Report in which the committee requests to be kept informed of development - Report No 297, March 1995

Case No 1779 (Canada) - Complaint date: 08-JUN-94 - Closed

231. In a communication dated 8 June 1994, the Canadian Federation of Labour (CFL) on behalf of the Prince Edward Island Council of Labour submitted a complaint of violations of freedom of association (Case No. 1779) against the Government of Canada (Prince Edward Island). In communications dated respectively 11, 16 and 17 August 1994, the Prince Edward Island Nurses' Union, the Prince Edward Island Teachers' Federation and the International Brotherhood of Electrical Workers, Local 1432, expressed their support to the complaint. In various communications of 9, 12 and 13 September 1994, different locals of the Canadian Union of Public Employees expressed also their support to the complaint, as did the Education International in a communication of 26 September 1994.

1. 231. In a communication dated 8 June 1994, the Canadian Federation of Labour (CFL) on behalf of the Prince Edward Island Council of Labour submitted a complaint of violations of freedom of association (Case No. 1779) against the Government of Canada (Prince Edward Island). In communications dated respectively 11, 16 and 17 August 1994, the Prince Edward Island Nurses' Union, the Prince Edward Island Teachers' Federation and the International Brotherhood of Electrical Workers, Local 1432, expressed their support to the complaint. In various communications of 9, 12 and 13 September 1994, different locals of the Canadian Union of Public Employees expressed also their support to the complaint, as did the Education International in a communication of 26 September 1994.
2. 232. The complaint (Case No. 1801) of the Canadian Labour Congress (CLC) on behalf of its affiliated organization, the National Union of Public and General Employees is contained in a communication dated 6 October 1994. The Public Services International and the International Confederation of Free Trade Unions expressed their support in communications of 21 October and of 14 November 1994 respectively.
3. 233. The federal Government, in communications of respectively 3 October 1994 and 11 January 1995, transmitted the observations and information from the Government of Prince Edward Island for each of these two cases.
4. 234. Canada has ratified the Freedom of Association and Protection of the Right to Organize Convention, 1948 (No. 87). It has not ratified the Right to Organize and Collective Bargaining Convention, 1949 (No. 98), the Labour Relations (Public Service) Convention, 1978 (No. 151), or the Collective Bargaining Convention, 1981 (No. 154).

A. Allegations of the complainant organizations

1. 235. The complainants allege that the Government of Prince Edward Island violated freedom of association principles by enacting on 19 May 1994 the Public Pay Reduction Act, hereafter called "the Act". For ease of reference, the Act is reproduced in the Annex to this document.
2. 236. The complainants describe the context in which the Act was enacted. In April 1994, when the the Prince Edward Island Government tabled its budget, it stated that the province was faced with a very difficult financial situation. The budget called for a reduction of 7.5 per cent in the salary-related accounts of all government departments and agencies. The non-salary governmental operating accounts needed also to be reduced by an average of 7.5 per cent. These reductions were permanent and not to be restored at the end of the fiscal year. On 19 May 1994, the Government of Prince Edward Island introduced the Act, its purpose being to reduce the pay rate of all government employees as a deficit reduction measure, effective as of 17 May 1994 (see section 2 of the Act). The Act provides for a 3.75 per cent reduction for annual salaries of $28,000 or less and a 7.5 per cent reduction for incomes of more than $28,000. A provision ensures that the 7.5 per cent reduction shall not reduce the pay rate of any position to less than $26,950. The Act does not apply to pay rates for students or pay-based separation allowances, including service gratuities, retiring pay and workforce adjustment payments payable prior to 17 May 1995. Also salary increments and increases resulting from promotion were excluded from the application of the Act. Using the example of the Prince Edward Island Union of Public Sector Employees (PEIUPSE), the CLC adds that in November 1991, sensitive to the government concern that the projected deficit for 1991-92 would be much higher than originally budgeted, the PEIUPSE agreed to amend its collective agreement for nine paid periods whereby salaries would be paid at 94 per cent and employees would receive six days' paid leave in exchange. From 1 April 1992 to 31 March 1995, new collective agreements were then signed between the Government and the PEIUPSE providing no pay increase. Thus, it is in this context of salary freeze, the last one having been negotiated in February 1994, that the Prince Edward Island Government presented its budget in April 1994 and gave a deadline of 27 April 1994 to public sector unions to decide whether they would participate in determining how to implement labour cost reductions. On 6 May 1994, the PEIUPSE and all other public sector unions voted by 96 per cent to reject the Government's request to amend once more their collective agreements. The Act was then enacted on 19 May 1994.
