Response to Ontario Budget 2010

Questions and Answers about the Ontario government’s wage freeze plan for public sector workers

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1. What is a wage freeze?

A wage freeze is what happens when an employer refuses to provide pay increases for its employees.

2. Does a wage freeze keep wages at the same level?

In a wage freeze, a worker earning (say) $22 an hour could continue to earn $22 an hour for a period of several years. But with inflation, the buying power of those wages would go down in real terms. A wage freeze is really a pay cut that is equal to the rate of inflation.

3. What is the rate of inflation right now?

Inflation varies from month to month and from province to province, but the Bank of Canada’s policy is that inflation should not be more than two per cent per year. Inflation has stayed close to two per cent in Canada for a long time.

4. When did the Ontario government announce that it intended to bring in a wage freeze?

The wage freeze plan was first announced by Finance Minister Dwight Duncan on Budget Day, March 25, 2010.

5. What workplaces are covered by the government’s wage freeze plan?

The government’s wage freeze policy covers the Ontario Public Service, all Crown agencies and transfer payment entities such as hospitals, school boards, boards of health (including municipal ones), colleges, universities, developmental service agencies, Hydro One, Ontario Power Generation, all long-term care homes (for-profit, not-for-profit, and municipally run) and other provincial agencies, boards and commissions.

6. Does the wage freeze cover municipal workers?

The provincial legislation that covers non-union workers does not affect direct municipal workers. With respect to unionized workers, the province has not directed municipalities to impose a wage freeze.

7. How does the wage freeze work?

In two ways: Non-union workers are covered by a piece of legislation, Bill 16, which makes it illegal for employers to pay them more for the two years from March 25, 2010 to April 2012. Unionized workers can still bargain, but the government says employers in the provincial public sector will not receive any money for pay increases for the first two years of their next collective agreement.

7. What does the government mean by "compensation restraint"? Does the wage freeze only apply to wages?

"Compensation restraint" is a term the government has used to describe the wage freeze and what is covered by it. It means that the freeze caps not only wages but also improvements in pensions, benefits, and other bargained items that are not wages. However, the government has stated that costs that rise to keep a particular benefit at the same level are not capped by the freeze.

8. What non-union workers are covered by the wage freeze legislation?

The legislation covers all provincially-funded non-union workers, which is about 250,000 people across Ontario. It covers frontline workers as well as managers at every level.

9. I’ve heard that many managers such as hospital CEOs will still receive "pay for performance" bonuses in spite of the wage freeze. Is this true?

This is true. The government explains this by saying that these individuals have a contract which includes the possibility of these bonuses, and therefore CEOs and other managers are entitled to them when their performance merits it.

10. How does the wage freeze work for unionized staff?

The government says it will respect all collective agreements that are already in force. Bargaining of new contracts will continue, the government says. However, all employers will be told that they have no money for any wage increases for the first two years of any new collective agreement.

11. So why bargain?

Throughout history employers have gone into bargaining saying, "The cupboard is bare." Just because they say they have no money does not mean it is impossible to negotiate wage increases or other improvements. Governments, like employers, respond to changes in public attitudes, the political landscape, and other factors, and working people can influence these. In addition, some contract provisions may be of great benefit to workers but may not have a significant direct cost for employers, for example, protections against violence in the workplace.

12. If an existing collective agreement allows a group of workers to move up the pay grid, and assuming the pay grid remains in place, will they still be able to move up the grid even if their next contract includes two years of no pay increase?

Yes, the government says they will.

13. What about pay equity?

Pay equity is protected under its own legislation and by the Charter of Rights and Freedoms. The government policy is that the wage freeze does not apply to pay equity settlements.

14. Many collective agreements are settled by arbitration, especially in sectors where the workers do not have the legal right to strike. What has the government said about arbitration?

Depending on the legislation in a particular sector, arbitration typically occurs when either party requests it. The government has asked both employers and unions to stop sending unresolved bargaining issues to arbitration while it consults with the two sides about the wage freeze (see below for information on the consultation.)

15. Have employers and unions stopped sending unresolved bargaining issues to arbitration?

Some employers have asked for arbitrations to be put on hold. OPSEU has continued to send issues to arbitration as per usual practice.

16. Arbitrators are supposed to be independent judges of what is fair. Can the government force an arbitrator to impose a wage freeze in a particular collective agreement?

Not without compromising the independence of the arbitrator. This is a difficult problem for the government, which may find that arbitrators will ignore the wage freeze in their deliberations and award wage settlements above zero or, for that matter, above the rate of inflation.

17. What happens after the two year wage freeze is up?

According to the government’s fiscal plan, spending will still be restrained for the five years from budget year 2012-13 to 2016-17, after which the budget deficit is scheduled to be eliminated. The government says spending will be held to 1.9 per cent per year, which is currently less than the rate of inflation and may be in future as well. The 1.9 per cent figure does not take into account population growth, which is typically about 1.2 per cent per year. If the government’s plan plays out as intended, either Ontarians will see public services cut or else wages will be kept below the rate of inflation for the foreseeable future. Of course, it is a long time between now and 2017. Many things could – and will – cause circumstances to change in that time.

