Ontario caps compensation increases for public servants and the broader public sector

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Bill 124, the Protecting a Sustainable Public Sector for Future Generations Act, 2019 (the “Act”), received Royal Assent on November 7, 2019, and was proclaimed in force on November 8, 2019.

Readers of Focus will recall that the legislation operates to limit compensation increases for both unionized and non-unionized employees in the Ontario public service and the broader public sector (see Ontario introduces legislation to limit compensation increases in the public sector). As can be expected, the legislation has come under heavy fire with unions representing impacted employees gearing up for constitutional challenges.

 

Application of Bill 124

Bill 124 is drafted in a sweeping nature and applies to the following employers:

  • The Ontario government and all of its agencies, authorities, boards, commissions and corporations, offices or organizations;
  • School boards under the Education Act;
  • Universities and colleges;
  • Hospitals under the Public Hospitals Act and the University of Ottawa Heart Institute;
  • Licensees under the Long-Term Care Homes Act, 2007 (unless the licensee is a for-profit organization);
  • Ornge;
  • Children’s aid societies;
  • Not-for-profit organizations that received at least $1 million in funding from the Government in 2018 (or such later year as may be specified by regulation);
  • Ontario Power Generation Inc. and each of its subsidiaries [1]; and
  • Any other organization that is prescribed by regulation.

 

Exclusions from Bill 124

Bill 124 specifically excludes the following organizations from the application of the Act:

  • Municipalities;
  • Local boards as defined in the Municipal Act, 2001;
  • Authorities, boards, commissions, corporations, offices or organizations, a majority of whose members, directors or officers are appointed or chosen under the authority of the council of a municipality;
  • For-profit organizations (unless otherwise specified by regulation);
  • Employees or classes of employees that may be specified by regulation;
  • Designated executives under the Broader Public Sector Executive Compensation Act, 2014; and
  • Judges, deputy judges, justices of the peace or case management masters.

Bill 124 was amended by Standing Committee to also exclude the following organizations:

  • Local boards as defined in the City of Toronto Act, 2006;
  • An Indigenous community (defined as a band within the meaning of the Indian Act (Canada) or such other entity as may be prescribed by regulation);
  • Authorities, boards, commissions, corporations, offices or organizations of persons, including a council of the band within the meaning of the Indian Act (Canada), a majority of whose members, directors or officers are appointed or chosen under the authority of one or more Indigenous communities; and
  • A police governing authority relating to a First Nation reserve under section 54 of the Police Services Act.

 

Compensation Increases Capped

For unionized and non-unionized employees falling within the application of the Act, Bill 124 caps any increase in their compensation to 1% per year for a three year “moderation period”. The legislation defines “compensation” in a very broad way such that it literally captures anything paid or provided to or for the benefit of an employee. As a result, the 1% cap to compensation increases applies to salary, benefits, perquisites, and “all forms of non-discretionary and discretionary payments”.

 

Exemptions for Certain Increases

There are however certain salary rate increases that would not be limited by the Act. Bill 124 carves out salary increases in respect of:

  • The employee’s length of time in employment;
  • An assessment of performance; or
  • The employee’s successful completion of a program or course of professional or technical education.

provided however that these increases are provided for in the collective agreement, or, in the case of a non-union employee, the compensation plan.

Bill 124 was amended by Standing Committee to provide for the following additional exemptions for certain types of payments:

  • Payments made pursuant to a voluntary exit program approved by the Management Board of Cabinet; and
  • An increase in salary rate, an incremental increase to existing compensation or new compensation designed to offset a required increase in member contribution to a pension plan as the result of the conversion from a single employer pension plan to a jointly sponsored pension plan.

 

Moderation Periods

The three-year period during which the compensation cap applies is referred to in the legislation as a “moderation period”.

i. Non-Unionized Employees

For non-unionized employees that fall within the application of the Act, the moderation period commences on the earlier of:

  • A date to be selected by the employer that is after June 5, 2019; or
  • January 1, 2022.