3. 237. The complainant organizations allege that the Act violates freedom of association principles and alters the structure of the labour relations system of the Prince Edward Island public sector for various reasons. First, the Act has broken all collective agreements the province had with its unions and has eliminated collective bargaining or resort to binding arbitration.
4. 238. Also, the Act annuls the principle of the autonomy of the parties to the existing collective agreements by imposing budgetary cuts and distorts the balance of power between the employers and employees making it impossible for unions to carry out their responsibility. Disregarding a contract with employees renders the right to bargain wages and work conditions on a collective basis irrelevant. The CFL adds that a government reneging on its contractual obligations to its own employees sends a very dangerous message to private sector employers, legitimizing an industrial relations environment where the rights of workers can be treated with contempt.
5. 239. Moreover, the Act represents a trend to a public policy choice of using legislation to break collective bargaining agreements instead of other, more consultative mechanisms to address fiscal pressures in the administration of the Government.
6. 240. The complainant organizations argue that alternatives exist which render this drastic legislative measure unnecessary. For example, the deficit could have been shared equally by all islanders through various methods of taxation, such as increases in general income or provincial taxes. The CLC adds that in fact the Act serves to impose a tax of between 3.75 per cent and 7.5 per cent on public sector workers only. Furthermore, according to the CLC, the Act has a direct impact on workers nearing their retirement age as their pension calculations are based on their best three years, these years being usually their final years in the workforce.
7. 241. The complainant organizations insist that they were open to find constructive solutions to deal with the issue of the provincial debt. The CFL states that it has initiated a project in the Prince County Hospital in Summerside aiming at improving effectiveness, efficiency and ultimately reducing costs. It argues that this union-initiated project is the only one of its type in Prince Edward Island's public sector to address effectiveness and efficiency issues through teamwork principles while respecting collective agreements.
8. 242. Finally, the CFL states that the Government did not consult with its employees regarding the deficit, nor did it consult the unions with respect to the Act itself. The unions were not aware of the cuts until 7 April 1994 when they were told that the Government was going to impose wage cuts and that there was no alternative, the only bargaining allowed being to determine how reductions would be best achieved. On its part, the CLC adds, with regard to the PEIUPSE, that although the Government of Prince Edward Island signed a collective agreement in February 1994 covering the period 1 April 1994 to 31 March 1995 and providing for no pay increase, it is clear that the Government failed to bargain in good faith during negotiations, the economic position of the province not having changed so drastically over the period since the collective agreement was entered into force and the enactment of the Act. In this context, the CLC requests that the Prince Edward Island Government repeals the Act and returns to a fair system of free collective bargaining with its employees. It also urges the Committee to consider sending a mission to investigate the continuing deterioration of public sector labour relations.

B. The Government's reply

1. 243. The Government submits in its communications of 3 October 1994 and 11 January 1995 that in the spring of 1994 it was suddenly presented with a dire revenue picture for the province for the fiscal year 1994-95, largely as a result of downward adjustment of revenues expected to be received from the federal Government. The previous year, the province received 39 per cent of its gross revenues from federal sources but that equals $23 million less than was projected in equalization payments. A small shortfall in provincial source revenues also contributed to actual revenues being much lower than budgeted.
2. 244. Other factors on the expenditure side of provincial finances exacerbated the problems created by the revenue shortfalls in the spring of 1994. Over-expenditures in accounts primarily relating to social assistance added $7 million to the deficit. A further $10 million had to be added as a result of a change in accounting practices relating to payments made to employees under workforce adjustment programmes. All in all, the deficit for 1993-94 escalated from the budgeted amount of $25.4 million to $69.4 million, an increase of $44 million. Moreover, the Province of Prince Edward Island has experienced four consecutive years of extremely high deficits starting at $20.3 million in 1990-91 and cumulating at 1993-94 figures.
3. 245. The Government goes on in explaining that the accumulated debt of the province is in excess of $1.1 billion. Current costs of servicing this debt exceed $110 million annually. This figure represents approximately 16 per cent of the province's total expenditures and is obtained entirely through further borrowing. The cost of borrowing varies with interest level fluctuations and with the province's bond rating. This rating, which already placed Prince Edward Island in the bottom third of Canadian provinces, was further lowered in May 1994 by two of the three bond rating agencies, relegating Prince Edward Island to the unenviable position of having the lowest rating in Canada except for one agency's rating of the Province of Newfoundland. This means that the province's cost of borrowing has increased and is now among the highest in Canada. This increase results in the need to borrow even more money to service the debt of previous years.
