Update on Ontario’s Proposed Wage Restraint Legislation

The Public Sector Compensation Restraint to Protect Public Services Act, 2010, more commonly referred to as the ‘wage restraint legislation’ has now passed second reading in the legislature.

There were no substantive changes to the proposed legislation after completing second reading.  The legislation has now been referred for third reading, the last step before being voted on and presumably passed by the legislature.  The wage restraint legislation is just one part of a larger piece of legislation (the Creating the Foundation for Jobs and Growth Act, 2010) which will implement the 2010 budget.

Overview of Legislation

By way of review, the proposed wage restraint legislation does the following:

1. it places a ‘freeze’ on compensation of all employees and office holders who are employed by prescribed employers such that their rate of pay cannot be increased during the freeze period.  The freeze period is March 24, 2010 to March 31, 2012;
2. it also places a ‘freeze’ on benefits so that a benefit, perquisite or payment provided to an employee cannot be increased during the freeze period, nor can new or additional benefits, perquisites or payment be provided during the freeze period; and
3. once passed, the legislation will retroactively prohibit increases in compensation and benefits as of March 24, 2010.

Who Does it Apply To?

There is a prescribed list of employers to which the freeze applies.  It includes the Crown, universities and colleges, hospitals, school boards, Hydro One, Ontario Power Generation, boards of health under the Health Protection and Promotion Act,  and every employer that received at least $1,000,000 in funding from the Government of Ontario in 2009 and does not carry on its activities for the purpose of gain or profit to its member of shareholders.

It does not apply to municipalities and certain other organizations subject to municipal oversight.  It also does not apply to employees who bargain collectively.  This means union employees are not included in the freeze.  Also not included are employees who are not part of a formally recognized union, but who collectively negotiate compensation with their employer (such as an employee association).

Exceptions to the Freeze

The freeze provisions in the proposed legislation are not absolute.  The legislation does allow for increases in an employee’s rate of pay within a pay range under a compensation plan that was in effect on March 24, 2010 (the “effective date”).

However, any increases in an employee’s rate of pay within an established pay range can only be made where the increase is in recognition of one of the following three factors:

1.  the length of time of employment for an employee;
2.  an assessment of the employee’s performance; or
3.  for successful completion of a program or course of professional or technical education.

It should be noted that while an increase in an employee’s rate of pay is permissible on these grounds, the maximum compensation within a pay range as of the effective date cannot be increased, nor can any step within a pay range be increased.  In practice this means the compensation of employees who are at the top of the wage grid for their position will be unchanged during the freeze period.

A similar exception exists which allows for increases to, or the addition of new benefits, perquisites or payments to an employee, but only if authorized under the compensation plan as it existed on the effective date.

One common question that is not clearly answered by the legislation is whether it prohibits increases in compensation that were agreed to prior to the effective date, but were not to be implemented until after the effective date.  For example, an agreement may have been reached between an employer and an employee in January, 2010 that there would be a pay increase for the employee effective as of September 1, 2010.  Whether in fact this increase can be implemented is an open question at this time.

Other Notable Provisions

Other notable aspects of the legislation are:

1. where a new employee is hired, the compensation for the new hire must be in line with the established compensation plan for the position into which the employee is hired;
2. where an employee is promoted or transfers to a new position, their compensation can change, but must be in line with the established compensation plan for the position into which the employee has been promoted or transferred;
3. the expiry and renewal of an employee’s contract cannot be the basis of a change in the compensation plan for the employee’s position;
4. a compensation plan cannot provide compensation to an employee after the end of the freeze period for compensation that the employee did not receive during the freeze period as a result of the wage restraint legislation; and
5. the legislation is not to be interpreted or applied to reduce any right or entitlement under the Human Rights Code or the Pay Equity Act.

Administration

There are two key aspects in respect of the administration of the proposed legislation.  First, the legislation requires that employers to whom the legislation applies file reports with the government aimed at demonstrating compliance with the wage restraint provisions.  The content and structure of these forms has not yet been established.

Second, a new administrative tribunal will be established by the legislation called the Public Sector Compensation Restraint Board.  The Board’s role will be to determine whether or not the legislation applies to any particular employer or employee.  It is unclear whether the Board will have the power to adjudicate issues beyond the application of the legislation to an employee or employer.

 

The legislation is still not passed and is subject to change.  We will keep you apprised as this legislation progresses.