On Monday, February 12, 2024, the Ontario Court of Appeal (ONCA) released its highly anticipated decision in Ontario English Catholic Teachers Association v. Ontario (Attorney General), 2024 ONCA 101, regarding the constitutionality of Bill 124, Protecting a Sustainable Public Sector for Future Generations Act, 2019 (Bill 124). 

A majority at the ONCA confirmed Bill 124 is unconstitutional as it violates unionized workers’ collective bargaining rights, contrary to section 2(d) of the Canadian Charter of Rights and Freedoms (the Charter) and cannot be saved under section 1. However, Bill 124 remains constitutional in its application to non-unionized employees.

Further to our blog post announcing the ONCA’s ruling, this client insight provides a breakdown of the decision.

Bill 124: Background

Bill 124, which came into force on November 8, 2019, mandated a three-year “moderation period” and compensation restraint measures for unionized and non-unionized employees in the broader public sector, including a broad range of organizations that receive funding from the provincial government (e.g., hospitals, universities and colleges, school boards, crown agencies, long-term care homes and non-profit organizations). The provincial government’s purported objective for Bill 124 was to exercise responsible fiscal management in order to protect the sustainability of public services, by limiting total compensation increases for broader public sector employees to 1% for each 12-month period within the requisite three-year “moderation period.”

Over 700,000 Ontario employees were impacted by Bill 124. For unionized employees, the requirements of Bill 124 came into force with respect to any particular bargaining unit on the expiry of a collective agreement that was in effect as of June 5, 2019. For non-unionized employers, the salary moderation period had to begin by no later than January 1, 2022.

Ruling from the Ontario Superior Court of Justice

Ten labour organizations and unions brought applications challenging the constitutionality of Bill 124 following its introduction, and those applications were heard consecutively by the Ontario Superior Court of Justice (the Lower Court) in September 2022.

In Ontario English Catholic Teachers Association v. His Majesty, Justice Koehnen of the Lower Court held that while Bill 124 did not restrain the equality rights protected by section 15 of the Charter, it substantially interfered with collective bargaining and therefore violated the freedom of association rights protected under section 2(d). The Lower Court further found that this violation could not be saved by section 1 of the Charter, as the infringement could not be demonstrably justified in a free and democratic society.

While the Lower Court acknowledged that section 2(d) does not provide a right to any particular outcome in collective bargaining, it undertook a detailed analysis of what may constitute “substantial interference” in a meaningful collective bargaining process. To this end, the Lower Court considered a number of factors affected by Bill 124, including the financial impact of the wage cap; the impact of trading salary against other bargaining issues; staffing impacts; wage parity; comparisons with freely negotiated agreements during the same time period; impacts on the right to strike and interest arbitration; and, the impact on the inherent power imbalance between employers and employees. Ultimately, the Lower Court held that Bill 124 substantially interfered with the process of collective bargaining and therefore violated section 2(d) of the Charter.

To establish a justification under section 1, the Ontario government had to show that: (i) the objective of Bill 124 was pressing and substantial; (ii) there was a rational connection between Bill 124 and this objective; (iii) Bill 124 minimally impaired the Charter-protected right to a meaningful collective bargaining process; and (iv) the benefit of Bill 124 outweighed any detriment to the applicants. In its November 29, 2022, decision, the Lower Court determined, among other things, that the province could not establish a pressing and substantial objective underlying Bill 124:

[14] With respect to rational connection, there is a rational connection between the objective and wages that Ontario pays directly. The Act, however, goes far beyond that. In some cases it applies to wages that are in no way connected to Ontario’s budget or deficit. In others, like the university sector, it applies to wages that are only indirectly related to Ontario’s budget but in respect of which Ontario already has other contractual protections that control Ontario’s contributions.

[15] With respect to minimal impairment, the same considerations apply as with respect to rational connection. In addition, Ontario was free in any collective bargaining negotiation to take the position that it could not pay wage increases of more than 1%. It appears that Ontario was reluctant to take that position because it could lead to strikes. As noted, the right to strike is constitutionally protected. On this theory, Ontario was imposing a statutory limit of 1% on wage increases because it feared that taking that position at the bargaining table would lead employees to exercise their constitutionally protected right to strike. That does not amount to a reasonable limit on the right to collective bargaining that can be demonstrably justified in a free and democratic society. Although inconvenient, the right to strike is a component of a free and democratic society. Strikes bring issues to the public forefront and allow their resolution to be influenced by public opinion.

[16] With respect to balancing the benefits and negative effects of the Act, in circumstances where Ontario has not provided any satisfactory explanation for why it could not limit wage increases during collective bargaining negotiations, the negative effects of the Act outweigh its benefits.

The Lower Court accordingly declared Bill 124 to be void and of no force or effect.

ONCA’S ruling

In June 2023, the ONCA heard the Ontario government’s appeal of the Lower Court’s decision.

Writing on behalf of a majority of the ONCA panel, Justice Favreau determined that Bill 124:

• Violates the section 2(d) rights of unionized public sector employees in Ontario and substantially interferes with these workers’ right to participate in good faith negotiation and consultation over their working conditions;
• Is distinguishable from other cases where wage restraint legislation was deemed constitutional because of the circumstances leading up to its passage, as well as the terms of the legislation; and
• Cannot be justified by section 1 of the Charter because it does not minimally impair unionized employees’ right to freedom of association, and because its deleterious effects outweigh its benefits.

Constitutionality of other wage restraint legislation

The provincial government argued that the Lower Court erred in failing to follow existing case law dealing with the constitutional validity of wage restraint legislation. The ONCA reviewed similar legislation enacted in Québec, Manitoba, British Columbia and Nova Scotia, all of which were considered constitutional by the courts in their respective jurisdictions.