4. 246. In the spring of 1994 the Provincial Treasurer determined that the province's own revenue sources could not be expected to produce greater revenues by increasing taxes. This determination was based on a number of factors including an economic recovery plan for the province which is premised on the conviction that Prince Edward Island must reduce its level of dependence on federal government revenue sources and become more self-reliant.
5. 247. Following consultation with individuals, a variety of interest groups representing a wide spectrum of society, and a private consultation with executive members of all public sector unions in the province, the Provincial Treasurer concluded that immediate action to reduce the deficit was necessary. Upon advising his cabinet colleagues of the situation, it became apparent that the only option which would achieve a significant deficit reduction and be consistent with Government's overall economic recovery plan was immediate action to reduce expenditures including public sector wage and benefit costs. Labour costs in the broad public sector for the fiscal year 1993-94 were $369 million, constituting almost 46 per cent of provincial government expenditure.
6. 248. To have the least possible impact on public sector employees, wage reductions had to be implemented early in the fiscal year which commences 1 April 1994. Government's decision to proceed with a reduction of public sector labour costs was first made public in the Provincial Treasurer's budget speech of 12 April 1994. In that speech, the Provincial Treasurer announced a host of expenditure reductions but made it clear that in the case of labour costs there would be some room for negotiation in order to propose options for reducing these costs through employee benefits and other related measures. The Provincial Treasurer also indicated at the time that the only alternative to wage cuts would be large-scale lay offs.
7. 249. As regards the alleged violations of collective bargaining principles, the Government submits that the Act reduces wages by 7.5 per cent for higher waged employees and by 3.75 per cent for lower waged employees and precludes wage or benefit increases for a one-year period but it still leaves room to negotiate. In fact, the Act provides that employers and unions can negotiate offsetting considerations or reductions in other labour cost items such as benefits in lieu of, or in combination with, a wage reduction. In fact, since the coming into force of the Act, one group of non-unionized government employees has negotiated a period of ten days' leave as an offsetting consideration for the wage reduction. In addition, other affected non-unionized groups of employees have come forward with requests to negotiate the method in which the Act will apply to them.
8. 250. Admitting that the Act does temporarily prevent unions from negotiating wage and benefit increases on behalf of their members, the Government alleges that the prevailing circumstances in the spring of 1994 left it with no other alternative but to legislate labour cost reductions in the manner set out in the Act.
9. 251. In this exceptionally difficult time for the province as rapidly declining revenues threatened both the province's ability to meet its commitments and its borrowing power, the Government submits that the restriction on collective bargaining with regard to wage and benefits is an exceptional measure and that it is consistent with ILO principles and Conventions. Furthermore the Government states that it acted in accordance with the Committee's guidelines for restrictions on collective bargaining by intervening only to the extent necessary. The province's economic situation dictated that a substantial reduction in public sector labour costs was unavoidable and that the savings had to commence in 1994-95. The Act requires substantial reductions in labour costs and makes the reductions effective as early in the fiscal year as possible to minimize their impact. In addition the freeze on increases is limited to a one-year period. Negotiations for increases can occur at any time and increases can take effect at any time after 16 May 1995. The Government insists on the fact that the Act contains safeguard measures designed to protect the living standards of workers, particularly low income workers. The Act allows for increases to the minimum wage, for increases payable on promotion, for progression through the steps of a pay range and for the continuation of pay equity adjustments. The Government also submits that its plan for deficit reduction is a reasonable, responsible compromise between the need to safeguard the free collective bargaining process to the highest degree possible and the need to make concerted efforts to overcome persistent budgetary deficits which threaten the viability of the province and hence threaten the financial futures of all its inhabitants.
10. 252. As regards the alleged trend to a public policy choice of using legislation to break collective bargaining agreements, the Government states that the Act does not set an example that collective agreements are contracts which can be broken by one party. Since the commencement of collective bargaining in the public sector in the province in the early 1970s, on only one prior occasion has the Government intervened to affect wage levels. In 1983, the Compensation Review Act limited wage increases for a two-year period. As the early 1980s was a time of exceptionally volatile wage and inflation increases, this legislation was determined to be a necessary measure to stabilize the economy of the province. Government recognizes that collective agreements are contracts and so did not interfere with these contracts until 1994 when it had absolutely no other choice but to reduce these costs. The Government submits that it was in serious financial difficulty in the three years preceding 1994-95 but, unlike many other jurisdictions, it did not interfere in the collective bargaining process until a time when it was left with no other alternative.
