Prevailing Conditions, Necessary Choices? Michael Mac Neil on Two-Tiered Wages

I recently interviewed Michael Mac Neil, a Carleton University law professor, on the topic of two-tiered entitlement schemes (also known as orphan clauses). He graciously answered my questions about the difficult questions that arise from the use of these measures in relation to intergenerational equity, equality rights, and representation of minority groups in unions. Briefly, two-tiered entitlements are differential wage scale predicated on the date of hire which often discriminate against young people. Both the Canadian Auto Workers and  the Canadian Union of Public Employees have recently negotiated collective agreements in Ontario that contain different types two-tiered entitlements. 

There's a dearth of academic research into this topic, but Marie-Josée Legault of UQAM has written a paper on the topic called "Too Bad, You Were Late In Coming In!", Christian Brunelle of the Université Laval has a chapter in the book New Perspectives on the Public-Private Divide, and recently Sam Gindin wrote an op-ed in the Toronto Star attacking the culture of concessions prevalent in labour organizations in Canada. The interview appears below, see:

Michael Mac Neil

Q: Can you give my readers a brief explanation of what orphan clauses or two tiered entitlement schemes are?

A: Two tier entitlement schemes, often referred to as orphan clauses in Quebec, are arrangements whereby workers hired after a specified date are paid lower wages and benefits than those workers doing the same job who had been hired before that date.  They are sometimes sought by employers in collective bargaining as a means of limiting or reducing its compensation costs or as a means of transitioning to a new (and from the employer’s perspective, cheaper) pension plan.  These schemes differ from seniority arrangements in that the newer hires are placed on a different wage/benefit ladder than those who were hired earlier.  The schemes may be temporary, so that eventually the newer hires catch up to the salary grid of the older workers, or they may be permanent, with no catch-up possible. Given that newer hires are, on average, likely to be younger, they create a concern about inequity and discrimination against younger workers on the basis of age.

Q: Two-tiered entitlement schemes originated in the United States in the 1980s, when did they become a feature of the Canadian industrial relations landscape?

A: Two-tiered schemes have been used sporadically in Canada since the 1980s, following the U.S. lead.  They became more extensively used in Quebec in the 1990s, in response to public sector funding restraints.  However, there appears to be a significant increase in resort to such arrangements in the past five years or so, across a range of employment sectors including auto manufacturing, airlines, mining, steel manufacturing and retailing. 

Q: We're seen forms of two-tiered entitlement schemes feature prominently in recent collective agreements negotiated by the Canada Union of Public Employees and the Canadian Auto Workers. What's driving the apparent rise of these schemes in the current industrial relations landscape in Ontario?

A: There are a number of factors leading to increased resort to two-tiered entitlement schemes in recent Canadian collective bargaining.  The economic recession of 2009 has caused many employers to seek concessions from their workers, and these concessions often take the form of two-tiered arrangements because they provide a means of protecting the wages and benefits of current workers, while reducing the employer compensation costs in the short to medium term, especially if there is new hiring taking place.  As well, the turn of U.S based employers, such as the Big Three auto manufacturers, to two-tiered entitlements has led to significant pressure being placed on Canadian employers in the same industry to also consider their implementation.  Another major factor is the significant costs that employers with defined benefit pension plans are facing as a result of low interest rates and poor performance of equity markets. Employers are looking for a long term solution by moving away from defined benefits plans and one way of doing this is by creating a new defined contribution plan which calls on newly hired workers to pay a higher proportion of their salaries to support the plan and which transfers the risk of poor pension plan returns to those employees.

Q: Two tiered entitlement schemes aren't explicitly banned under Ontario's Labour Relations Act or the Employment Standards Act, 2000, but under Quebec's workplace law some aspects of two tiered entitlements are prohibited. Can you explain how the provisions banning two tiered entitlements work in Quebec? Why did Quebec take the route of prohibiting two-tiered entitlement schemes?

A: In 1999 Quebec’ employment standards legislation introduced specific provisions limiting the use of two-tiered compensation schemes.  It did so partly in response to concerns that such schemes were significantly detrimental for younger workers, and at a time in which a significant number of public sector employers, in particular, were turning to two-tiered provisions as a means of coping with funding shortages. The legislation also recognized the difficulty in framing claims under the human rights statute. The Quebec legislation prohibits the use of permanent two-tier schemes, but still permits the use of temporary schemes.  An employee can bring the claim to the employment standards commission, without needing to make a claim to the human rights commission or to exhaust all dispute resolution avenues under the collective agreement. The complainant does not have to demonstrate age-based discrimination, only that there is differential treatment based on the date of hire.  The difficulties of showing that the date of hiring is the “sole” cause of the differential treatment, and the exemption of temporary two-tiered arrangements from the prohibition significantly limit the impact of the legislation.

Q: Is Quebec approach to prohibiting two-tiered entitlements a model that could be adopted in Ontario and other jurisdictions in Canada?

A: The Quebec model is certainly one that is worth considering in Ontario and elsewhere in Canada.  The concern about two-tiered arrangements is that they create situations where two groups of workers are doing the same job but are paid unequally.  Legislation prohibiting unequal pay for equal work or legislation promoting pay equity is normally limited to differentials based on sex, not differentials based on age.  While it might be possible to successfully bring a claim under a human rights code for age-based discrimination, it is likely to be expensive, time consuming, and fraught with risk in terms of being able to demonstrate, through statistical evidence, the discriminatory impact of such provisions.  An employment standards approach offers a more direct and possibly more accessible means of challenging the inequities arising from two-tiered arrangements, although the devil would be in the details, as demonstrated by the limitations built into the Quebec legislation referred to in the response to the previous question.

Q: Some commentators have argued that these types of provisions strike at the heart of intergenerational equity and equality. Are two-tiered entitlement scheme possibly a violation of section 15 of the Charter? Might they be saved by section 1 of the Charter?

A: There is no doubt that these types of arrangements do raise significant questions about inequities in the treatment of younger workers. Since many of the arrangements result from collective bargaining or the imposition of new terms by employers, the Charter may be of limited applicability.  This would be especially so where the employer is in the private sector.  It might be possible to challenge such arrangements against a public sector employer, but there would be significant barriers to such a challenge.  The Supreme Court has displayed some considerable reluctance to characterize as discriminatory legislative schemes using age as a determinant for differential benefits in welfare and pension schemes.  Yet, it might be possible to argue that two-tiered schemes are more problematic from discrimination perspective because you have two groups of workers doing the same job but being treated differently.  Even if one succeeds in an argument that such schemes are discriminatory, there are a range of arguments that might be employed to support the view that such arrangements are saved by section 1 of the Charter, including respecting collective bargaining and the necessity of such economic arrangements as a means of responding to economic conditions.

Finally, check out this video of about two-tiered entitlements and the impact on young workers, see: