Ontario Court of Appeal sets high bar for wage restraint legislation

On February 12, in a split decision, the Ontario Court of Appeal confirmed a decision striking down Ontario’s wage restraint law, Bill 124, Protecting a Sustainable Public Sector for Future Generations Act, as it applies to unionized workers. On the same day the Ontario government announced it would not appeal, and would instead repeal the legislation in its entirety. In the interim, the government will pass a regulation suspending application of Bill 124 to non-unionized employees.

Ontario English Catholic Teachers Association v Ontario (Attorney General) (OECTA) is the latest in a long line of “wage restraint legislation” cases. At stake in this line of jurisprudence is a government’s ability to mandate public sector payroll in times of economic downturn or other fiscal crisis. Following OECTA, the Ontario government must clear a high bar to adopt such legislation in future – though that bar is not out of reach.

Challenges to Bill 124

Bill 124 was introduced in 2019 in an effort to balance Ontario’s budget. In the face of a substantial public deficit, the legislation was intended to control growth in compensation for public sector workers by creating a three-year “moderation period.” During that period, compensation increases for most public sector workers would be limited to 1% per year.

A broad range of labour organizations challenged the constitutionality of Bill 124. In a 2022 decision, Justice Koehnen of the Ontario Superior Court of Justice held the legislation infringed on section 2(d) of the Charter of Rights and Freedoms and could not be justified as a “reasonable limit” on that freedom under section 1 of the Charter. Justice Koehnen declared Bill 124 void and of not effect. Ontario appealed.

The Charter and collective bargaining

While the subject of the appeal was the overall constitutionality of Bill 124, the primary issue on which the Court of Appeal divided was the proper application of section 2(d) of the Charter.

Section 2(d) provides for freedom of association. It has been interpreted to protect the right of unionized employees to collective bargaining. While it does not guarantee unions will achieve any particular outcome in negotiations with employers, it protects “meaningful process.” The Supreme Court of Canada has identified two factors for determining whether legislation infringes on section 2(d) rights:

• Whether the subject matter of the legislation is of significant importance to collective bargaining. Courts have recognized that wages are of central importance to collective bargaining.
• Whether the legislation preserves a process of good faith negotiation and consultation between employers and unionized employees. Courts have diverged as to whether wage restraint legislation leaves room for the “meaningful process” guaranteed by the Charter. It is on this question that the Court of Appeal in OECTA divided.

The majority and dissent in OECTA came to different conclusions on how Bill 124 compared to the federal Expenditure Restraint Act (ERA), adopted following the 2008 financial crisis. That legislation is an example of constitutional wage restraint legislation that preserved a process of good faith negotiation and consultation.

The majority decision

Justice Favreau, joined by Justice Doherty, held that on a contextual analysis, the adoption of Bill 124 did not reflect the hallmarks of enforceable wage restraint legislation that marked the ERA:

• Ontario failed to engage in collective bargaining before adopting Bill 124, or to engage in meaningful consultation with unions on the legislation.
• Bill 124 failed to preserve room for negotiation on issues other than wages, such as vacation, days off and benefits.
• Bill 124 did not allow for meaningful exemptions to wage restraint rules, which would give unions something to negotiate for.
• The 1% wage limit was substantially less than increases employees achieved in free bargaining, indicating a significant impact on bargaining rights. 

Unlike the ERA, Bill 124 did not leave room for good faith negotiation and consultation between employers and unionized employees. It substantially interfered with the section 2(d) rights of unionized workers, and could not be saved by section 1 of the Charter. 

Justice Favreau upheld the decision to void the legislation, but only for unionized employees. She held that section 2(d) does not apply to non-unionized employees in the same way, and so Bill 124 might still apply to those workers.

The dissent

Justice Hourigan rejected the majority’s contextual approach as opening the door to inappropriate judicial scrutiny of legislative action. He emphasized the separation of powers between the legislature and courts. Through this lens, he could find no principled difference between Bill 124 and the ERA, which had previously passed section 2(d) scrutiny. There was no breach of s. 2(d).

Takeaways

At present, the majority decision in OECTA is the law in Ontario. In future, Ontario governments aiming to adopt wage restraint legislation will need to closely adhere to the hallmarks Justice Favreau outlined – negotiation, consultation, a narrow focus on wages only, meaningful exemptions and replication of results available in free bargaining. While this does not preclude future wage restraint legislation – after all, the ERA is a successful model – it does make it more difficult to adopt.