Economic Integration, Labor Law and Social Security in the Americas

Viña del Mar, Chile, April 14 and 15, 1998









Adjunct Professor of Law, Queen’s University, Kingston, Ontario, Canada.

The author would like to acknowledge the research assistance of Ann Mitchell, LL.B. student and to thank Sheila Katz of the NAFTA Desk, Canadian Labour Congress and, Professor Bernie Adell, Faculty of Law, Queen’s University for reading a previous draft of the paper.




Table of Contents


1. Background to Changes to the Legislation

A. Privatization of Provincial Agencies and Services

B. The Crown Employees Act and the Competitive Edge

2. The NAFTA Connection

A. Objectives, Scope and Coverage

i. Technical Standards

B. Trade in Services

C. Trade in Financial Services

3. A NAALC Complaint?

A. The Process

B. The Substance

C. The Extent of Canadian Obligations





When the current Progressive Conservative government of the Province of Ontario came to office in the spring of 1995, shortly after the entry into force of the North American Free Trade Agreement (the NAFTA), one of the first legislative changes it ensured was the removal of provincial employee successor rights in order to follow the fashionable precept to privatize government agencies and services. This paper will review the legislative history of this initiative and contribute to an examination of changes to labour legislation since the NAFTA indicating evidence of the feared "race to the bottom" of labour standards without a meaningful social dimension in the NAFTA. Finally, the paper will suggest some possible remedies to deal with this unfortunate example of downward harmonization, a result quite contrary to the stated objectives of the NAFTA and the obligations in the side agreement on labour cooperation - the North American Agreement on Labour Cooperation (the NAALC).

The case study demonstrates the difficulty a high labour standard jurisdiction has in maintaining, let alone improving upon, agreed international standards in a free trade area, speaking to the need for higher regional standards. The example from the Province of Ontario in central Canada concerns a recent amendment to Ontario labour law. That amendment denies public sector employees the benefits of union successor rights as currently enjoyed by private sector employees, thus arguably constituting a failure of the provincial government to fully respect the civil right to equal protection of the law and the labour principle of non-discrimination in employment.

While the discriminatory intent and effect of this amendment can probably be established, it is also true that arguments of this sort can lead to pressure to remove the better benefit to private sector workers in order to equal the protection of the law. Nevertheless, public sector employees in the Province have been subject to unequal treatment for some time; only just recently gaining the right to strike. While affording public sector workers less than full legal protection may have been appropriate when these workers were more or less isolated from exposure to the market economy, with the advent of privatizating government functions and free trade in services, an important rational for making legitimate distinctions about who can enjoy universal rights and freedoms is removed. Besides upholding the civil and political right to equal protection of the law, including the labour law principle of non-discrimination in employment is fundamental, and an important basis for the enjoyment of other rights and benefits.

But even if these mutually recognized principles and rights could be established for the purposes of a complaint, regrettably, the government of the Province of Ontario has not as yet seen fit to sign the necessary Intergovernmental Agreement regarding the NAALC. Despite this situation, the NAFTA objectives to promote fair competition have arguably been undermined by this continuing omission. Indeed it has not gone unnoticed by Ontario’s trading partners that the province continues to economically benefit from the NAFTA, yet it is unconstrained by the side agreement obligations on labour and environmental cooperation and exposure to the North American public submission process. How can this situation be described as fair competition? What NAFTA remedies might be available to ensure a level playing field concerning provincial governments such as Ontario that benefit from free trade without taking on its partners’ full obligations? These and other interesting questions are raised in this case study.


The Province of Ontario has historically been a jurisdiction with high standards of labour law. The Ontario law that related to employment standards including vacation time, parental leave, severance pay, and pay equity, as well as the timely administration of justice was considerably more developed than it is in the United States. The government of Ontario sought to both stimulate the economy and provide for job growth through the removal of high labour market regulations, viewing them as a comparative disadvantage in terms of other North American jurisdictions competing for foreign investment and production platforms. As promised, the government as part of a "Common Sense Revolution", has successfully advanced an abrupt "ideological set of changes" to long standing policy. This ideological outlook is evidenced by the repeal of the Ontario Pay Equity Act and changes to the Ontario Labour Relations Act such as the permissibility of strike replacement workers, and the Crown Employees Bargaining Act.

