When Rick Alakas, president of Canadian Auto Workers Local 523, sat down this fall to negotiate a new deal for workers at Lakeside Steel in Welland, Ont., the economic climate was the worst it had been in nearly 20 years. The manufacturing sector in Southern Ontario was facing unprecedented job losses and plant closures.
“The employer, during the bargaining process, continued to tell us they were struggling and there were issues around money and how they would make the corporation profitable. We were concerned as a union that there was potential for considerably high numbers of our members to be laid off as a result of the downturn in the market,” said Alakas.
To help Lakeside, a steel pipe and tubing manufacturer, save on the extra costs associated with senior employees, such as longer vacation entitlements, the union agreed to an increased retirement incentive (from $12,000 to $20,000) that will be offered to 70 employees who are eligible to retire.
“We talked to the company and tried to come to some sort of a compromise,” said Alakas. “Our guys would take retirement, which would open up jobs in the junior ranks, which would be less expensive because they qualify for less vacation.”
But if all eligible workers take the retirement deal, the company could be in trouble because it would lose a lot of institutional knowledge. To offset that, and to give Lakeside more workforce flexibility, the union agreed to an on-call workforce of retirees, whom Lakeside could use to fill in for vacation, sick leave and training leave. However, the employer has to ask current workers first and can’t bring in the retirees if there are workers on layoff, said Alakas.
“It makes no sense to close a facility and put our members out of work if we can get creative and find ways to ensure long-term reliability for our facility and at the same time protect the employment of our members,” he said.
While the union was willing to be flexible, there were several issues on which it remained firm. These included no wage claw backs, no cuts to health-care provisions and the maintenance of a cost-of-living allowance.
The three-year agreement has a roll-in for the cost-of-living allowance, with wages remaining the same for the first two years and then a 2.5-per-cent increase in the third year. It also creates a two-tier wage system, where new employees will be paid at a rate of 75 per cent of the job’s maximum base rate for the first year of employment. This increases to 85 per cent after 12 months and to 100 per cent after 24 months.
The union and the company ratified the agreement on Nov. 4 and it will be in effect until Oct. 31, 2011.
“The new agreement embodies a number of important changes that will help our business be more competitive in the global marketplace and will continue the development of our workforce as one of the most highly skilled and committed in the industry,” said Tim Clutterbuck, chief executive officer of Lakeside.
Similar concessions have been seen in other recently ratified collective agreements in Ontario. Johnson Controls in Whitby and Cooper-Standard in Stratford agreed to three-year wage freezes and extended the length of time new employees are paid at less than the job rate. Johnson Controls is also looking at ways to allow short-term recalls of laid-off workers instead of paying current workers overtime.
“Everybody’s scared right now, especially manufacturing in Ontario,” said Jamie Knight, a management-side labour lawyer with Filion Wakely Thorup Angeletti in Toronto. “When people are scared, their immediate priority is to hang on to the job they have and worry less about getting improvements in the terms and conditions of employment.”
The primary concern of unions in this poor economy is job security and Knight expects to see that continue for at least the next year. But a union’s willingness to make certain concessions is entirely dependent on the situation of the company, he said.
“The company has to be prepared to show real financial information. There has to be some disclosure at the table to convince the union to go along,” he said.
But this phenomenon is mostly confined to the manufacturing sector in central Canada, particularly Ontario, said Sylvain Schepagne, senior economist with the Canadian Labour Congress in Ottawa.
“What you’re hearing in Southern Ontario, that’s not what’s happening in other provinces right now,” he said. In the Western provinces, for example, labour shortages mean unions still have more power in bargaining and wage increases are around four per cent, he said.
Even with the manufacturing sector falling on hard times, it’s important wages keep pace with inflation because that contributes to sustainable consumption and a healthier economy, said Schepagne.
“We’re expecting a slowdown, but we’re still expecting average wage increases to be higher than inflation,” he said.
Because there aren’t a lot of big negotiations currently going on, employers and unions don’t have a good benchmark of where the market is going, said David Cote, of Toronto-based labour and employment law firm Cote and Company. And since no one knows how long the economic downturn is going to last or how bad it’s going to get, employers and unions don’t know how to approach collective bargaining in this climate.
“Historical data isn’t useful because the current situation has gotten so bad, so quickly,” he said.
One way employers and unions might deal with that uncertainty is through shorter contracts. Instead of a three-year deal, one-year or shorter deals may become common, said Cote. Another option is a three-year deal with a wage reopener that is triggered when agreed-upon economic statistics shift by a given amount.
“You need to define the terms accurately, so everyone knows what’s going to trigger a wage reopener,” he said.
Some employers are stuck with the wage increases and benefits they negotiated before the economy took a nosedive and there’s not much they can do, said Mike McCreary, a union-side labour lawyer with Watson Jacobs McCreary in Toronto.
This is especially true for the construction trades in Ontario, where collective agreements won’t be up for renewal until 2010, he said.
“When you have an economic slowdown that hits fast and hard, there’s not a lot employers can do to reduce their wage rates that are locked into these three-year deals,” he said.