11. 253. As regards the allegations of the complaint concerning possible recourse to other less drastic alternatives, the Government submits that other options to reduce the deficit were utilized. The complaints ignore the comprehensive plan put in place in the spring of 1994 to reduce the deficit. In fact, the Act was one of several measures taken by the Government to address the situation and stabilize the deficit at an acceptable level. It should be noted that the Act, in addition to reducing wages of all unionized and non-unionized public sector employees, also reduced by a full 7.5 per cent the amounts paid to members of provincial tribunals, commissions and agencies, to provincial court judges and to physicians pursuant to an agreement which had been in effect prior to the introduction of the Act. Besides the reduction measures called for by the Act, the Government reduced the salaries of all Ministers of the Crown and all members of the Legislature on 1 April 1994. The Government also directed Ministers of the Crown to renegotiate a variety of contracts, other than collective agreements, to provide for a reduction of 7.5 per cent in the amounts payable by the Government thereunder. The Act cannot be said to be an attack on unionized workers in the province.
12. 254. As regards the allegation of the complainant organizations that other means existed to address the problem, such as increasing taxes, the Government recalls that the Province of Prince Edward Island has a total population of just over 130,000 inhabitants, its tax base being extremely limited. The average annual income is $24,100 and 50 per cent of all tax filers have total incomes of between $10,000 and $35,000. Furthermore, the Government adds that a 1 per cent increase in provincial sales tax might yield $10 million but would do so only if the increase does not drive economic activity underground (something that is already occurring) and only if the province does not lose its competitive position vis-à-vis other provinces. The Government argues that the amount of revenues produced by a 1 per cent surtax on taxable incomes would be insignificant since there exists already a 10 per cent surtax in the province paid only by 750 tax filers as it is a tax on higher income earners.
13. 255. As regards the union-initiated project in Prince County Hospital, the Government wishes to commend the efforts of some public sector unions to assist in increasing efficiency and ultimately reducing costs. However helpful these types of cooperative efforts might be, they will produce cost savings only over the very long term. While such steps are necessary, they do not address large, persistent, structural deficits which must be dealt with in the short, medium and long terms.
14. 256. With regard to the allegation of the CLC that the Government failed to negotiate in good faith since it has signed a collective agreement with the PEIUPSE in February 1994 providing for no pay increase while it knew that it was going to enact the Act, the Government recalls that the PEIUPSE is the only organization that agreed in 1992-93 to a wage freeze, others were successful in obtaining wage increases which exacerbated the Government's difficulty in controlling both that current year's deficit and the mushrooming debt evolving from the build up of annual deficits. Thus, at the time of signing of the agreement with the PEIUPSE the Government knew there was a very serious deficit projected for the province. However, no decision with respect to the manner in which this problem might be addressed was made until many weeks later following the series of meetings which occurred in late February and in March 1994 and the further deliberations of the Government as a result of these meetings. The Government adds that apart from the wage reductions various gains made by the PEIUPSE under the February 1994 agreement remained unaffected such as, provision for a period of three days' paid leave over the Christmas holiday period.
15. 257. Finally, as regards the alleged lack of consultation, the Government argues that it did engage in consultation with employees and their unions prior to the introduction of the Act. In the fall of 1993 in preparation for the budget for the fiscal year 1994-95, the Provincial Treasurer announced a series of four round table meetings to which some 90 individuals, many of whom were representatives of various industries, communities and organizations, were invited. At these meetings, financial information regarding the province's revenues and expenditures was provided. The consensus of these meetings was that a long-term strategy was needed to reduce the deficit and that such a strategy should put emphasis on economic growth and development and not raise taxes as this would actually discourage economic development. As a follow-up to the round table meetings and as an opportunity for informing and consulting with the public regarding the province's financial status and preparation of the budget for 1994-95, the Provincial Treasurer announced a series of public town hall meetings in late February and early March 1994. In fact, seven public meetings were held as well as a special meeting on 3 March 1994 with the executives of all public sector unions. As with the round table meetings, the Provincial Treasurer attended each of these meetings and the province's financial situation was outlined to those in attendance. At most meetings, economic growth was seen as the vehicle for increasing revenues. Raising taxes was not acceptable to the majority of those present.
