The Ontario Government introduced Bill 124 (also known as the “Protecting a Sustainable Public Sector for Future Generations Act”) in June 2019. The legislation was intended to cap the wages of unionized and non-unionized public sector employees for a period of three years to help eliminate a financial deficit. However, this legislation was met with significant displeasure by unions and employees alike, which resulted in the constitutionality of the legislation being assessed by both the Ontario Superior Court of Justice and the Ontario Court of Appeal.

This blog provides oversight of Bill 124 and its procedural history. It also reviews the decisions from both courts and considers the future impacts of the Court of Appeal’s recent decision, finding that the legislation is unconstitutional.

What Is Ontario Bill 124?

Protecting a Sustainable Public Sector for Future Generations Act (“Bill 124”) was introduced in June 2019 and received royal assent on November 7, 2019. Bill 124 is a relatively new law that capped wage increases for public sector workers for three years. It affected those working for public sector employees, including those working in public hospitals, universities, schools, non-profits receiving at least $1 million in Government funding, and long-term care homes.

The intention of Bill 124 was for its application to be “exceptional and time-limited” as it generally limited wage increases to one percent annually, subject to certain exceptions. Bill 124 was met with significant criticism from the unionized and nonunionized employees it affected but received even more backlash from unions representing public sector workers.

Ontario Superior Court of Justice Declares Bill 124 Unconstitutional

In 2022, Ontario English Catholic Teachers Assoc. v. His Majesty came before the Ontario Superior Court of Justice, in which several applicants challenged Bill 124’s wage restraint provisions. They argued Bill 124 violated their rights under section 2(d) of the Canadian Charter of Rights and Freedoms (the “Charter”), which provides for unionized employees’ right to freedom of association and related collective bargaining rights.

The Court found in favour of several unions who argued Bill 124 was unconstitutional, acknowledging it infringed on the applicants’ rights to freedom of association (and this infringement was not saved under section 1 of the Charter). The Court noted Bill 124 did not impact the applicants’ freedom of speech or equality rights. Accordingly, the Court struck down Bill 124 in its entirety, with Justice Koehnen noting:

“[t]he Charter protects not just the right to associate, but also the right to a meaningful process in which unions can put on the table those issues that are of concern to workers and have them discussed in good faith.”

Government Appeals Court’s Declaration That Bill 124 Is Unconstitutional

Immediately following this decision, the Ontario Government indicated it would appeal. When the matter came before the Ontario Court of Appeal, the Government argued the lower court “erred in holding that the financial impact of the Act’s limits on the compensation increases substantially interferes with the respondent’s rights to a meaningful process of collective bargaining.” It also claimed that the lower court mischaracterized the critical reason the legislation was put into place, arguing that it was intended to “manage the province’s finances in a responsible manner and to protect the sustainability of public services.”

The Court of Appeal reviewed the two-part test to assess whether a “substantial interference” with Charter rights under section 2(d) occurred. The test requires the Court of Appeal to:

1. Assess the importance of the matter to the process of collective bargaining; and
2. Consider the manner and extent to which the measure impacts the applicants’ collective right to good faith bargaining and consultation.

Legislation Substantially Interferes With Applicants’ Charter Rights

In this case, the Court of Appeal acknowledged compensation is a matter of central importance to the collective bargaining process. Therefore, it determined the first limb of the test was satisfied. Regarding the second limb of the test, the Court of Appeal decided that there had been a substantial interference with the applicants’ Charter rights due to four key findings:

• There was a lack of meaningful consultation or significant collective bargaining before the implementation of Bill 124;
• Bill 124 contained a broad definition of “compensation” that significantly restricted what unions could negotiate, noting that “the cap does not just apply to salaries. It also applies to any kind of benefit or compensation that can be monetized, such as sick days, vacation days and other benefits;
• The terms contained within Bill 124 did not match other collective agreements which were negotiated in the public sector during the same time period, which did allow for wage increases and additional changes in compensation; and
• Bill 124 contained an “illusory” process for exemptions. The Court of Appeal noted the Government had only granted one of many requests, with the right to strike not being a viable alternative in the circumstances. It further found no evidence presented to indicate what process or criteria the Minister uses in evaluating such requests.

