article in the Globe and Mail on February 14, 2012 caused mild panic amongst public sector workers and employers when Finance Minister Dwight Duncan announced that he was looking at extending the Restraint Act and, in fact, broadening it through the 2012 provincial budget.1
On March 27, 2012, four days before the expiry of the Restraint Act, the government announced its 2012 budget reforms. Overall, the budget calls for a reduction in spending of $17.7 billion over three (3) years. To achieve this, the 2012 budget continues to focus heavily on public sector compensation, noting that it currently accounts for roughly half of overall provincial spending. The budget suggests that the government will be seeking 12.8 billion dollars in cost cutting measures aimed at restraining compensation in the public sector and the broader public sector. At the same time, the government's message is clear; there will be no additional money for salaries coming from the province over the next three to five years. Despite this, and except for certain executives, the 2012 budget does not appear to include an extension of the Restraint Act.
In this respect, the 2012 budget is generally in line with the recommendations of economist Don Drummond who was asked by the provincial government to review provincial spending and to make recommendations as to how the province could balance its books by 2017-2018. The Drummond Report, released on February 15, 20122, looked at public sector compensation and specifically concluded that public sector wage freezes, such as that found in the Restraint Act, are ineffective mechanisms to manage spending over the long term and a tactic that the government should avoid. Rather, the Drummond report recommended leaving it to the individual agencies and employers to decide how they want to spend the money they receive, while understanding that no additional money for compensation would be made available. Accordingly, the Drummond report predicts that public sector employers will be forced to drive out inefficiencies and to reduce costs in other ways in order to absorb any compensation increases they approve.
The Ontario government appears to agree, at least in part. Here is what public sector employers need to know about the 2012 budget as it relates to public sector compensation:
- The government will respect existing collective bargaining agreements in the broader public sector. However, as these agreements expire, the government expects unions and employers to negotiate "responsible" agreements that: (i) "are linked to public sector sustainability and improved productivity" and (ii) reflect the fiscal circumstances of the province. In other words, since the province has indicated that there will be no new funding for incremental compensation increases, unions and employers are expected to bargain new collective agreements with 0% compensation increases. The budget also suggests that where this is not achieved, or where there are labour disruptions, the provincial government will propose necessary legislative and administrative measures to ensure that labour agreements meet the budget mandate. To many, this will be a wage freeze by another name.
- The government will facilitate negotiations with three key groups in 2012: (i) Ontario's teachers; (ii) Ontario's doctors; and (iii) public service employees. The message for these groups is essentially the same as it is for others; there will be a focus on improving collective bargaining agreements to emphasize and enhance worker productivity while at the same time keeping total compensation for these groups at current levels.
- The government intends to develop a legislative framework for public sector pension reform, involving the following measures:
(i) jointly sponsored pension plans in deficit may be required to reduce future benefits, or ancillary benefits, rather than looking to increases in employer contributions; and in some cases, a limit or value on benefit reductions will be set before employer contribution increases will be considered;
(ii) increases in employee contributions to such plans, especially where employee contributions are currently less than employer contributions, and a move to 50/50 cost sharing formulas for all single-employer public sector pension plans;
(iii) mechanisms to allow investment management functions of smaller public sector pension plans in Ontario to be pooled or transferred to a new entity or to an existing larger public sector fund; and
(iii) the introduction of a mandated dispute resolution mechanism, to be invoked where plan sponsors cannot agree on benefit reductions or other measures through negotiation.
- Extended wage freeze legislation for executives at hospitals, universities, colleges, and school boards for another two years together with regulations to constrain increases for certain other organizations such as Hydro One and OPG, and for office holders of these organizations who are full-time members of their governing boards;3 and
- Extended wage freeze mechanisms for MPPs for another two years.
The budget also calls for legislation to streamline public sector bargaining in Ontario by centralizing it over time and to make the interest arbitration process more transparent, accountable and efficient. In particular, the government is planning to mandate that: (i) written submissions be presented by all parties at arbitration, (ii) arbitrators be required to provide written rationale for their decisions when requested by either party and (iii) that decisions be delivered in less than 12 months, failing which the OLRB will issue the final award.
Much of these reforms were also recommended in the Drummond Report.
Some of the legislation to support these reforms has yet to be released and it appears that for much of it, the government intends to engage in a consultation process. As a result, it could be some time before we are made aware of the particulars of the government's plan.
For now, it appears that except for public sector executives, the legislated wage freeze for non-union public sector workers will end on March 31, 2012. However, in the current political climate and in an environment where the government is saying that there will be no new money for increases, the end result may still be the status quo. This may be particularly true for unionized public sector workers. Public sector employers are also reminded that the Restraint Act had one provision which extended beyond the expiry of the statute. Namely, employers subject to the legislation cannot provide for compensation after March 31, 2012 to an employee or office holder who was affected by the freeze, to make up for compensation he or she didn't receive as a result of the measures in the Restraint Act. In other words, employers in the public sector will have to be very careful not to develop compensation plans post March 31, 2012 that attempt to eradicate the effect of the Restraint Act.
There is much yet to come. We will keep you informed on developments in these areas as they occur.
1 Globe and Mail "Continued pay freeze looms for top Ontario civil servants." February 14, 2012.
2 Report of the Commission on the Reform of Ontario's Public Services, February 15, 2012.
3 Bill 55, schedule 5 introduced by the government on March 27, 2012 contains the proposed legislation dealing with a continued wage freeze on executive compensation.About BLG
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