16. 258. On 11 April 1994 public sector unions were advised that reductions in labour costs were required and that provision to this effect would be contained in the budget speech which was to be made by the Provincial Treasurer the next day. The budget speech clearly sets out the Government's decision to apply a combination of reductions in programmes, services and labour costs.
17. 259. A few days later, the affected public sector unions were contacted by Government representatives that were authorized to conduct negotiations in the event that a union wished to negotiate the application of the labour cost savings to its members. The reductions could be achieved from a number of wage or benefit areas. Areas could include, but not necessarily be limited to, employer contributions to benefits, shorter work weeks for non-shift employees, salary increments/pay equity, unpaid leave, overtime, shift differential payments, or other areas that currently result in demonstrated costs within the overall salary accounts.
18. 260. It was clear from public statements made by all affected unions that none of them intended to participate in determining how the reductions were to be applied to their constituencies. As a result, the Government had no option but to develop legislation which would achieve the labour cost reductions directly from wages, the only identifiable common denominator across all employee groups. During the period between the budget speech and the introduction of the Act on 17 May 1994, the Provincial Treasurer continues to state that the Government was open to negotiations on the manner in which the reductions could be attained. There was an opportunity for having the reductions diverted from wages to other labour costs so as to minimize the impact on employees but none of the public sector unions chose to utilize that opportunity. The Government considers that it respects the collective bargaining process and has recently affirmed its commitment to this process to public sector unions.

C. The Committee's conclusions

1. 261. The Committee notes that the present cases concern alleged interference in collective bargaining through legislative provisions which effectively reduced by 3.75 per cent to 7.5 per cent the amount of pay to be received by Prince Edward Island provincial civil servants. The Government basically maintains that this intervention was justified by economic difficulties and that the measures taken comply with the principles established by the ILO.
2. 262. Before examining the substance of the complaints, the Committee wishes briefly to describe the circumstances in which they were received. Since October 1991, 20 complaints were filed before the Committee against federal and provincial governments in Canada (Canada, Federal, Cases Nos. 1616, 1758, 1800; British Columbia, Case No. 1603; Manitoba, Cases Nos. 1604 and 1715; New Brunswick, Case No. 1605; Nova Scotia, Cases Nos. 1606, 1624 and 1802; Newfoundland, Case No. 1607; Ontario, Case No. 1722; Quebec, Cases Nos. 1733, 1747, 1748, 1749 and 1750; Prince Edward Island, Cases Nos. 1779 and 1801; Yukon, Case No. 1806). All these complaints relate to the postponement, reduction or freezing of civil servants' wages and benefits and to restrictions on the right of employees to bargain collectively within these various jurisdictions. The measures are sometimes accompanied by a ban on strikes.
3. 263. In the present cases, the Committee has examined in detail the observations and arguments put forward by the parties. In particular, it has closely examined the explanation and documentation supplied by the Government on the province's serious fiscal and economic difficulties. There can be no doubt of the Government's conviction that the situation could only be improved by implementing the Act. The complainant organizations on the other hand are convinced that the Government's methods for solving the province's particularly serious economic problems were inappropriate. As has already been mentioned in previous cases (241st Report, Cases Nos. 1172, 1234, 1247 and 1260, para. 113, and 284th Report, Case No. 1616, para. 633), it is not for the Committee to express a view on the soundness of the economic arguments used by the Government to justify its position or on the measures it has adopted (see also the general remarks given in the report of the study mission; 241st Report, Cases Nos. 1172, 1234, 1247 and 1260, paras. 9-13 of the Annex). It is however for the Committee to express its view on the question whether, in taking such action, the Government went beyond what the Committee has considered to be acceptable limits that might be placed temporarily on free collective bargaining (241st Report, Case No. 1172, para. 114).
4. 264. As regards the economic stabilization measures which limit collective bargaining rights, the Committee has acknowledged that when a Government, for compelling reasons of national economic interest, and as part of its stabilization policy, considers that pay rates cannot be settled freely through collective bargaining, such a restriction should be imposed as an exceptional measure and only to the extent that is necessary, without exceeding a reasonable period, and it should be accompanied by adequate safeguards to protect workers' living standards, in particular those who are likely to be the most affected (Digest, para. 641; 222nd Report, Case No. 1147, para. 117; 230th Report, Cases Nos. 1171 and 1173, paras. 162 and 573; 284th Report, Cases Nos. 1603, 1604, 1605, 1606, 1607 and 1616, paras. 78, 321, 500, 542, 587 and 635; 286th Report, Case No. 1624, para. 223; 292nd Report, Cases Nos. 1715 and 1722, paras. 187 and 547). The Committee of Experts has taken the same view (General Survey on Freedom of Association and Collective Bargaining, 1994, para. 260).