The ONCA reviewed existing wage restraint decisions and confirmed the Lower Court’s process when assessing “substantial interference.” In particular, the ONCA held that regardless of the wage restraint legislation under review, courts use certain indicia to assess whether the measures imposed by such legislation reach a level of “substantial interference” or allows for a meaningful process of good faith negotiation and consultation. In the context of Bill 124, the ONCA highlighted relevant factors as including the absence of meaningful bargaining or consultation before Bill 124 was passed; the broad definition of compensation under Bill 124 significantly reduced the scope of items that could be negotiated during collective bargaining; the absence of a proper mechanism for exemptions under Bill 124 rendered the possibility of exemption as illusory; and public sector agreements not subject to Bill 124 generally provide for overall compensation increases of more than 1% during the same time periods.

Section 2(d) of the Charter

Section 2(d) of the Charter protects the freedom of association and the right to engage in collective bargaining.

In accordance with the two-part test outlined in the Supreme Court of Canada’s decision in Health Services and Support – Facilities Subsector Bargaining Assn. v. British Columbia, 2007 SCC 27, the ONCA found Bill 124 addressed “matters of central importance to collective bargaining” as it related expressly to workers’ wages and compensation. However, Bill 124 did not “preserve a meaningful process of consultation and good faith negotiation” because:

[145] … The Act did not come after a significant or meaningful process of collective bargaining. While this could have been attenuated by meaningful consultation over Bill 124 itself, no meaningful consultation took place. Further, the broad definition of compensation significantly limits the areas of potential negotiation left on the table for collective bargaining. Moreover, the Act does not provide a meaningful avenue for negotiating or seeking potential exemptions from the 1% cap in appropriate circumstances. Finally, the 1% cap on salary and compensation increases does not replicate collective agreements reached in other public sector bargaining. In combination, these factors persuade me that the Act substantially interferes with the respondents’ ability to participate in good faith negotiation and consultation with their employers.

Section 1 of the Charter

The ONCA further held that Bill 124 was not saved by section 1 of the Charter. Contrary to the Lower Court’s findings, the ONCA recognized managing finances and budgetary considerations as a pressing and substantial objective of the provincial government. However, the ONCA agreed with the Lower Court’s decision that although wage moderation was rationally connected to this pressing and substantial objective, there was no rational connection between Bill 124 and the broad range of workers caught within its scope. The ONCA called particular attention to workers in the electricity and university sectors, as energy employers are typically self-funded while the legislative model for university funding is not tied to university workers’ wages. Put simply, these are examples of two large public sectors caught by Bill 124 whose funding models have little to do with worker wages.

The ONCA also upheld the Lower Court’s findings that Bill 124 did not minimally impair unionized public workers’ right to collectively bargain under section 2(d). Specifically, the Ontario government failed to demonstrate why it could not pursue less restrictive approaches to control expenditures, such as voluntary wage restraint agreements, capping the funding provided to broader public sector employers, or pursuing cost controls at the bargaining table. Instead, the Ontario government resorted to a blanket wage increase prohibition for a three-year period for a very broad and diverse array of public sector employers. 

Although not necessary, the ONCA also concluded that Bill 124’s salutary effects were not proportional to its detrimental effects. The provincial government failed to demonstrate why wage restraint could not have been achieved through good faith bargaining completed in the normal course. Without sufficient reasons and no substantive mechanisms for obtaining exemptions, Bill 124’s system of bypassing bargaining to arrive at a predetermined outcome of wage increases of 1% or less could not be justified. 

Application to non-unionized workers

Notably, the ONCA found that the Lower Court erred in declaring the entirety of Bill 124 as void and of no effect. The ONCA upheld the constitutionality of Bill 124 as it applied to non-unionized public sector workers, who do not enjoy rights under section 2(d) of the Charter as they do not bargain collectively or are otherwise represented by a union.

Dissenting opinion

Justice Hourigan wrote a dissenting opinion for the ONCA in which he stated that Bill 124 was constitutional in its entirety. He articulated that Bill 124 did not substantially interfere with section 2(d) of the Charter and that the Lower Court’s section 1 analysis was “built on legal errors and palpable and overriding factual errors” that warranted setting aside the Lower Court’s decision.

At its core, the dissenting opinion focused on the importance of maintaining the separation of powers between the judiciary and the legislature.

Conclusion

This decision provided an important opportunity for the ONCA to comment on the constitutionality of wage restraint legislation in Ontario. It also provided a useful framing of the right to collective bargaining under section 2(d), including an analysis of the boundaries of “substantial interference” and the nuanced interplay between bargaining “processes” and bargaining “outcomes,” the latter of which are not constitutionally protected.

The Ontario government announced late on February 12, 2024, that it will not seek appeal of ONCA’s decision to the Supreme Court of Canada. Accordingly, the ONCA’s decision has finally resolved the question of Bill 124’s constitutionality in the province.

Some arbitrators have already awarded additional wage increases in a series of retroactive pay decisions for certain public sector workers affected by Bill 124 after the Lower Court’s decision in 2022, largely based on negotiated “re-opener” provisions in particular collective agreements. We expect that more of these decisions will follow as the province now takes steps to repeal Bill 124.

It remains unclear what, if any, steps the Ontario government will take to provide supplemental funding to broader public sector employers given the repeal of Bill 124 in an effort to address retroactive increases. It also remains unclear what steps the various unions will pursue to obtain a financial remedy for those workers who do not have re-opener clauses under their particular collective agreements. It is possible that further litigation will be necessary as part of the Lower Court’s jurisdiction over remedies, particularly now that its decision has been affirmed by the ONCA.

For more information on this topic, please contact co-authors Fatimah Khan or Janice Pereira.