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May 26, 2023

From: Åke Blomqvist 

To: Canada’s labour ministers

Date: May 26, 2023

Re: Binding Arbitration Should be Front and Centre in Public Sector Contract Talks

High and unpredictable inflation has made labour negotiations more difficult. The recent strike by more than 150,000 federal public servants is but one illustration. Lasting 12 days for most affected workers and two weeks for 35,000 Canada Revenue Agency employees (at the height of tax season), it brought into focus an issue all Canadian governments need to address, and quickly: What methods can they use to ensure critical municipal, provincial or federal public services continue without interruption, and at a tolerable cost to taxpayers?

I believe they need to make more use of binding arbitration.

Several decisions by the Supreme Court of Canada, particularly in Saskatchewan Federation of Labour vs Saskatchewan in 2015, have created new challenges for public-sector labour relations. In that decision, the Court considered a Saskatchewan law that empowered the provincial government to designate various health services as “essential” and prohibit the employees who provide them from striking. The Court ruled this law unconstitutional on the grounds a prohibition against strikes “substantially interferes with a meaningful process of collective bargaining.” It did recognize that certain categories of workers must always be available to produce essential services, but said that if the right to strike were to be taken away or limited for such workers, it must be replaced by “access to a meaningful alternative mechanism for resolving bargaining impasses,” such as arbitration.

The decision was controversial, with two of the seven participating judges dissenting, but the majority view was that the Charter’s section 2(d) – which simply states that “freedom of association” is one of Canadians’ fundamental freedoms – should be interpreted to mean all employees in Canada, whether in the private or public sector, must have either the right to strike or access to some form of arbitration.

The idea that all employees should have the same rights, though appealing, neglects a fundamental difference in the nature of labour negotiations between the public and private sectors.

In the private sector, competition limits employers’ ability to pass on higher labour costs to consumers by raising the prices of the goods and services they sell, so higher wages or contract provisions that raise costs may cause substantial job losses as businesses switch production to places where costs are lower or cut back on employment as they lose market share.

In contrast, when it comes to essential public services supplied by governments, higher labour costs can be passed on in the form of higher taxes, which consumers cannot escape. Government is the only supplier of many of these services. With little fear of future job losses, public-sector unions have more bargaining power and hence greater ability to negotiate higher wages than comparable private-sector workers do.

Given this fundamental difference between the private and public sectors, it is not clear whether the leaders and legislatures that gave us the Canadian Charter of Rights would have agreed with the Saskatchewan ruling. But unless a government resorts to the notwithstanding clause, the law is whatever the Supreme Court of Canada says it is. In view of the court’s suggestion that limits to the right to strike for essential workers may be Charter-compatible if negotiated in advance and imposed in conjunction with “one of the meaningful dispute resolution mechanisms commonly used in labour relations,” Canadian governments should start looking at ways to include provisions for arbitration more widely in public-sector employment contracts.

Existing rules of arbitration – for example, those referring to the employer’s “ability to pay” as a key factor – may need to be modified for use in public-sector bargaining, where they may not apply. Similarly, the responsibility of arbitrators to explain their decisions to the public, not usually required in private-sector cases, should be made clear, and consideration should be given to the use of final-offer arbitration, in which the arbitrator chooses between two final offers. This mechanism discourages either side from taking an extreme position.

As union rhetoric in the recent strike highlighted, uncertainty about future inflation has made public-sector labour negotiations much more contentious. Supreme Court decisions like that in the Saskatchewan case have not helped calm the waters. Finding ways of making contract talks less adversarial, disruptive and costly should be a high priority for Canadian governments.

Åke Blomqvist is adjunct research professor at Carleton University and a Research Fellow at the C.D. Howe Institute.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.

A version of this Memo first appeared in the Financial Post.