5. 265. As stated above, the federal and provincial governments have intervened at various occasions in Canada in order to determine unilaterally public sector wages. Economic stabilization measures were alleged to justify these drastic legislative actions. In this context, the Committee considers it useful to refer to the part of the last General Survey of the Committee of Experts that deals with collective bargaining for workers in public sectors:
   • While the principle of autonomy of the parties to collective bargaining is valid as regards public servants covered by the Convention, the special characteristics of the public service described above require some flexibility in its application. Thus, in the view of the Committee, legislative provisions which allow Parliament or the competent budgetary authority to set upper and lower limits for wage negotiations or to establish an overall "budgetary package" within which the parties may negotiate monetary or standard-setting clauses (for example: reduction of working hours or other arrangements, varying wage increases according to levels of remuneration, fixing a timetable for readjustment provisions) or those which give the financial authorities the right to participate in collective bargaining alongside the direct employer are compatible with the Convention, provide they leave a significant role to collective bargaining. It is essential, however, that workers and their organizations be able to participate fully and meaningfully in designing this overall bargaining framework, which implies in particular that they must have access to all the financial, budgetary and other data enabling them to assess the situation on the basis of the facts.
   • This is not the case of legislative provisions which, on the grounds of the economic situation of a country, impose unilaterally for example, a specific percentage increase and rule out any possibility of bargaining, in particular by prohibiting the exercise of means of pressure subject to the application of severe sanctions. The Committee is aware that collective bargaining in the public sector "... calls for verification of the available resources in the various public bodies or undertakings, that such resources are dependent upon state budgets and that the period of duration of collective agreements in the public sector does not always coincide with the duration of budgetary laws - a situation which can give rise to difficulties." The Committee therefore takes full account of the serious financial and budgetary difficulties facing governments, particularly during periods of prolonged and widespread economic stagnation. However, it considers that the authorities should give preference as far as possible to collective bargaining in determining the conditions of employment of public servants; where the circumstances rule this out, measures of this kind should be limited in time and protect the standard of living of workers who are the most affected. In other words, a fair and reasonable compromise should be sought between the need to preserve as far as possible the autonomy of the parties to bargaining, on the one hand, and measures which must be taken by governments to overcome their budgetary difficulties, on the other. (General Survey op. cit., paras. 263-264.)
6. 266. As regards the particulars of these cases, the Committee notes that it appears that since the commencement of collective bargaining in the public sector in Prince Edward Island in the early 1970s, the Government has intervened only on one prior occasion, in 1983, in order to limit wage increase for a two-year period. Furthermore, the Committee also notes that the Government insists on the fact that collective bargaining was put aside with regard to civil servants' wages and benefits only after all other alternatives were unsuccessfully tried and after the province had supported three years of considerable deficits. Nevertheless, the Committee has to recall that at least on one case (the PEIUPSE) the reductions of 3.75 per cent to 7.5 per cent of civil servants' salaries are added to a salary freeze negotiated previously. Moreover, the Committee wishes to express its serious concern that the Act will have a negative impact on the standard of living of the workers concerned and that it does not contain any adequate safeguards in this respect. The Committee notes that the Act cancels the terms of already negotiated collective agreements. In this regard, it recalls that "interruption of already negotiated contracts is not in conformity with the principles of free collective bargaining because such contracts should be respected". (Case No. 1172, 241st Report, para. 97.)
7. 267. The Committee regrets that the Government did not give priority to collective bargaining as a means of determining wages of workers in the public sectors but rather that it felt compelled to adopt the Act. The Committee trusts that the Government will refrain from taking such measures in the future and takes note of the declaration of the Government of Prince Edward Island to the effect that it has recently affirmed its commitments to public sector unions to the collective bargaining process.
8. 268. The Committee also notes that general public consultation meetings were held by the Government but is concerned that there appears to have been a very limited number of specific meetings between government representatives and civil servants' organizations.
9. 269. The Committee stresses, in accordance with the Committee of Experts' statement, that where a government seeks to alter bargaining structures in which it acts actually or indirectly as employer, it is particularly important to follow an adequate consultation process, whereby all objectives perceived as being in the overall national interest can be discussed by all parties concerned. Such consultations imply that they be undertaken in good faith and that both partners have all the information necessary to make an informed decision.