An exception to this rule is provided for non-represented employees under compensation plans by which salary increases correspond to those of represented employees under collective agreements. In these cases, the employee’s moderation period will correspond to the applicable collective agreement.

 

ii. Unionized Employees

For unionized employees that are captured by Bill 124, the commencement date of the moderation period depends on the status of their collective agreement as of June 5, 2019.

Standing Committee amendments made to Bill 124 clarify when the three-year moderation period would apply to collective bargaining settlements reached or interest arbitration awards issued since the Bill was first introduced on June 5, 2019, and before the Bill came into effect on November 8, 2019.

The following chart provides a summary of how the commencement date for the three-year moderation period will be determined:

Status of Collective Agreement as of June 5, 2019 3-Year Moderation Period Begins
In operation Day after the collective agreement expires
Expired (and no new collective agreement in operation) Day after the day the collective agreement expired
Bargaining for first collective agreement Commencement date of the first collective agreement
No collective agreement in operation, and the parties are, or have been, in arbitration and:

A.       Arbitration award has not been issued on or before June 5, 2019

 

or

 

B.       During arbitration, the parties settle a collective agreement

 

A.       Commencement date of collective agreement that gives effect to the arbitration award, once issued

 

 

 

B.       Commencement date of collective agreement

No collective agreement in operation, and the parties are, or have been, in arbitration and arbitration award issued on or before June 5, 2019 Day immediately following the day on which the collective agreement that gives effect to the award expires
Clarification added by Standing Committee:

On or before June 5, 2019, the parties in good faith entered into one of the following agreements in writing:

1.       A memorandum of settlement for a collective agreement ratified after June 5, 2019;

2.       A collective agreement ratified on or before June 5, 2019 that comes into operation after that date; or

3.       An agreement to renew a collective agreement that is in operation on June 5, 2019 for a single specified term

The day immediately following the day the collective agreement that gives effect to that agreement expires
Clarification added by Standing Committee:

After June 5, 2019 and before November 8, 2019, the parties in good faith entered into one of the following agreements in writing:

1.       A memorandum of settlement for a collective agreement that expires no later than December 31, 2021;

2.       A collective agreement that expires no later than December 31, 2021; or

3.       An agreement to renew a collective agreement that is in operation on June 5, 2019 for a single specified term that ends no later than December 31, 2021

Subject to a discretionary Minister’s Regulation, the day immediately following the day the collective agreement that gives effect to that agreement expires
Clarification added by Standing Committee:

Arbitration award issued after June 5, 2019 and before November 8, 2019

The day immediately following the day the collective agreement that gives effect to the arbitration award expires

 

Anti-Avoidance and Oversight Provisions

Bill 124 is “given teeth” by a number of anti-avoidance and oversight provisions. These include prohibitions preventing employers from providing compensation in respect of remuneration that the employee did not receive as a result of the moderation measures. This prohibition applies both before and after the applicable moderation period. The Management Board of Cabinet is provided authority to issue directives to employers compelling the provision of various types of information in order to ensure compliance with the Act. A more detailed discussion of some of these provisions can be reviewed in our previous Focus alert – Ontario introduces legislation to limit compensation increases in the public sector.

 

In Our View

Employers that fall within the application of Bill 124 should familiarize themselves with the new legislation. Compensation plans and negotiating strategies will certainly be impacted by Bill 124. As well, determining the commencement date of a particular moderation period may be complicated given the key date of June 5, 2019 and the potential for a retroactive effect.

As noted above, Bill 124 has been subject to significant criticism from various public sector bargaining agents. Some of these unions are reportedly preparing constitutional challenges to Bill 124 on the basis that the Act violates their Charter rights. We will keep our readers informed of developments in this regard.

For further information, please contact J.D. Sharp at 613-940-2739 and Céline Delorme at 613-940-2763.

 

[1] Bill 124 is specifically incorporated in section 190 of the Ontario Labour Relations Act