Bill 8 Proposes to Limit Executive Compensation for Certain Broader Public Sector Organizations

November 28, 2014 | André R. Nowakowski, Kathryn M. Frelick, Alissa Raphael

In July of this year, the Ontario government introduced Bill 8, which proposes (among other things) new legislation entitled the Broader Public Sector Executive Compensation Act, 2014 (the “Executive Compensation Act”). If passed, this legislation will impose limits on executive compensation for certain designated organizations in the broader public sector (“BPS”). Although the Executive Compensation Act is similar in many ways to previous BPS wage restraint legislation, there are a number of proposed measures that warrant closer examination. In particular, charities and non-profits in the health and education sectors will want to take note of this legislation.

The Executive Compensation Act applies, among other things, to every hospital within the meaning of the Public Hospitals Act, every school board within the meaning of the Education Act, and every university and every college of arts and design in Ontario. These classes of employers are also subject to the current Broader Public Sector Accountability Act, 2010 (“BPSAA”). In addition to the designated employers covered by Part II.1 of the BPSAA, the Executive Compensation Act will also apply to community care access corporations and their respective designated executives.

Under the Executive Compensation Act, the government will have the authority to establish “compensation frameworks” governing compensation for designated executives in the BPS. As with the BPSAA, designated executives are senior executives or office holders who are entitled to or could receive compensation in excess of $100,000 in a calendar year (this is pro-rated for part-time designated executives). Other employees could also be defined by regulation as being designated executives.

The compensation frameworks may include “hard caps” on a variety of executive compensation mechanisms including, but not limited to, salaries, benefits, perquisites, bonuses, and severance payments. The Executive Compensation Act provides that it will prevail over any term of an affected executive compensation plan that conflicts with its provisions. In the event of such a conflict, the terms of the compensation plan will be rendered inoperative to the extent of the conflict. Once a compensation framework is in effect for a designated employer and/or designated executives, the BPSAA will no longer apply in that regard.

If a designated executive’s compensation just prior to the effective date of a compensation framework is greater than provided for in the framework, then the designated executive’s compensation can remain in effect. However, there is an anti-avoidance measure in the legislation which prohibits an employer from providing new or additional compensation to offset any freeze on compensation.

The Executive Compensation Act also contains enforcement measures to ensure that compensation limits are respected. Designated employers could be required to comply with directives to provide to the Management Board of Cabinet a broad range of compensation information for designated executives. Any amounts paid to a designated executive which exceed the limits set by a compensation framework under the Executive Compensation Act are deemed to be overpayments. If an overpayment is made, the employer is responsible for remitting an amount equal to the overpayment to the Crown. The executive who received the overpayment then becomes indebted to the employer for that amount.

Interestingly, the Executive Compensation Act states that employers must endeavour to minimize any impact that the compensation overpayment rules may have on the employer’s provision of services to the public. It is not yet clear whether this provision will, in practice, allow employers to avoid their obligation to remit overpayments by citing public policy concerns.

As with prior wage restraint legislation, this legislation prevails over any compensation plan and no cause of action, including for constructive dismissal, can arise from a designated employer complying with the Executive Compensation Act.

Bill 8 has passed second reading in the Ontario Legislature and has just completed a public consultation before the Standing Committee on General Government. We will continue to monitor and report on the progress of this legislation.

A more fulsome discussion of Bill 8 is available in recent issues of the Miller Thomson LLP Health Communique.


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