Is the Substantial Infringement Saved by Section 1 of the Charter?

Section 1 of the Charter: “guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.” As such, in assessing whether the substantial interference by Bill 124 was justified under section 1 of the Charter, the Court of Appeal applied the R. v. Oakes, which requires the Court to:

1. Determine whether the legislative objective relates to societal concerns which are pressing and substantial in a free and democratic society before it can be characterized as sufficiently important; and
2. Whether the party seeking to rely on section 1 of the Charter has proven the means to be reasonable and demonstrably justified through a proportionality test involving three key components:
   1. The measures must be fair and not arbitrary, carefully designed to achieve the objective in question and rationally connected to that objective;
   2. The means should impair the right in question as little as possible; and
   3. There must be proportionality between the effects of the limiting measure and the objective.

Court of Appeal Upholds Declaration of Bill 124’s Unconstitutionality in Relation to Unionized Employees

When applying the test, the Court of Appeal found the Government had established that Bill 124 addressed a pressing and substantial objective (responsibly managing the province’s finances while protecting the sustainability of public services). However, this objective was not rationally connected to the legislation insofar as certain workers were not concerned. Additionally, the Court of Appeal found that there were more “minimally impairing” means of achieving this goal.

In particular, Justice Favreau noted:

“organized public sector workers, many of whom are women, racialized and/or low-income earners, have lost the ability to negotiate for better compensation or even better work conditions that do not have a monetary value.”

Bill 124 Should Not Be Completely Struck Out

Upon conclusion of the analysis above, the Court of Appeal agreed with the lower court’s findings that Bill 124 was unconstitutional due to the infringement it had upon the applicants’ rights to freedom of association and collective bargaining under section 2(d) of the Charter. As such, the Court of Appeal upheld the lower court’s decision only in relation to unionized employees who were afforded such protections under the Charter.

The Court of Appeal went on to acknowledge, however, that the lower court erred in striking out the statute in its entirety and noted that “[t]he rights protected by s. 2(d) of the Charter do not apply in the same way to non-represented [non-unionized] employees”. Accordingly, the Court found that Bill 124 is only unconstitutional as it applies to the employees covered within it.

What Does This Mean for the Future of Bill 124?

Following the release of the Court of Appeal’s decision on February 12, 2024, the Ontario Government stated it would not appeal the matter further and would be taking steps to repeal Bill 124 in its entirety. In response to the Court of Appeal’s acknowledgment that the decision has different effects for unionized and non-unionized employees, the Government also said it would implement regulations to exempt non-unionized and non-associated workers from Bill 124 until it is repealed.

Without the constraints of Bill 124, public sector employers now have greater flexibility in resuming wage negotiations for all employees. However, the Broader Public Sector Executive Compensation Act, 2014 continues to apply to particular executives under a limited number of employers, and this decision has not affected applicable compensation restrictions.

Contact the Employment & Labour Lawyers at Willis Business Law for Trusted Guidance and Advice in Windsor-Essex County

The skilled labour and employment law lawyers at Willis Business Law in Windsor regularly advise private and public sector employers on issues arising from various labour and employment-related issues, such as contract negotiation, collective bargaining matters, and dispute resolution. Our team remains atop the everchanging legislative landscape governing workplaces across the province. By helping you understand your obligations as an employer and ensuring you stay informed of upcoming legislative amendments, our employment law team can help you remain compliant while mitigating the risk of future disputes.

From our office in downtown Windsor, Willis Business Law helps clients throughout Windsor-Essex manage their legal needs. To speak with a member of our team regarding your labour or employment law matter, contact us online or at 519-945-5470.