Ontario introduces new round of austerity measures – wage freezes for broader public sector

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On September 26, 2012, the Ontario government released draft legislation aimed at freezing wages in the broader public sector.  The Protecting Public Services Act, 2012 (the “Act”) is omnibus legislation which, if passed, would give effect to two new statutes as well as amendments to existing legislation.  The new statutes that would come into effect under the Act are the Public Sector Compensation Restraint Act, 2012, which targets non-bargaining employees in the broader public sector, and the Respecting Collective Bargaining Act (Public Sector), 2012, which targets broader public sector employees that bargain collectively.  The Act would also amend various statutes to change the interest arbitration process for broader public sector organizations including hospitals, emergency services and the Toronto Transit Commission.

THE PUBLIC SECTOR COMPENSATION RESTRAINT ACT, 2012 

Schedule 1, of the Act, entitled the Public Sector Compensation Restraint Act, 2012, (the “PSCRA”) would repeal the current restraint measures provided for in the Broader Public Sector Accountability Act, 2010 (the “BPSAA”), and replace them with a new set of restraint measures.  The new restraint measures contained in the PSCRA would apply more broadly than what was previously provided for in the BPSAA.  Schedule 1 to the PSCRA sets out the expanded list of employers that would be subject to the new restraint measures.  These include:

  • the Crown in right of Ontario and every agency, authority, board, commission, corporation, office or organization of persons a majority of whose directors, members or officers are appointed by the Lieutenant Governor in Council or a member of the Executive Council;
  • the Office of the Lieutenant Governor of Ontario, the Office of the Assembly, and the offices of persons appointed on an address of the Assembly;
  • every university in Ontario and every college of applied arts and technology and post-secondary institution in Ontario, the enrolments of which are counted for purposes of calculating annual operating grants and entitlements;
  • every board within the meaning of the Education Act;
  • every public hospital within the meaning of the Public Hospitals Act;
  • every board of health within the meaning of the Health Protection and Promotion Act;
  • every licensee under the Long-Term Care Homes Act, 2007, other than a licensee that carries on its activities for the purpose of gain or profit to its members or shareholders;
  • every community care access corporation within the meaning of the Community Care Access Corporations Act, 2001;
  • every entity that provides a service directly to the public that is wholly or partly funded by a community care access corporation and that does not carry on its activities for the purpose of gain or profit to its members or shareholders;
  • Hydro One Inc., each of its subsidiaries, Ontario Power Generation Inc., each of its subsidiaries, Independent Electricity System Operator and each of its subsidiaries;
  • every other authority, board, commission, corporation, office or organization of persons that is specified by regulation. 

SALARY CAP

The new restraint measures include a permanent salary cap set at approximately $418,000 (twice the salary of the Premier of Ontario).  The salary cap would apply to employees hired after the legislation comes into force, and to existing employees who change positions with their employer after the legislation is enacted.  For such employees, the salary cap would freeze their salaries, bonuses and performance entitlements but would not appear to restrict increases to benefits and perquisites.  The PSCRA gives authority to the Lieutenant Governor in Council to enact regulations that would exempt certain positions from the salary cap where the exemption is justified based on labour market conditions.

RESTRAINT MEASURES

For existing employees, the PSCRA would introduce a number of narrowly focused restraint measures for a two-year period likely commencing on the day the Act comes into force.  The restraint measures would apply to employees that would be eligible to receive performance pay on the date that the legislation takes effect.  Such employees would be subject to several restraints for the two-year period.  These include: 

  • a freeze on movement in the salary grid (unless job responsibilities have “increased substantially”);
  • a prohibition on performance pay if the employee did not receive performance pay in the previous 12 month period;
  • a prohibition on  increases in payments or benefits above the level contained in the employee’s compensation plan on the effective date of the legislation;
  • a prohibition on providing new or  increasing existing payments, perquisites or benefits to employees; except where the new or increased benefit or perquisite is set out in the employee’s compensation plan and is tied to years of service or completion of a professional or  technical educational program or course;
  • if the employee assumes a new position, compensation can be no greater than that which had been payable to the incumbent in that position; and
  • if a new employee is hired into a position which had been occupied by an employee who had been in receipt of performance pay, the compensation plan for that new employee cannot exceed that of the previous employee and no performance pay may be paid to the new employee.