18. Can unions bargain "catch-up" raises after the end of the two-year freeze?

The government says this would defeat the purpose of the wage freeze, which is (apparently) to cause a permanent reduction in wage rates right across the provincial public sector in Ontario.

19. How is the wage freeze "permanent"?

Imagine that a worker earning $50,000 a year receives annual pay raises equal to inflation (at the current rate of two per cent) for five years in a row. Over five years, her annual salary will rise to $51,000 to $52,020 to $53,060 to $54,122 to $55,204. Now imagine the same worker receives two years of zero increases, followed by three years of increases equal to inflation. Her salary rises to $50,000 to $50,000 to $51,000 to $52,020 to $53,060. At the end of five years, her annual salary will be $2,144 a year lower with the freeze than without it, and her total wages lost will be $9,326. Even if wage increases continue at the rate of inflation, her salary will always be lower than it would have been without the freeze. The effects of the wage freeze continue long after the two-year freeze period is over.

Sample wage calculation over five years, with and without a two-year wage freeze, for a worker earning $50,000 a year in Year Zero

 

Year

1

2

3

4

5

Totals

Wage freeze in first two years, then increases equal to inflation

$50,000

$50,000

$51,000

$52,020

$53,060

$256,080

Wage increases equal to inflation for five years (no wage freeze)

$51,000

$52,020

$53,060

$54,122

$55,204

$265,406

Income lost to wage freeze

$1,000

$2,020

$2,060

$2,102

$2,144

$9,326

 

20. Over the last several years we’ve been able to bargain many contracts with wage increases greater than inflation. Can’t we still do that?

Of course, but it could take a very long time to make up the money lost during the freeze. In the early 1990s, for example, public sector wages fell for several years in a row. Average public sector wages in Ontario did not return to their 1992 levels until 2008.

21. I understand the government is holding "consultations" with unions and employers across the public sector about the wage freeze. What are these consultations?

The government is holding two-week consultation sessions with more than two dozen Ontario unions and employee associations and their employers in the provincial public sector. These sessions began on Aug. 9; the last ones are scheduled to be completed on Oct. 3.

22. What is the government trying to get out of these sessions?

It appears the government is mainly looking for ways to get unions’ co-operation in accepting the wage freeze. The government wants to arrive at "framework agreements" that would apply to large groups of workers.

23. Have any unions or groups arrived at a framework agreement?

To the best of our knowledge the only group to do so is the Association of Law Officers of the Crown (ALOC), representing Crown Attorneys in the court system. While not a union, ALOC does negotiate. They accepted a two-year wage freeze in exchange for a 47-year (this is not a typo) framework agreement that provides them (for the first time) with the right to bargain and to access binding arbitration.

24. If the government is already able to direct employers not to bargain wage increases through the normal collective bargaining process, why do they even need framework agreements?

The answer to this appears to be political. By forcing a million public employees to accept a permanent pay cut in the form of a wage freeze, the government hopes to win support among right-leaning voters who voted Liberal in October 2007 but may not vote Liberal in October 2011. Framework agreements could help convince right-leaning voters that the Liberals have accomplished their goal.

25. Has OPSEU taken part in the consultations?

An OPSEU delegation led by President Warren (Smokey) Thomas attended the first session on Aug. 9 and asked numerous questions of government officials in attendance. On Aug. 10, the OPSEU Executive Board, sector chairs, and chairs of Ministry Enforcement and Renewal Committees (MERCs) met to discuss next steps. It was decided at that meeting that the union had (at that time) no mandate to take part in the consultations. The Executive Board authorized a special meeting of local presidents and key leaders from OPSEU sectors and committees to be held in Toronto on Sept. 13 to discuss the union’s strategy options.

26. If the government could legislate a wage freeze for non-union workers, why didn’t it legislate a wage freeze for unionized workers?

Only the government knows the answer to this, but two explanations seem likely. First, the government may have feared unions’ ability to fight back against such a move. Second, a June 2007 ruling by the Supreme Court of Canada changed the way government can legislate around bargaining. The court ruled that collective bargaining is a protected right under the Canadian Charter of Rights and Freedoms. The court said the government of British Columbia violated the Charter when it tore up the contracts of health care workers.

27. Does this mean the government of Ontario cannot legislate a wage freeze for unionized workers?

No, it does not. The 2007 Supreme Court decision gave specific reasons why the B.C. government had violated the charter. One of these was that the B.C. government made no effort whatsoever to consult with unions prior to overriding their collective agreements. It is possible that the current round of consultations in Ontario is part of a government strategy to be able to defend in court any wage-freeze legislation that it might bring in. Regardless of that, every case in law is unique, as is every court. While the courts could overturn a wage freeze for unionized workers, no one can say with certainty how they might rule on a specific case.

