On November 8, 2019, the Provincial Government passed Bill 124, “the Protecting a Sustainable Public Sector for Future Generations Act, 2019” (“Bill 124”). Bill 124 imposes wage restraint in the public sector for both unionized and non-unionized employees. The purpose of this legislation is “to ensure that increases in public sector compensation reflect the fiscal situation of the Province, are consistent with the principles of responsible fiscal management and protect the sustainability of public services.”

Bill 124 applies to certain public sector entities, including not-for-profit entities that received at least $1,000,000 in funding from the Ontario Government in 2018.

Bill 124 creates a 3 year “moderation period” during which time compensation increases for individual positions must be limited to no more than 1% per year. For non-unionized employers the 3 year “moderation period” begins on a date selected by the employer after June 5, 2019 or January 1, 2022, whichever occurs first. Accordingly, employers have some degree of flexibility in determining when the wage restraints begin. For unionized employers, the “moderation period” generally begins after current collective agreements expire. As such, the wage restraint measures do not impact current collective agreements.

The restraint measures in Bill 124 do not apply to prohibit an employee’s salary rate from increasing due to (a) length of employment; (b) an assessment of performance; or (c) the employee’s successful completion of a program or course of professional or technical education. As an example, wage progression grids in a Collective Agreement based on seniority will not be impacted.

The Government included anti-avoidance provisions in Bill 124 to prohibit employers from providing ‘catch-up’ payments to employees (either before or after the “moderation period”).

It is important to note that Bill 124 offers protection for employers against claims made by employees (e.g. constructive dismissal) who may be adversely impacted by the employer’s compliance with the wage restraint measures.

Bill 124 is controversial amongst labour unions who have signalled that they may challenge Bill 124 on constitutional grounds in the Courts. However, as of today, Bill 124 is law and employers are obliged to comply. Accordingly, public sector employers should immediately review their compensation policies and practices. Non-union employers should take advantage of the flexibility offered by Bill 124 in deciding when the “moderation period” should begin. For those employers entering collective bargaining, recognition must be given to the fact that the “moderation period” will apply going forward. As such, negotiations must respect the 1% limit set out in the legislation.