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Client Update: Universal interest arbitration proposed for New Brunswick

On March 29, 2016, the Province of New Brunswick tabled proposed changes to the Industrial Relations Act and the Public Services Labour Relations Act. If passed, these changes would dramatically alter well-established principles of private sector collective bargaining.

Current Legislation

Presently, all disputes arising during the term of a collective agreement must be resolved without stoppage of work. However, upon its expiry, if the parties are unable to agree to terms of a new collective agreement, strikes or lockouts are permitted: unions or employers may invoke the economic pressure of a work stoppage as a collective bargaining tactic.

Currently, the only exception is with respect to the police and fire sectors. As “essential services”, strikes or lockouts are prohibited in that sector. According, if employers and unions are unable to reach a collective agreement in the police or fire sector, either party may submit the dispute to binding interest arbitration and an arbitration board will set the terms of the new collective agreement.

Key Changes Proposed

Dramatic expansion of interest arbitration: The changes proposed would extend binding interest arbitration to all sectors, not simply police and fire. In other words, if unions and employers cannot agree to the terms of a new collective agreement, either party would be permitted to unilaterally refer the matter to binding interest arbitration, in which case a work stoppage would be prohibited. The terms of the new collective agreement would therefore be imposed by an arbitration board without any strike or lockout.

Change to “final offer” interest arbitration: Presently, interest arbitration boards have wide latitude to select an award deemed appropriate. The proposed amendments would impose a “final offer” framework for monetary matters. This means that, with respect to wages, the arbitration board would be required to choose either the last offer made by the employer or that made by the union; it cannot “split the difference” and make a compromise award. The arbitration board would retain its wide latitude with respect to non-monetary matters.

Change to criteria considered by interest arbitrators: The proposed amendments list five (5) specific factors interest arbitration boards must consider in making their award: wages and benefits in private, public, non-unionized and unionized employment; employment levels and layoffs; the nature of the employment in question including the qualifications required and responsibility assumed; inflation; and the total package of benefits enjoyed by employees (wages, bonuses, pensions, health plans, etc).

Effect of Proposed Changes – Private Sector Employers

This is one of the most dramatic changes to private sector labour law in the past 50 years anywhere in Canada. It represents a fundamental departure from free collective bargaining in which employers and unions, under the economic threat of strike or lockout, are best positioned to voluntarily negotiate the terms of their relationship. Either party would be able to avoid the possibility of a strike or lock-out by invoking interest arbitration in any round of bargaining.

Furthermore, it has the potential to extend the “chilling” and “narcotic” effects of interest arbitration to the entire economy. That is, if parties believe their dispute will ultimately be determined by interest arbitration, incentives to compromise to conclude a collective agreement are “chilled”; and, as parties become increasingly reliant upon interest arbitration to resolve their disputes, a “narcotic” effect occurs wherein they become less able to negotiate. In the last decade, there has been criticism that high wage interest arbitration awards in the police and fire sectors have “chilled” unions’ incentives to bargain collectively as they believe a better result can be obtained through interest arbitration.

In addition, because interest arbitration boards are notoriously reluctant to alter non-monetary terms of the collective agreement, mandatory interest arbitration may make it very difficult for employers to implement changes necessary to maintain competitiveness. This may discourage employers from locating to New Brunswick or expanding operations here.

Although unions have long advocated for the introduction of first contract interest arbitration in New Brunswick, this is not included in the proposed reforms.

Effect of Proposed Changes – Employers in Fire and Police Sectors

The proposed changes have a less dramatic impact in the police and fire sectors in which interest arbitration has an established history.

The move to “final offer” interest arbitration for monetary matters is a welcome development in these sectors as the existing replication model has contributed to rapid wage escalation. Similarly, enactment of explicit criteria to be considered by arbitrators will weaken the present dominance of intra-industry comparisons in wage determination analyses which has contributed to an upward wage spiral in fire and police sectors.

However, the decision to impose a “final offer” framework for monetary matters only will continue to make change in other areas difficult.

Effect of Proposed Changes for Public Sector Employers

While the proposed changes are more significant in the private sector, amendments to the Public Service Labour Relations Act are also proposed to impose a “final offer” framework for monetary matters proceeding to interest arbitration under that legislation.

The foregoing is intended for general information only. If you have any questions about how this may affect your business, please contact a member of our Labour & Employment practice group.

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