The amendment to the Crown Employees Collective Bargaining Act (CECBA or the Crown Employees Act) essentially allows government to be exempt from honouring collective agreements if it privatises any part of the civil service. So-called successor rights to employee representation and an existing collective agreement when a business is sold is established under section 69 of the Ontario Labour Relations Act An exception to this legislation was introduced by the Crown Employees Act. The effect of the amendment is to deny successor rights to provincial employees, still yet available to all private sector employees, when parts of provincial government agencies or services are privatised. The potential impact on consumers of those services and provincial workers’ lives, rights and labour standards is significant given the extent of the government’s privatization plans. Huge overhauls are underway or expected shortly in the delivery of social services including health and education, in television broadcasting, liquor and energy at Ontario Hydro. The then Ontario Labour Minister Elizabeth Whitimer claimed the new labour law standards have " set the stage for future job creation and more investment in the Province... restoring a much needed balance to labour-management relations"

With the intention to privatize government agencies and services, together with making Ontario’s labour market more competitive, the government arbitrarily removed from provincial employees the benefits of union successorship rights as enjoyed by private sector employees. This paper will argue below that this amendment offends the fundamental and mutually recognized civil right to equal protection of the law and the labour principle of non-discrimination in employment.


The government of Ontario did not embark upon a course of privatization of government agencies and services in a vacuum . In addition to the general prodding of international financial institutions such as the IMF and the OECD to privatize government functions, the NAFTA also paved the way for the free trade and investment in previously delivered government services.

A. Objectives, Scope and Coverage

Given the constitutional framework in Canada, the federal government has relied upon its Trade and Commerce powers in s. 91(2) of the B.N.A. Act to implement trade agreements. The scope of the NAFTA is outlined Article 105. The state parties agree to "ensure all necessary measures taken in order to give effect to its provisions by state, provincial and local governments". To anticipate the following review, it must be stressed that despite free trade in goods and services, and in the area of harmonization of standards in particular, Chapter 9 of the NAFTA affirms that the states, provinces and local governments (the subnationals) retain their jurisdiction to maintain technical standards about that trade serving "legitimate objectives". In other words, while subnationals are bound to free trade they may specify in technical standards how that trade is to be facilitated within their jurisdiction. In addition, the NAFTA objectives include the promotion of fair competition. Even with these assurances the subnationals have not been tripping over themselves in a leap frog to higher standards! The downward economic pressure on high standards, with the assistance of the NAFTA’s free trade guarantees, is real and has largely been indirect. Economist identify this effect of free trade as "factor price equalization", although the common term might be known as social dumping.

The following two examples of NAFTA provisions on free trade in services are offered to demonstrate that the agreement, at least in part, is a driving force for privatizing North American government agencies, services and functions. This degree of evidence ought to be enough to place the onus on those who would deny a direct NAFTA connection to this trend. In addition, the legislative history of Bill 7 which introduced the amendment to CECBA will no doubt indicate an indirect NAFTA connection at least in terms of placing additional competitive pressure Ontario’s public sector labour market to be more flexible.

B. Trade in Services, NAFTA Chapter 12

Because of the intangible nature of trade in services, it does not lend itself to easy conceptualization, eg when is a good a service or a service is a good, such as the current dispute over whether electronic commerce is covered under trade in goods or services agreements. Nevertheless the general obligations under Chapter 12 of NAFTA on Trade in Services are that the parties must accord national and most-favoured treatment to service providers with respect to activities for the production, distribution, marketing, sale and delivery of a service. Article 1205 specifies that all covered services in NAFTA, as listed in the Annexes to the Chapter, may be provided without establishing a local presence. The service provider is not required to establish or maintain or be a resident in its territory as a condition for the offering of its services across the border. The intention here is that the service be provided by the temporary entry of business persons from other Party under Chapter 16. Purchasers must not arbitrarily discriminate in the purchase of or use of, or payment for a service.

i. Scope and Coverage of Trade in Services

The scope for North American, mainly US, service providers in important areas of social policy is only limited by whether these services are covered in the Annexes and Schedules or whether they were listed by the subnational as a non-conforming measure within two years of the entry into force of NAFTA. It is stated that: "Nothing in this Chapter shall be construed to prevent a Party from providing a service or performing a function, such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare,public education, public training, health and child care, in a manner that is not inconsistent with this Chapter". It is noteworthy that most of these functions presently come under provincial constitutional jurisdiction, while some of the others such as income security and (un)employment insurance are currently under federal jurisdiction. Yet the scope for free trade in services purports to cover subnationals under NAFTA rules.

With respect to national treatment obligations, the provinces are obliged to treat another Party's service providers no less favourably than the most favourable treatment accorded to its own providers. Thus US service providers that purchase the rights to provide previously delivered provincial government services would also benefit from the amendment to the Crown Employees Act and not be bound to union successorship rights in Ontario. The Chapter goes on to oblige the federal government to accord service providers of another Party the same treatment as provided to its own providers.

Assuming most government services are presently covered or will be soon, one can expect that competition in these important areas will allow US and Mexican service providers to compete for the right to deliver privatized government functions. While economic synergistic benefits of efficiencies in scale might be present, it is not at all clear that Canadian values on the delivery of services will or can effectively be retained. Even where a subnational retains ownership of the service, unfair competition, such as the trade-related lure to lower labour standards, can fatally undercut Canadian publicly funded social programs in terms of price by lowering the service quality and coverage currently provided, thus placing strong yet indirect pressure on Canadian social programs to match the price or get out of the service! There are many examples of this pressure in the health and education fields.