ANTI-AVOIDANCE

The PSCRA sets out an anti-avoidance regime that would ensure that employers in the broader public sector comply with the compensation freeze.  Subsection 13(1) states:

13.  (1)  An employer shall not provide compensation before or after the restraint period to an employee or office holder for compensation that the employee or office holder will not, does not or did not receive as a result of the temporary restraint measures in this Act.

During the restraint period, the PSCRA would also prohibit an employer in the broader public sector from restructuring if the result is that a temporary restraint measure provided for in the Act would not apply.  Restructuring for bona fide purposes, other than to prevent a restraint measure from applying, is permitted.

Section 15 of the PSCRA would also require employers to report on their compliance with the Act pursuant to directives issued by Management Board of Cabinet.  The directive would set out the form and manner of the compliance reports, and the time by which they must be submitted.  The employer’s highest ranking officer would be required to certify that the employer has complied with the salary cap and the temporary restraint measures throughout the reporting period.   

GENERAL PROVISIONS

The PSCRA contains general provisions which state that nothing in the legislation can be interpreted or applied so as to reduce any entitlement or right under the Human Rights Code, the Employment Standards Act, 2000, or the Pay Equity Act.  An employer’s obligations under those statutes would continue to apply.  Section 18 of the PSCRA however, goes on to state that an employer shall not be considered to have constructively dismissed an employee under the Employment Standards Act, 2000 or the common law, as a result of complying with the requirements of the legislation.

Section 20 of the PSCRA goes further in barring litigation against the Crown, or an employer to which the Act applies.  It states that no causes of action shall arise either directly or indirectly as a result of the passing of the PSCRA, or as a result of an employer complying with the Act.  This bar would apply to any claim including proceedings in contract, restitution, tort, trust, fiduciary obligation or otherwise.  Any proceeding commenced before the PSCRA comes into force is deemed to have been dismissed, without costs, on the date which the Act comes into force.      

THE RESPECTING COLLECTIVE BARGAINING ACT, 2012

Schedule 2 of the Act, entitled the Respecting Collective Bargaining Act, 2012 (the “RCBA”) would significantly alter the government’s role in the public sector collective bargaining process.  The RCBA would apply to the same organizations captured by the PSCRA as well as:

  • not-for-profit organizations that received $1,000,000 or greater in funding from the government in the previous year;
  • for-profit licensees under the Long-Term Care Homes Act, 2007; and
  • for-profit organizations that provide services to the public and receive funding from a Community Care Access Centre.

The RCBA would apply to the first collective agreement confirmed or imposed between an employer and a bargaining organization on the coming into force of the Act and the termination date. The termination date, which is to be established by regulation, can be no earlier than two years after the Act comes into force and no later than the date the provincial deficit is eliminated.

The RCBA would provide the government with the authority to introduce collective bargaining “mandates” through the Management Board of Cabinet.  The mandates would be binding on employers captured under the statute.  Such mandates are stated to have the explicit goal of eliminating the deficit and could be issued by sector, employer, class of employer or class of employee.  The mandates would provide criteria relating to compensation and service delivery.

Employers in the broader public sector would be required to negotiate collective agreements within the parameters of the criteria set out in the applicable mandate.   If the employer signs a new collective agreement, that agreement would be forwarded to the Minister for review.  The Minister would determine whether the collective agreement was consistent with the mandate or otherwise consistent with the goal of deficit reduction.  If it is not, the Minister could require the parties to amend the collective agreement, failing which, the Minister could impose a collective agreement on the parties. The Minister is also empowered to impose a collective agreement upon concluding that the parties will be unable to reach an agreement consistent with the Province’s goal to eliminate the deficit.

