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On June 5, 2019, the Ontario Government tabled a bill that would limit compensation increases for public sector employees to 1% a year for the next three years. Bill 124, the Protecting a Sustainable Public Sector for Future Generations Act, 2019, was introduced by the President of the Treasury Board and is designed to curb public sector compensation growth in an attempt to reduce Ontario’s budget deficit. At $72 billion per year, public sector compensation accounts for almost half of all government expenditures in Ontario, making this area an attractive target for cost savings.

If passed, Bill 124 would operate by introducing a three-year moderation period during which employers cannot increase the salary for a position or class of positions by more than 1% per year. However, Bill 124 provides for exceptions to the wage cap if the increase is made as a result of an existing compensation plan designed to reward an employee’s:

  • length of service;
  • performance; or
  • completion of a program or course of professional or technical education.

The second limit that would apply during the moderation period would be a limit on incremental compensation increases of no more than 1% averaged over all employees covered by a specific collective agreement or over the employer’s non-unionized employee group. Compensation is broadly defined as anything paid or provided, directly or indirectly, to an employee, including salary, benefits, perquisites, and all forms of non-discretionary and discretionary payments. However, if the employer’s cost of providing a benefit as it existed on the day before the beginning of the moderation period increased during the moderation period, that increase would not constitute an increase in compensation entitlements for the purposes of Bill 124.

For employees who were covered by a collective agreement or arbitral award as of June 5, 2019, the three-year moderation period would not begin to apply until the day after the existing collective agreement or arbitral award expires. For employees whose collective agreement or arbitral award had expired as of June 5, 2019, the moderation period would begin on the day immediately following the day the collective agreement or arbitral award expired. For parties who were in the process of bargaining their first collective agreement on June 5, 2019, the moderation period would begin on the day that the collective agreement commences. All collective agreements and arbitral awards that apply during the moderation period must comply with Bill 124, meaning that they and cannot call for compensation increases above 1% a year for three years.

For public sector employees who are not covered by a collective agreement, but are subject to a compensation plan that provides for identical compensation increases as for employees under a collective agreement, the moderation period for would be the same as for the unionized employees. For all other non-unionized employers, the moderation period would begin on any date that the employer chooses between June 5, 2019 and January 1, 2022.

Bill 124 contains a number of anti-avoidance measures that prohibit employers from circumventing the salary and compensation increase limitations by paying out compensation before or after the moderation period to replace what the employee would not receive during the moderation period.

Bill 124 would apply broadly to many public sector workers, both unionized and non-unionized. If passed, Bill 124 would apply to employees, managers, and leadership of:

  • provincial authorities, boards, commissions, corporations, offices or organizations in which a majority of directors, members, or officers are appointed or chosen by the province (including Ontario Power Generation, Independent Electricity System Operator and Ornge);
  • school boards;
  • colleges and universities;
  • hospitals;
  • long-term care homes;
  • children’s aid societies;
  • transfer payment recipients who received more than $1 million in annual funding from the government of Ontario in 2018; and
  • the Ontario Public Service.

Bill 124 would not apply to municipalities, including municipal authorities, corporations, boards or long-term care homes; physicians; for-profit organizations; or Broader Public Sector executives covered by the Broader Public Executive Compensation Act, 2014.

Bill 124, as drafted, also empowers the government to exclude certain employees or classes of employees from the Bill by regulation. However, the proposed legislation does not provide any information about these possible exceptions.

In its current form, Bill 124 includes oversight mechanisms to monitor and enforce compliance with the legislation. To ensure compliance with the Bill, the Minister would have authority to request a variety of compensation documents from employers including compensation policies, plans, and guidelines; collective agreements; compensation agreements; and more. The Minister would also be empowered to declare that that a collective agreement or arbitral award is inconsistent with Bill 124 and order the parties or arbitrator to amend the agreement or award to make it consistent with the Bill.

Bill 124 has currently passed First Reading in the legislature, and is scheduled for Second Reading on October 28, 2019, after the legislature resumes sitting. Bill 124 still has to pass Second Reading, consideration by a Committee, and Third Reading. Further, the government has launched public consultations, asking interested stakeholders to review the draft measures and to provide feedback over the summer. As such, it is possible that Bill 124 will be amended from its current form. As always, we will continue to keep you updated on Bill 124’s progress, as well as any other legislative updates that may affect your business.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.