The second example of the NAFTA providing a foundation to privatize government functions concerns the provision of Financial Services. Article 1401 sets out the scope of the Chapter by providing equal competitive opportunities for financial institutions, investors in financial institutions and service providers of another Party.

The national treatment obligations in Article 1407 provide for the same treatment to the financial service providers of another Party that a Party accords to its own providers, including the application of the laws and other measures of a province. While Article 1401:4 states that: "Nothing in this Chapter prevents a Party from being the exclusive service provider regarding public retirement plans or social security systems or activities conducted by public entities using public funds", the Article also recognizes the establishment principle - that financial service providers of a Party should be permitted to participate widely in the market of the another Party. In other words, while the Canadian government can grant exclusive provider status to Canadian public and private pension, retirement and other social security entities, it is not obliged to do so. In fact and by way of a treaty, the current Canadian federal government agreed that US financial institutions should be able to compete in these critical areas of social policy. (Add experience of privatizing public pensions- what was the Southern experience?).

With respect to financial service standards, Article 1408 contemplates the mutual recognition and harmonization of "prudential measures" such as how well funded pension plans have to be before funds can be invested elsewhere, as presently maintained by the Parties individually. A NAFTA Financial Services Committee with extensive powers to implement the Chapter has been busy dealing with this matter without transparency or participation rights for the people most effected.




Consideration might be given to a complaint under the North American Agreement for Labour Cooperation (the NAALC) in addition to remedies under the Canadian Charter of Rights and Freedoms. Indeed the labour side agreement to the NAFTA was heralded as a new breed of trade agreement that recognized in the North and in the South that our "mutual prosperity depends upon the promotion of competition based on innovation and rising levels of productivity". Free trade was not to be had at any cost and so, to this end, the NAALC contained trade and other monetary mechanisms to ensure a high level of mutually recognized labour principles.

The, then, Canadian Minister of International Trade, Tom Hockins, in a statement announcing the establishment of the NAFTA and the side agreements promised that: "The side agreements will provide the positive assurance that the three NAFTA parties will enforce environmental and labour laws so that no country gains an unfair competitive advantage". Benard Valcourt , the then Canadian Minister of Labour, proclaimed that: "The (NAALC) agreement provides an open window on labour market aspects of trade between Canada, the US and Mexico".




A. The NAALC Process

While this paper does not review in detail the NAALC dispute settlement mechanism nor the cases thereunder, it does attempt to highlight some of the options and possible outcomes with respect to this case study. A public submission may be received by the National Administrative Office (NAO) of a Party to the NAALC under Article 16 (3) regarding "labour law matters" arising in the territory of another Party. Furthermore, each NAO "shall review such matters, as appropriate, in accordance with domestic procedures". At most, complaints about the lack of enforcement of workers’ associational rights may only result in NAO and Ministerial Consultations under Article 21 and 22 respectively, leading to sunshine, workshops and reports. The value of this process should not be underestimated, although its effectiveness is limited.

The elimination of employment discrimination as listed in Annex 1 (7) on NAALC Labor Principles, however, is defined as a technical labor standard and is thus reviewable by an independent Evaluation Committee of Experts (ECE) under Article 23. This is significant. Moreover a "labor law" relating to the elimination of employment discrimination for the purposes of NAO and Ministerial Consultations and presumably under Article 23 (2) regarding the scope of a ECE evaluation is also broadly defined to include "other grounds (of discrimination) as determined by each Party’s domestic law". Thus, as discussed below, the labour law of a Party for the purposes of a complaint should include those mutually recognized international rights or standards relating to non-discrimination in employment that are a part of domestic law. Nevertheless the grounds of this complaint would not currently go on to arbitration, leading to trade or other monetary sanctions.



B. The Substance

With respect to the substance of the submission, it might plead that the removal of successorship rights pertaining to public service employees by the Ontario government constitutes a violation of the objectives and obligations of the NAALC. Specifically, the NAALC Objective to "promote to the maximum extent possible, the labour principles set out in Annex 1"and the Obligation that each Party "shall promote compliance with and effectively enforce its labour law through appropriate government action" are violated if it can be shown that the listed NAALC labour principle on the ‘elimination of employment discrimination" had not been respected to the maximum extent possible. In this case, it could be said that the labour principle of non-discrimination in employment was violated by the amendment to the Crown Employees Act because it made an arbitrary distinction between the ability of public and private sector employees to enjoy the benefits of union successor rights. If so, it could then be said that there has been a failure to promote compliance with, and the effective enforcement of mutually recognized labour law principles in the NAALC by Canada (and a subnational).