Before imposing a collective agreement, the RCBA provides that the Minister will give the parties an opportunity to participate in a written consultation about whether a collective agreement should be imposed, and the proposed terms of that collective agreement.

ANTI-AVOIDANCE

Similar to the PSCRA, the RCBA contains a number of provisions to ensure compliance with the restraint measures.  Under section 16, employers are prohibited from providing compensation, both before and after the restraint period, for compensation that an employee did not receive as a result of the Act.  Prior to a collective agreement being confirmed or imposed under the Act, the parties to the collective agreement are prohibited from implementing any terms or conditions that do not comply with the applicable mandate.

Once a collective agreement is confirmed or imposed under the RCBA, the parties cannot amend the agreement in a way that is inconsistent with the applicable mandate or the government’s goal to eliminate the deficit.  In order to enforce this restriction, the Minister is given the authority to obtain information about amendments from the parties.  If the Minister decides that proposed amendments are not consistent with the government’s goal of deficit reduction, the Minister may declare the amendments to be inoperative, require the parties to further consider the amendments, and even impose amendments to the collective agreement.   

CHANGES TO THE INTEREST ARBITRATION PROCESS

The RCBA would also provide the Minister with authority to review collective agreements settled through the interest arbitration process in order to determine whether the collective agreement complies with the applicable mandate.   If in the Minister’s determination the collective agreement did not comply with the mandate, the Minister would be empowered to declare that the interest arbitration award is not binding and require the parties to return to the bargaining table.

For certain municipal and related sectors, schedules 3 through 8 of the Act provide amendments to the interest arbitration processes set out in the following statutes:

  • Ambulance Services Collective Bargaining Act, 2001 (Schedule 3);
  • Fire Protection and Prevention Act, 1997 (Schedule 4);
  • Hospital Labour Disputes Arbitration Act (Schedule 5);
  • Police Services Act (Schedule 6);
  • Toronto Transit Commission Labour Disputes Resolution Act, 2011 (Schedule 7); and
  • Ontario Provincial Police Collective Bargaining Act, 2006 (Schedule 8).

Some of the more notable changes include the following: 

  • interest arbitrators would be prohibited from considering the constitutional validity of the legislation;
  • interest arbitrators would be required to make a decision within 16 months of the referral date (the date when parties advised that conciliation unsuccessful); and
  • failure by the interest arbitrator to make a decision with 16 months would result in automatic referral of the dispute to the Ontario Labour Relations Board for resolution unless there has been an application to the OLRB for an extension of time.

In our view

The proposed regime in the RCBA would be an interesting departure from the government’s previous approach to compensation restraint for unionized employees in the public sector.  In the past, the government would simply enact legislation stating that compensation levels are frozen for a specific period.  Such legislation would generally provide the specific nature of the compensation freeze and address such issues as movement through the grid, performance pay and adjustments to reflect new duties.  This approach however can often be susceptible to a constitutional challenge on the basis that the legislation undermines the collective bargaining process.  The proposed regime of specific mandates rather than a uniform prohibition, together with a negotiation and consultation process before imposing a collective agreement is a clear attempt to mitigate the risk of a constitutional challenge while still attaining the goals of compensation restraint.

If the Act is passed into law, and if faced with a constitutional challenge, the government would likely take the position that employers are still allowed to negotiate collective agreements, albeit within the parameters of the particular mandate, and therefore the collective bargaining process is preserved.  The Government would also argue that the parties retain an opportunity to consult on the terms of the collective agreement to be imposed, in accordance with recent constitutional jurisprudence. The success of this argument may depend on the breadth of each specific mandate and the restraint measures in question. It may also depend on how the consultation process is handled in practice. A real and substantive consultation will more likely be upheld than a consultation which appears to be a formality only. Whether the supervision of the collective bargaining process through this regime will be accepted by a court in the face of a constitutional challenge remains to be seen.

 

For more information, please contact André Champagne at (613) 940-2735 or Porter Heffernan at (613) 940-2764.