10. 270. The Committee expresses its hope that the situation will return to normal as soon as possible and that collective bargaining will take place freely with recourse being available where appropriate. The Committee requests the Government to keep it informed of the developments of labour relations in Prince Edward Island public sector.

The Committee's recommendations

1. 271. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendations:
   • (a) The Committee regrets that the Government did not give priority to collective bargaining as a means of determining wages of workers in the public sector but rather that it felt compelled to adopt the Public Sector Pay Reduction Act. Noting that the Act cancels the terms of already negotiated collective agreements, the Committee recalls that the interruption of already negotiated contracts is not in conformity with the principles of free collective bargaining because such contracts should be respected. The Committee urges the Government to refrain from taking such measures.
   • (b) The Committee expresses its hope that the situation will return to normal as soon as possible and requests the Government to keep it informed of the developments of labour relations in the public sector of the Province of Prince Edward Island and in particular to indicate if return to a normal situation in which collective bargaining takes place freely has occurred.

Z. Annex

• Chapter 51
• Public Sector Pay Reduction Act
• (Assented to 19 May 1994)
• BE IT ENACTED by the Lieutenant Governor and the Legislative Assembly of the
• Province of Prince Edward Island as follows:
• Part I
• Interpretation
  1. 1 In this Act
     • (a) "collective agreement" means
     • (i) a collective agreement or arbitral award under the regulations to the
  2. Civil Service Act R.S.P.E.I. 1988, Cap. C-8;
     • (ii) a collective agreement or arbitral award under the School Act R.S.P.E.I.
  1988. 1988, Cap. S-2.1, or regulations made pursuant to that Act;
        • (iii) a collective agreement or arbitral award under the Labour Act R.S.P.E.I.
  1988. 1988, Cap. L-1;
        • (iv) an agreement between a unit of employees established for collective
  1989. bargaining, and employer for defining, determining, or providing, for working
• conditions, and terms of compensation; and
  • (v) a decision or order that, by operation of law or agreement, governs
• working conditions and terms of compensation;
  • (b) "compensation plan" means a collective agreement, contract of employment
• or terms of employment;
  • (c) "employee" means a person who, on behalf of a public sector employer,
• performs duties and functions that entitle that person to pay, but does not
• include an independent contractor;
  • (d) "public sector employer" means
  • (i) the Government of Prince Edward Island;
  • (ii) a school board within the meaning of clause 1(v) of the School Act;
  • (iii) an agency of the Crown, including a Crown corporation listed in Schedule
• B or Schedule C to the Financial Administration Act R.S.P.E.I. 1988, Cap. F-9;
  • (iv) the Council on Health and Community Services Policy, established pursuant
• to the Health and Community Services Act R.S.P.E.I. 1988, Cap. H-1.1;
  • (v) a regional authority, established pursuant to the Health and Community
• Services Act;
  • (vi) the Prince Edward Island Human Rights Commission, established pursuant to
• the Human Rights Act R.S.P.E.I. 1988, Cap. H-12;
  • (vii) the Prince Edward Island Museum and Heritage Foundation, established
• pursuant to the Museum Act R.S.P.E.I. 1988, Cap. M-14;
• (viii) the Hospital Association of Prince Edward Island;
  • (ix) the Health Association of P.E.I. Inc.;
  • (x) the University of Prince Edward Island, established pursuant to the
• University Act R.S.P.E.I. 1988, Cap. U-4;
  • (xi) Holland College, established pursuant to the Holland College Act
• R.S.P.E.I. 1988, Cap. H-6;
  • (xii) the Legislative Assembly of Prince Edward Island;
• (xiii) such other board, commission, corporation or organization, as may be
• prescribed in the regulations;
  • (e) "pay" means salary, wages, stipends, honoraria, bonuses, and commissions;
  • (f) "pay rates" means single rates of pay, or ranges of rates of pay, or where
• no such rates or ranges exist, any fixed or ascertainable amounts of pay.
  2. 2 (1) The purpose of this Act is
     • (a) to reduce the pay rates of all employees, effective 17 May 1994, as a
  3. deficit reduction measure; and
     • (b) to implement certain other cost reductions in the public sector.
  2. (2) For greater certainty, it is declared that the reductions effected by this
• Act are without compensation, or any other offsetting considerations by a
• public sector employer to its employees.
  3. 3 Every enactment, whether enacted before or after the coming into force of
• this Act, shall be read and construed as subject in all respects to this Act,
• and in the case of a conflict with a provision of this Act, the provision of
• this Act prevails.
