As part of the 2010 budget initiatives, the Ontario government introduced the Public Sector Compensation Restraint to Protect Public Services Act, 2010 (the “Act”). The Act passed second reading on April 22, 2010 and is expected to be passed into law in mid May.

The proposed legislation applies to the Ontario Public Service and many employers across the broader public sector including hospitals, boards of health, schools, colleges, universities, Hydro One, Ontario Power Generation, and many other provincial agencies, boards and commissions. Excluded from the Act are organizations who received less than $1 million in funding from the province in 2009, municipalities and local boards.

Which Employees Will Be Affected by the Restraint Measures?

The Act will only apply to non-bargaining employees. It will not affect employees who are represented by a trade union or by one of the named organizations for the purpose of collective bargaining.

With respect to employees who bargain collectively, the government has stated that it intends to respect all current collective agreements and will be looking to employers and their respective bargaining agents to reach an agreement for a two year freeze on net compensation increases in any subsequent collective agreement. In this regard, the government has indicated that the fiscal plan provides no funding for compensation increases under new collective agreements.

The Restraint Measures

The Act will freeze the compensation plans for affected employees as of March 24, 2010, which is the effective date of the restraint measures under the Act. The freeze will continue for two years until April 2012. The main focus of the Act is to eliminate across-the-board increases and increases in salary ranges for the two year period. However, as presently drafted, the Act does leave room for some individual pay increases and individual increases in benefits, perquisites and other payments.

Under the Act, an employer may increase an employee’s salary, within the pay range for the employee’s position as it existed on March 24, 2010, if the increase was authorized under the employee’s compensation plan as of March 24, 2010 and is in recognition of one of the following factors:

  • his or her length of time in employment or in office;
  • an assessment of performance; or
  • his or her successful completion of a program or course of professional or technical education.

Similarly increases in benefits, perquisites and other payments are permitted, where the increase was authorized under the applicable compensation plan, as of March 24, 2010. Employers will want to keep in mind that time off is considered a benefit under the proposed legislation.

The Act will also permit a wage increase where required to meet the minimum wage prescribed under the Employment Standards Act, 2000. Lastly, the proposed legislation expressly states that it is not to be interpreted so as to reduce an employee’s right or entitlement under the Human Rights Code or the Pay Equity Act.

Issues for Employers

Many employers are already asking questions as to what constitutes a “compensation plan” and how one determines whether a particular increase has been “authorized” under such a plan. The Act’s definition of “compensation plan” is extremely broad. Under the Act “compensation plan” means “the provisions, however established, for the determination and administration of a person’s compensation”. The Act does not state that the plan must be in writing, or that the proposed increases must have been communicated to employees prior to March 24, 2010, in order to fall within the exemptions to the freeze.

Other questions arise with respect to whether or not an increase has been authorized, when the compensation plan includes elements that may be awarded each year at the discretion of the employer. Finally, there are questions surrounding the meaning of “an assessment of performance”. Is this a reference to the individual’s performance, or can the increase be based on an assessment of the organization’s performance?

For some employers the impact of the restraints over the two year period may result in a serious imbalance between the compensation levels of union and non-union employee groups. Whether this will lead to increased union organizing activity remains to be seen.

Enforcement

Organizations that are subject to the freeze will be required to file compliance reports, as established by yet to be published regulations. There are, however, no express penalty provisions mentioned in the Act for failing to file a compliance report or for failing to comply with the restraints. Presumably, those responsible for ensuring that their organizations abide by the restraints will be held accountable individually and organizations will feel the impact of non-compliance in their funding arrangements with the government.

The government also plans to create a “Public Sector Compensation Restraint Board”. If employees or employers are uncertain as to whether the legislation applies to them, they will be able to apply to the Board for a determination. The Board, however, has not been given the authority to adjudicate on compensation plans themselves.

Employer Responses to Current Employee Demands

The Government has clearly stated an intention to implement the restraints, effective from March 24, 2010. Since changes to compensation now may be found to be in breach of the legislation when it passes, employers will want to review their compensation plans as at March 24, 2010 and proceed with caution until the final form of the legislation is known.