Canada: The Next Chapter: Public Sector Wage Restraint Debate Continues

Last Updated: October 16 2012
Article by Jeff Mitchell and Linda Tu

Most Read Contributor in Canada, September 2016
Edited by Jennifer M. Fantini

On September 26, 2012, the minority Liberal Government released the Protecting Public Services Act, 2012 for public comment. The Bill has not, at this point, been introduced into the Legislature.

The Bill has eight different schedules, each of which either creates new legislation, or amends existing legislation, to fulfill the wage restraint efforts of the Government, for both union and certain non-union employees in the public service and broader public sector in Ontario. As described below, the new measures include a permanent “hard cap” on employee compensation, a freeze on wages and bonuses for employees eligible for “performance pay”, and a review of collective bargaining agreements as they are negotiated.

1. The Public Sector Compensation Restraint Act, 2012 (“Restraint Act”)

The first Schedule is the Restraint Act. The Restraint Act creates two restrictions on employee compensation in the public service and broader public sector.

Permanent Cap

The first restriction relates to a permanent “hard cap” on the total amount of base salary and performance pay that can be paid to new employees. The cap is set at twice the Premier’s salary. An exception to this cap is possible if the Lieutenant Governor in Council approves a higher salary for a certain position based on labour market conditions. The cap does not apply to current employees in their existing positions, but will apply for newly hired employees, as well as to an employee who changes positions with the same employer.

Temporary Restraint on “Rates of Pay, Benefits, Perquisites or Payments”

Other than the permanent “hard cap”, the remainder of the Restraint Act as presently drafted applies only for two years from the date on which the Restraint Act comes into force (the “Restraint Period”), and will apply only to those non-union employees/office holders who are “eligible” to receive performance pay (that is, pay linked to performance) under their compensation plan on the day before the “intro date”, which we take to mean the date the legislation is introduced in the Legislature (s. 6). It is important to note that the restraint measures will apply regardless of whether the individuals actually received performance pay: the legislation is quite clear that the restraint measures will apply regardless of receipt, if the individual was “eligible” for performance pay on the day before the intro date.

The Restraint Act has provisions that restrict or prohibit increases to rates of pay, as well as increases to benefits, perquisites or other payments, during the Restraint Period. With respect to the rate of pay, s. 7 of the Restraint Act prohibits an employee’s rate of pay to be raised, even if the rate of pay falls within the employee’s pay range during the Restraint Period. However, an exemption applies that allows pay rates to be increased if the employee’s pay falls below the minimum wage. It also permits an increase if the employee’s job responsibilities “increase substantially”, but only if the compensation plan already in existence provided for the possibility of increasing the rate of pay. That being the case, employees whose positions are significantly restructured to increase their duties would be allowed an increase in pay, even if their job title does not change, provided that they were not already at the top level of earnings according to their pre-existing compensation plan.

The Restraint Act does contain an exception to the prohibition, for non-wage rate increases (i.e. increases that do not increase an employee’s rate of pay, including salary or hourly rate). A new or increased benefit, perquisite or other payment would be permitted if it is in the employee’s pre-existing compensation plan, and is based on:

  • length of time in employment; or

  • successful completion of a program or course of professional or technical education.

  • Temporary Restraint on “Performance Pay” The restraint measures also include restrictions with respect to performance pay. The Restraint Act will impose the following restrictions during the Restraint Period:

  • No performance pay can be provided that would increase the employee’s rate of pay;

  • For existing employees, performance pay can be paid in accordance with the compensation plan, provided that:

    • the rate of pay does not increase, AND

    • the amount of performance pay paid does not exceed the amount of performance pay that was paid in the 12-month period before the “intro date”. For purposes of calculating the amount of performance pay that was paid in the 12-month period before the “intro date”, an employer cannot include any performance pay that increased the employee’s rate of pay. Practically speaking, for most employers this means that employees will be “capped” at the amount of the performance-based bonus that was paid in the 12-month period before the “intro date”.

As such, in its present form, the Restraint Act would prohibit any performance-based increases during the Restraint Period that would increase base wage/salary. The only increases based on performance that would be permitted would be non-rate increases, such as bonus payments. The amount of the performance bonus payment would be limited to the amount the individual had received as a performance-based bonus (i.e. excluding wage increases) in the 12 months before the “intro date”.

As a result, employees who were eligible for, but did not receive, performance pay in the 12 months before the “intro date”, and new employees, would be prohibited from receiving any kind of performance pay or any increase or new benefit, perquisite or payment.

Temporary Restraint for New Employees and Employees who Change Positions

For new employees, the Restraint Act would require that the compensation plan be established at no more than the pre-existing compensation plan for comparable positions, and would prohibit performance pay from being paid out.

