An Eye on Collective Bargaining and the Taxpayer

March 13, 2012 | André R. Nowakowski

The last few years of global economic difficulties continue to take their toll in all facets of life.  In Canada, this includes tremendous pressures on government spending at all levels.  In response to the major recession that began in 2008, governments of all levels in Canada increased spending.  As belt-tightening deliberations and measures occur, governments are looking to reduce budget deficits (never mind debt yet).  As we know, governments across all levels in Canada tend to be large employers.  In addition, the governments, especially at the federal and provincial levels, fund various sectors, such as health and education, that are in turn major employers.  Of course, the funds used by public sector employers for wages come from one main, ubiquitous revenue raising tool – taxes. 

In their review of spending to search for ways to reduce deficits, governments are turning part of their focus to wages for their employees and funds provided to other broader public sector employers.  We have seen this pressure in Ontario with wage restraint legislation that has been in place for the last two years that froze non-union public sector compensation.  The Premier of Ontario recently suggested that a freeze on MPP salaries should continue.  At the same time, the Government in Ontario is taking the position in bargaining with teachers that there will be no wage increases in the next collective agreement. In British Columbia, a similar battle is under way with teachers.  In the City of Toronto, the early winter saw much focus in collective bargaining with one union local about the ability of the City to contract out services to reduce costs while it is on the verge of a labour disruption with other union locals. 

The real question is whether government attempts to restrain spending via wage freezes can be effective.  This is very difficult, if not impossible, for those broader public sector employers that must enter into binding interest arbitration if a collective agreement cannot voluntarily be reached with their unions.  For example, since the Ontario wage restraint legislation did not apply to unionized public sector employers, interest arbitrators tended to give wage increases to employees (albeit less than requested by the unions), notwithstanding the Government’s public statements that wage restraint should also apply to unionized employees. 

What tools can be used by governments to freeze wages in the unionized public sector?  Binding arbitration is not the answer as historically some increase in compensation is generally ordered.  For those public sector employers not required to submit to binding arbitration, the main tool is labour disruption either by lockout or strike (or work to rule in some cases).  However, the pressures involved with labour disruptions are immense when dealing with public goods such as health care, social services, and education.  Further, the pressures come from various stakeholders – government, the actual employers, unions, employees, and, of course, taxpayers who expect certain public goods to be provided – and each of course has different concerns.  How to measure each party’s appetite for disruption?

Generally, government intervention in public sector collective bargaining and its breakdown leads to forced mediation and often binding arbitration.  Although not strictly the public sector, the federal Government’s decision last week to intervene in the most recent Air Canada dispute with two unions is certainly one to watch as a pattern of intervention appears to be developing, at least at the federal level.  A final offer was not accepted by the union and employees by a noon deadline last Thursday.  Shortly after, Air Canada announced a lockout for Sunday night for one union while the other was prepared to strike.  The federal Government almost immediately referred the matter involving both unions to the Canada Industrial Relations Board, thereby pre-empting labour disruption (and keeping many March Break travel plans in place!).  Now, back-to-work legislation is in the works.  It remains to be seen what the end result will be, including on compensation.

At the end of the day, freezing wages in the public sector is a difficult tool for employers to utilize to help reduce a budget deficit, although it appears to be a necessary part of the tool kit given the size of deficits in many provinces and at the federal level.  It is a brief in progress that the taxpayer should keep a close eye on.


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