The virtue of the argument rests on the ability to demonstrate, in the absence of a provincial government signing on to the NAALC, that nevertheless the NAALC labour principle involved has been mutually recognized in law by all relevant jurisdictions. In other words, and as outlined below, one could rely on international law as being part of the domestic law thus constituting the minimum standards within the region, as well as, a benchmark by which to assess compliance with the level of protection or benefit offered in the domestic law or as that law was amended from time to time.


If the NAALC process were to accept this approach, the harmonization of North American labour principles and standards to international norms would be greatly facilitated. To achieve and maintain better benefits domestically than the international minimum is much more of a challenge, speaking to the need to provide for the real possibility of achieving better regional levels of protection than the international minimum.

With respect to the Province of Ontario, it is possible to trace the recognition of the fundamental principle of equal protection of the law and non-discrimination in employment to international law and standards. Before doing so, however, it must be stressed that it should not be necessary to prove for the purposes of this paper that the recognition of union successor rights is North American-wide. My more limited purpose is to demonstrate that a jurisdiction with high standards, by improving on the minimum standards in the international norm, is unfairly exposed to social dumping. For the purposes of a public submission, however, it ought to be enough to prove that there is North American recognition of the right to freedom from discrimination in employment by virtue of the NAALC Annex; the equal application of union successor rights being a derivative of that principle, as well as related associational rights which are also guaranteed in international law.

In the Province of Ontario, the Ontario Human Rights Code, for example, recognizes "the inherent dignity and the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world and is in accord with the Universal Declaration of Human Rights as proclaimed by the United Nations". The human rights recognized in the UN Declaration were further elaborated in the International Convention on Civil and Political Rights ratified by Canada, Mexico and the United States. In addition to the NAALC, this Convention could form the basis of mutually recognized labour law principles.

A general non- discrimination provision is contained in Article 26 of the Convention, requiring equal protection of the law without discrimination, followed by a non-exhaustive list of eleven grounds of discrimination in employment. It has been said that the essential element of Article 26 is to avoid "arbitrariness". Thus it is possible to argue that Ontario law does recognize the inappropriateness of making arbitrary distinctions concerning the equal protection of the law. In this case it could be said that the amendment to the Crown Employees Act makes arbitrary distinctions between public and private sector employees, lured by the prospects of privatization and free trade, and thus is departure from the mutually recognized labour principle of elimination of employment discrimination and the civil right to equal protection of the law.

C. Extent of Canadian Obligations

Even if the mutually recognized principle of non-discrimination could be traced to a legal obligation in Ontario law, Annex 46 of the NAALC on the Extent of Canadian Obligations precludes Ministerial Consultations under Article 22, inter alia, unless the labour law matter of the public submission would fall under exclusive federal jurisdiction or until the federal government and the provinces signed on to the Intergovernmental Agreement regarding the NAALC account for at least 35 percent of Canada’s labour force; and where the matter concerns a specific industry or sector, at least 55 percent of the workers concerned are employed in those provinces.

Regrettably, the government of the Province of Ontario has not as yet been willing to sign the Intergovernmental Agreement. While it is still possible for non-Canadians to make a public submission to the Mexican or American NAO concerning labour law matters in the Province, the current thinking is that there is no legal requirement on the Canadian NAO to respond to any enquiries about Ontario from another NAO. As an alternative to this limited process, a public submission might initiate NAALC cooperative activities to compare successor rights legislation across North America, to consider the impact of the North American Free Trade Agreement (NAFTA), and identify how the varying levels of protection related to union successor rights impact on North American labour markets and workers’ rights.





The intention of the amendment to the Crown Employees Act is to deny public sector workers the benefits of union successor rights, as enjoyed by private sector workers, in order to facilitate the privatization of government functions and to usher in free trade in services. This case study has demonstrated the difficulty of a high standard jurisdiction to retain those standards when faced with competition from jurisdictions that do not evenly respect the minimum international ones.

The number of individuals, both as consumers and workers, effected by the government’s privatization plans is vast. The implications of the amendment will have far reaching consequences. This paper has argued that the purpose and effect of the amendment constitutes a violation of the mutually recognized right to equal protection of the law and the labour principle of non-discrimination in employment because it makes an arbitrary distinction between public and private sector employees. These principles are recognized in the NAALC, in international agreements, as well as in Ontario law.

With respect to NAFTA, its’ objectives include the promotion of fair competition. While it is true that the government of Ontario has not as yet seen fit to sign onto the NAALC or the NAAEC, it has not gone unnoticed by its trading partners that the Province continues to economically benefit from the NAFTA, largely unconstrained by the side agreement obligations and exposure to North American public submissions. How can this situation be described as fair competition? What remedies might be available under the NAFTA to ensure a level playing field concerning provincial government such as Ontario that benefit from free trade without taking on its partners’ full obligations?