Printable version

Arbitration award rejects Ontario’s public sector compensation restraint measures

A recent arbitration decision indicates that the Ontario government may have to take the unpopular step of passing a law to freeze the wages of unionized employees in the public sector.  As readers of Focus will recall, in the 2010 provincial Budget the Ontario government legislated a two-year pay freeze for non-unionized workers in the government and in the broader public sector (see “Ontario budget proposes public sector compensation restraint”) Although the Budget restraint measures did not apply to public service employees who bargain collectively, the government announced its intention to seek two-year compensation freezes in collective agreements coming up for renegotiation.  Since that announcement, there has been a question as to how the government’s efforts to freeze compensation would unfold in the collective bargaining process. 

The government’s efforts may have been dealt a blow on September 15, 2010, when Arbitrator Jesin refused to give effect to the government’s fiscal policy. He awarded 17,000 unionized nursing home workers a 2-per-cent wage increase for 2010.  The arbitrationdetermined the terms of collective agreements between nearly100 nursing homes across the province (the “Employers”) and the Service Employees International Union, Local 1 Canada (the “Union”).  Although there were over 50 categories of dispute between the parties, the key issue at arbitration was whether, in light of Ontario’s current economic conditions, the long-term-care home workers should be subject to a wage freeze.   

EMPLOYERS SEEK TWO-YEAR COMPENSATION FREEZE

In the failed negotiations that sparked the arbitration, the Employers insisted on a two-year compensation freeze.  They justified their negotiating position on the basis that Ontario’s economic conditions since the financial crisis of 2008 could not support an increase in compensation for workers in the nursing home sector.  In addition, the Employers relied on commentary in relation to the 2010 Budget stating the government’s intention to “work with transfer payment partners and bargaining agents to seek arrangements of at least two years’ duration that do not include net compensation increases.”

UNION POSITION

The Union sought a wage increase of 4 per cent per annum.  The workers pointed to other settlements in both the hospital, and nursing home, sectors in which employees would receive compensation increases in 2010.  The Union also argued that the economic situation in Ontario was not as bad as the Employers suggested.  The Union pointed out that the health care sector is among the more robust sectors of the economy, and that the nursing home chains are making significant profits despite the economic downturn.  The Union urged that any shortfall in government funding for wage increases could be made up from the Employers’ profit envelope.

ARBITRATOR NOT CONVINCED COMPENSATION SHOULD BE FROZEN

The arbitrator acknowledged that Ontario’s economy has deteriorated significantly since 2008. He also noted the relatively short duration of the agreements at issue and that the parties would return to the bargaining table in one year, probably with a clearer picture of the future economic outlook. In light of these two factors, the arbitrator stated that “now is not the time to grant significant benefit or non-monetary wage improvements.”

He ruled that the “status quo” should continue for almost all of the non-monetary proposals made by both of the parties.

In considering the wage proposals, the arbitrator noted that wage increases have been decreasing since the start of the 2008 financial crisis.  Before the financial crisis, the Employers had been increasing wages by a range of 2.5 to 3 per cent per annum.  Since the crisis, that rate was reduced to 2 per cent per annum and sometimes lower.  In light of the downward trend in wage increases the arbitrator rejected the Union’s proposal for a 4-per-cent wage increase. 

Yet despite the deteriorated economic conditions in Ontario, the arbitrator said he was not convinced that compensation should be frozen because of the Budget.  The arbitrator noted that the government had not passed legislation freezing the wages of unionized public sector workers as it had for non-unionized workers.  Furthermore, the government had specifically agreed to honour all collective agreement wage increases negotiated prior to the release of the Budget.  This meant that many health care workers, including some in nursing homes, would be receiving wage increases in the same period in which the Employers were seeking a compensation freeze.

This contradiction was important to the arbitrator.  He noted his obligation to “compare the conditions of the employees in this arbitration to other employees in comparable settings.” He stated that “given that increases are being found for other nursing home employees and for some other health care employees I accept that there should be a wage increase in these agreements.”

The arbitrator chose to award a wage increase of 2 per cent, retroactive to the commencement date of each collective agreement.  He stated that this amount reflects “the more moderate wage settlements which have been either agreed to or awarded for other union employees in this period” and “also is reflective of the economic data provided.” The 2-per-cent wage increase was the only monetary improvement in the award. All the other monetary proposals of the parties were denied.

In Our View

The impact of this decision, and whether or not other arbitrators will be guided by it, remains to be seen.  Nevertheless the collective agreement at issue was stated by the arbitrator to have “always been treated as a pattern-setting agreement for most other agreements in the nursing home sector.” If other arbitrators follow this decision, the government might have to enact wage-freeze legislation in order to implement its policy of restraint.  This legislative option carries some constitutional risk in light of the Supreme Court of Canada’s decision in Health Services and Support – Facilities Subsector Bargaining Assn. v. British Columbia, [2007] (“Health Services”).  Readers of Focus will recall that the Supreme Court gave Charter protection to the collective bargaining process. It also ruled that government measures which “substantially interfere” with the collective bargaining process are unconstitutional.  The decision in Health Services, however, has yet to be applied to wage-freeze legislation passed in a time of economic duress.  As a result, it is uncertain how the Supreme Court’sdecision might apply to such legislation.