2-tiered wage scales gaining momentum

Paying new hires less than seasoned workers not desirable in long term: Professor
By Danielle Harder
|Canadian Labour Reporter|Last Updated: 10/09/2012

The past year has seen a surge in two-tier wage and pension scales in Canada as workers try to hold onto their jobs at a time when employers are struggling to compete with lower-cost global competitors.

But the impact two-tier structures will have over time, or whether the trend will last, is difficult to predict, says Michael MacNeil, a law professor at Carleton University in Ottawa who specializes in labour and employment law.

Two-tier scales create inequity in the workplace which can lead to deeper consequences, such as poor morale, divisiveness, friction and lower productivity, he says.

“The morale problems may not be seen as desirable ultimately,” he says, noting that even Chrysler CEO Sergio Marchionne has suggested paying new hires less than longtime workers is not desirable in the long term.

In a conference call following negotiations with the United Auto Workers last year, Marchionne said that trying to get an organization “to work in unison when you’ve got this kind of economic disparity between people on the line is not something that can go on for a long period of time.”

However, since then, Chrysler, GM and Ford have all signed deals with the Canadian Auto Workers that include a four-year freeze on current wages, and a significant reduction in hourly rates — $20 an hour from the current $24 — for new employees hired over that same period.

The extent to which employers benefit depends on how soon older workers leave through attrition, and how many new hires they take on. But MacNeil cautions two-tier is not always the salve it appears to be.

Last year, an arbitrator ruled against Air Canada’s desire to move some of its new hires to a defined contribution pension plan from a defined benefit plan to deal with its financial problems.

“The arbitrator said the change… is not going to solve the short-term problems facing the airline industry,” says MacNeil.

Bob Barnetson, an Edmonton-based associate professor of labour relations at Athabasca University, has also observed the tiering of minimum wage scales across the country over the past few years.

British Columbia, Alberta, Ontario and Quebec all have legislation that allows employers to pay food servers less than other employees, he says. Nova Scotia and Ontario also have lower wages for inexperienced or youth workers, while Manitoba has a higher minimum wage for construction workers and Ontario has higher wages for home workers.

“Employers, particularly in the food-service sector, continue to pressure governments to introduce two-tier wage structures in order to reduce their compensation costs,” he says. “This disproportionately reduces the wages of young and female workers with incomes already below the poverty line.”

Barnetson is concerned that two-tier scales start as a temporary solution but eventually become the norm.

“If the employer was seeking a short-term fix, it would have offered a short-term solution such as the suspension of a benefit for a year,” he says, adding that it’s difficult to return to higher wages later on.

However, it’s also challenging for the people being paid less to press for more, says MacNeil.

He recently authored a paper that considered the potential legalities of two-tier scales when it comes to age discrimination, pay equity and a union’s duty of fair representation.

Based on case law and current legislation, he says “there’s a fair bit of doubt you would be successful.”

For example, in one ruling the Canada Industrial Relations Board said a union only has a duty of fair representation to its current members.

“They have to represent the people who already work there,” MacNeil says. “Not the ones who don’t.”

However, history has shown two-tier scales can be somewhat cyclical, MacNeil adds.

Two-tier systems were introduced in Quebec in the mid-1980s but were abandoned within a decade because of the frictions they created in the workplace and the detrimental effect they had on younger workers.

In 1999, Quebec amended its labour standards legislation to say that collective agreements could not impose a separate condition of employment based solely on the date of hiring if it would see new hires doing the same job without the same advantages.

“They’ve thought through the intergenerational issues,” MacNeil says.

Policy makers across Canada should be keeping a careful watch on the two-tier trend and its potential implications in future, he says.

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