28. How much money does the government expect to save with the wage freeze?

Finance Minister Dwight Duncan says that wages take up 55 per cent of the provincial budget. He says these wages are worth "more than $50 billion" a year. If every provincial workplace took a two-year wage freeze, the annual savings at the end of the program would, therefore, be in the neighbourhood of $2 billion per year. Depending on how other costs rise (for pensions and benefits, for example), the actual saving would likely be somewhat smaller.

29. What will the government use the money for?

Depending on the day, the government says the money will be used to protect public services, or pay down the provincial budget deficit, or (sometimes) save public sector jobs. What it fails to mention is that the last two provincial budgets have included major tax reductions for Ontario corporations through the introduction of the Harmonized Sales Tax, the elimination of the Capital Tax, reductions in the Corporate Income Tax rate, and other tax cuts. When fully phased in, the cuts to the Corporate Income Tax rate alone will cost provincial coffers more than $2.4 billion a year, according to the government’s figures. In other words, every dollar public sector workers give up through the wage freeze will go to pay for tax breaks for rich banks like RBC, phone and cable companies like BCE (Bell), energy companies like Suncor (which now owns Petro-Canada), media companies like Thomson Reuters, insurance companies like Manulife, and thousands of others like them.

30. The government says the wage freeze is justified because public sector workers have received pay raises greater than those in the private sector since 2004. Is this true?

Public sector wages began to rise in 2004, but only after falling for more than 12 years. Wages in the public sector finally reached their 1992 levels (after inflation) in 2008. But wage settlements in the public sector were still four per cent less than wage settlements in the private sector over the 16-year period from 1992 to 2008.

31. Have governments imposed wage freezes in the past in Ontario?

Yes, although not often. The federal government brought in wage and price controls in 1975-78 via the Anti-Inflation Act. Wage guidelines were binding for all firms with over 500 staff as well as all federal employees and most other public sector employees, including provincial ones.

In Ontario, the Inflation Restraint Act of 1982 eliminated the right to strike entirely and extended agreements by one year. The Act imposed maximum wage increases of five per cent on approximately 500,000 public sector workers. A subsequent Act the following year, the Public Sector Prices and Compensation Review Act, required arbitrators to consider the employer’s "ability to pay" in the arbitration process and made all collective agreements subject to review by a legislated Restraint Board.

In 1993, the Ontario government brought in the Social Contract Act. The Social Contract imposed a wage freeze and mandatory unpaid days off for provincial and municipal public employees. It was more restrictive than the wage freeze currently being proposed by the McGuinty government. For example, workers could not move up their pay grid or earn more vacation credits. During this period many employers refused to bargain with unions on monetary or non-monetary issues.

32. During the Social Contract, workers whose incomes were below a low-income cut-off (or LICO) were exempt from the wage restraint program. Has the McGuinty government proposed anything similar?

During the Social Contract, the Rae government set a threshold at $30,000 a year (known as the Low Income Cut-Off, or LICO) and all workers below this level were exempt from the legislation and its program of wage restraint. The McGuinty government has not proposed anything of the kind, even though hundreds of thousands of public sector workers, particularly part-timers, earn very small incomes.

33. What would $30,000 in 1993 dollars be worth in 2010?

The LICO used during the Social Contract of 1993 would be worth roughly $41,400 a year now. Over 63,000 OPSEU members earn less than this amount each year.

34. In terms of wage restraint, what is happening in the rest of Canada?

Besides Ontario, the only other government that has wage restraint legislation in place is the Government of Canada, which passed the Expenditure Restraint Act in the 2009 federal budget. The legislation includes legislated rates of pay for employees of the federal government and its boards and agencies. In general the rates of pay imposed are greater than zero but less than the rate of inflation.

British Columbia has negotiated a two-year wage freeze with various public sector unions, albeit with improvements in job security and certain benefits. Other provinces are facing varying degrees of hard bargaining, with settlements both below and above the rate of inflation, but their governments have not imposed a wage freeze. The closest is the government of Manitoba, which is seeking a temporary wage freeze but open to significant increases at either end of the freeze.

35. What has been OPSEU’s response to the wage freeze legislation since it was announced in the 2010 budget?

On April 8, the OPSEU Executive Board met in an emergency meeting. The Board authorized a campaign that would expose the links between the wage freeze plan, the government’s corporate tax cuts, and the money paid by corporations to fund the Liberal Party. Delegates to OPSEU Convention voted unanimously to expand the union’s campaign and supported a resolution calling for more political and economic education for OPSEU locals.

From April through August, Executive Board Members organized and led countless protests at Liberal fundraisers in several regions of the province. The union also used the G-20 meeting of world leaders to oppose the imposition of austerity measures by governments around the world and here in Canada.

In addition to the Sept. 13 meeting designed to bring OPSEU local presidents and other leaders into the union’s strategy discussion, several OPSEU regions have also scheduled Regional Presidents’ Conferences. These conferences are designed to provide locals with further insights into the forces, both global and provincial, that are driving the agenda in Ontario today, to improve members’ skills in talking about the issues, and to further discuss strategy and tactics as they could be implemented at the local and regional level.

 


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