  4. 4 (1) The reduction in pay in a compensation plan pursuant to this Act or the
• regulations is not, and shall not be deemed to be, a breach of the plan, and,
• for greater certainty, does not entitle any person to terminate the plan, to
• receive any payment, or to any other remedy.
  2. (2) The reduction in pay pursuant to the Act, or the regulations, is not a
• reduction in compensation for the purpose of any compensation plan, and, for
• greater certainty, shall not be deemed to be a termination of the plan, and
• does not entitle any person to terminate the plan, to receive any payment, or
• to any other remedy.
• Part II
• Public sector employees
  5. 5 This Part applies to public sector employers and employees, and to every
• compensation plan agreed between a public sector employer and employees in
• force on or after 17 May 1994.
  6. 6 (1) Effective 17 May 1994, the pay rate for each position covered by a
• compensation plan shall be reduced
  • (a) in the case of a pay rate of $28,000 or less, by 3.75 per cent; and
  • (b) in the case of a pay rate of more than $28,000 by 7.5 per cent,
• except as provided by this Act or the regulations.
  2. (2) The pay rate for any position shall not be reduced pursuant to clause
  1. (1)(b) to less than $26,950.
  3. (3) For greater certainty, the reduced pay rates shall be the basis for any
     • pay-related calculations.
  4. (4) Subsection (1) does not apply to pay rates for students, or pay-based
• separation allowances, including service gratuities, retiring pay and
• workforce adjustment payments, payable prior to 17 May 1995.
  7. 7 (1) No compensation plan coming into force between 17 May 1994, and 16 May
  1995. 1995, shall provide for
        • (a) an increase in pay rates; or
        • (b) an increase in benefits.
  2. (2) If any compensation plan referred to in subsection (1) contains such a
• provision, the provision is of no force or effect.
  8. 8 Notwithstanding any other provision of this Act, an increase in pay rates
• applicable to an employee may be made (a) as a result of an increase in the
• minimum wage, or in accordance with an order made under the Employment
• Standards Act R.S.P.E.I. 1988, Cap. E-6.2;
  • (b) for or in recognition of length of time in employment, if the provision
• for an increase in pay had been expressly contained in the compensation plan
• that applied to the employee prior to 17 May 1994;
  • (c) as an adjustment under the Pay Equity Act R.S.P.E.I. 1988, Cap. P-2;
  • (d) as a result of a bona fide promotion of an employee to a position in a
• higher classification or otherwise carrying greater responsibility.
• Part III
• Persons paid from public funds
  9. 9 Effective 17 May 1994, the amounts paid to persons appointed as members of
• provincial tribunals, commissions and agencies, as annual, daily or periodical
• allowances are reduced by 7.5 per cent.
  10. 10 Clauses 3(3)(a) and (b) of the Provincial Court Act R.S.P.E.I. 1988, Cap.
  25. P-25 are amended by the addition of the words ", less 7.5 per cent".
  11. 11 The envelope of funding provided for in an agreement dated 12 June 1993
• between the Hospital and Health Services Commission and the Prince Edward
• Island Medical Society, is deemed to be provided for the period 17 May 1994 to
  16. 16 May 1995 and is reduced by 7.5 per cent.
• Part IV
• Saving for future negotiations
  12. 12 (1) Nothing in this Act precludes negotiations and the conclusion of an
• agreement between a public sector employer and employees which achieves the
• purpose of this Act by a reduction in pay, offsetting considerations,
• reduction in other benefits or any combination of them.
  2. (2) An agreement made pursuant to subsection (1) shall be of no effect unless
• approved by the Lieutenant Governor in Council.
• Part V
• General
  13. 13 (1) The Lieutenant Governor in Council may make regulations (a) defining
• any term used in this Act not already defined herein;
  • (b) further defining compensation plan;
  • (c) prescribing the persons or class of persons whose method of pay is deemed
• to be a compensation plan for the purpose of this Act, who may be subject to
• this Act;
  • (d) applying this Act to agreements or arrangements not expressly mentioned in
• this Act;
  • (e) respecting exemptions from this Act, or any of its provisions, and setting
• the terms and conditions of such exemptions if an agreement has been reached
• under section 12 which satisfies the purpose of this Act;
  • (f) respecting the determination of questions arising as to the interpretation
• or application of this Act;
  • (g) respecting any other matter necessary to give effect to the purpose of
• this Act.
  2. (2) A regulation made under subsection (1) may have retroactive effect.
  14. 14 This Act is deemed to have come into force on 17 May 1994.