For employees who change positions with the current employer, the rate of pay and benefits, perquisites and payments cannot be greater than that for employees in similar positions with the same employer. Furthermore, the performance pay for employees changing positions cannot include any performance pay that increases the rate of pay, and the amount of performance pay is limited to the amount of performance pay that was paid in their previous role in the 12-month period before the “intro date”. As for employees who stay in the same position, for purposes of calculating the amount of performance pay that was paid in the 12-month period before the “intro date”, an employer cannot include any performance pay that increased the employee’s rate of pay.

Schedule 2: The Respecting Collective Bargaining Act, 2012

The Respecting Collective Bargaining Act (the “CB Act”) as presently drafted will remain in place for at least two years with a termination date to be specified by regulation. The CB Act will apply to most unionized workers in the public service and broader public sector, as set out in Schedules 1 and 2 of the CB Act. The CB Act will require that renewal collective agreements in the public service and broader public sector be consistent with the Province’s two goals, as stated in the legislation: to eliminate the deficit and to protect the delivery of services (the “Goals”).

The CB Act will also allow the Management Board of Cabinet to introduce mandates that set out the criteria that may be used to determine if a collective agreement is consistent with the Goals. Different mandates may be issued that apply to different sectors, classes of employers/employees or bargaining organizations.

The CB Act would give the Minister the right to review collective agreements negotiated during the period the CB Act is in force, to ensure that the agreements achieved the Goals. After negotiating the collective agreement, the employer will be required to provide it to the Minister for review, to ensure the Goals have been achieved. It appears that while unions and employers are free to negotiate collective agreements, it will ultimately be up to the Minister’s discretion to determine whether the agreement is to be legally binding. After review, the Minister will decide whether to

  • confirm the collective agreement, in which case it will be put into force, or

  • send the parties back for further bargaining;

  • mandate a collective agreement to be imposed on the parties.

The Minister will confirm agreements or amendments to agreements if the Minister is satisfied that the collective agreement complies with the applicable mandates and is consistent with the Goals. Agreements or amendments to agreements are deemed to be confirmed if the Minister does not issue a decision within 40 days of receipt of the agreement.

The Minister will only impose a collective agreement if the Minister believes that the parties will be unable to amend the agreement to be consistent with the Goals, and after a consultation process has been undertaken with the parties (s. 11).

Where a collective agreement has been settled by interest arbitration, the Minister maintains the same review power. If the Minister determines that the interest arbitration award is not consistent with the Goals and any applicable mandate, section 12 of the CB Act provides that the terms established by arbitration are no longer binding and the parties will return to the same stage in bargaining as they were immediately before the collective agreement was settled. Any amendments will need to be subsequently confirmed by the Minister.

However, if the Minister does not think the parties will be likely to amend the collective agreement so that it is consistent with the Goals, or if 40 days have passed after the Minister has referred the agreement back and no amendments have been made, the Minister can notify the parties that a collective agreement may be imposed. When this notification occurs, before imposing a collective agreement, the Minister is obligated to invite the parties to participate in a consultation about the proposed terms of the imposing collective agreement. After consultation, the Minister can impose a collective agreement that is, in the Minister’s opinion, consistent with the Goals.

While the CB Act, as drafted, does allow the parties to negotiate a collective agreement, it will ultimately be up to the discretion of the Minister as to whether or not the agreement can be enforced. Since all collective agreements must meet the Goals and comply with applicable mandates issued by the Province, this does limit the freedom that parties may enjoy during negotiations.

The CB Act also contains anti-avoidance measures. Similar to the Restraint Act, an employer cannot provide compensation before, during or after the term of a collective agreement to an employee for compensation that the employee will not, does not, or did not receive as a result of the CB Act. Furthermore, a collective agreement that has been confirmed by the Minister cannot be subsequently amended so that it does not comply with applicable mandates or the Goals without submitting it to the Minister for confirmation.

2. Schedules 3-8 (Ambulance Services Collective Bargaining Act, Fire Protection and Prevention Act, Hospital Labour Disputes Arbitration Act, Police Services Act, Toronto Transit Commission Labour Disputes Resolution Act, Ontario Provincial Police Collective Bargaining Act)

Schedules 3-8 create amendments to specific Acts to put into force the intention of the Government with respect to interest arbitration. The amendments provide that the interest arbitrator must have regard to the submissions made by the parties, and are quite clearly directed toward overcoming the historical reluctance of arbitrators to pay particular attention to wage restraint submissions based on the Government’s deficit position.

Looking to the Future

Unions have expressed indignation at the extent of the restrictions, and have decried the Government’s interference in collective bargaining rights, vowing a Charter challenge. The opposition Conservatives have indicated that the legislation does not go far enough, and as such they will not support it. Given the current political environment and the fact that the Liberals need one opposition party’s support (or at least tacit agreement) to get the legislation passed, it is unclear what will ultimately happen to the Protecting Public Services Act, 2012.

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