December 22, 1999

To: Administration Committee

From: Louie Gervasi, Manager, Fair Wage & Labour Trades Office

Subject: Amending Fair Wage Schedules and Related Items

Purpose:

The purpose of this report is to submit various options for consideration and decide which method to use in establishing new Fair Wage rates and Schedules applicable to suppliers of goods and services engaged in work with the City of Toronto; and related matters. The construction industry and the relevant affected City agencies, boards, and commissions will be notified of this report, and will have the opportunity to make deputations to the Administration Committee at its meeting of January 11, 2000, with respect to the establishment of new fair wage rates and schedules.

Funding Sources:

None.

Recommendations:

It is recommended that:

1. the Administration Committee choose one of the options discussed in the report on the method to use in establishing fair wage rates and schedules;

2. if Option One, Two or Three is chosen as the recommended option for establishing fair wage rates and schedules, the Manager, Fair Wage & Labour Trades Office prepare and file with the City Clerk, the following Fair Wage Schedules for 2000-2001. (These new Schedules will replace 1995-97 schedules currently on file with the City Clerk):

- Road Building Construction

- Sewer and Watermain Construction

- Heavy Construction

- Industrial Commercial Institutional Construction

- Residential Construction

- General Classifications

- Utilities Construction

3. All subsequent future fair wage rates and schedules be prepared using the recommended option and be filed with the City Clerk; and then be made available to contractors and be posted on the City of Toronto's website;

4. the Fair Wage & Labour Trades Office make a request on the possibility of participating on any provincial or federal government committees charged with establishing or updating fair wage schedules in the Greater Toronto area;

5. the Manager, Fair Wage & Labour Trades Office review whether or not "stabilization funds" are being used on city projects, and report back to committee on any necessary fair wage policy amendments;

6. the Executive Director of Human Resources report to the Administration Committee during the 2000 budget process, on the Fair Wage & Labour Trades Office's additional resource requirements;

7. subject to approval during the 2000 budget process for additional staff resources, the Fair Wage & Labour Trades Office begin to concentrate on garment and printing workers to see how the Fair Wage Policy is impacting their wage and benefits, and report its findings to committee.

Council Reference/Background/History:

City Council, at its meeting held on October 1 and 2, 1998, adopted Clause 1 of Report No. 13 of the Corporate Services Committee entitled "Review of Fair Wage Policy." A new Fair Wage Policy was adopted for all City Departments, Agencies, Boards and Commissions. The recommendations included a request to report on current and alternative methods of establishing fair wage rates and schedules; and to conduct an assessment in 1999 on the competitiveness of the City of Toronto's fair wage rates and schedules using existing studies commissioned by the Government of Canada and other parties.

Also, a request was made to review the Fair Wage & Labour Trades Office's resource requirements; to include a clause in the Fair Wage Policy which would give preference to contractors who support apprenticeship programs and who hire and train apprentices; and to report on the feasibility of undertaking a study of the conditions of workers in other sectors of the economy such as the garment and printing industries to see how the Fair Wage Policy is impacting their wages and benefits.

Comments and Discussion:

Originally implemented in 1893, the Fair Wage Policy of the former City of Toronto had, as one of its main principles, the prohibition of the City doing business with contractors and suppliers who discriminated against their workers. The definition of "worker" under the policy has expanded over the years to include labourers, mechanics and construction workers and also non-construction classifications such as clerical, garment, and janitorial workers. The policy also requires compliance with the acceptable number of working hours and conditions of work.

The intent of the Fair Wage Policy can be summarized as follows:

(i) to produce stable labour relations with minimal disruptions;

(ii) to compromise between the wage differentials of organized labour and unorganized labour;

(iii) to create a level playing field in competitions for City work;

(iv) to protect the public; and

(v) to enhance the reputation of the City for ethical business dealings.

Establishing fair wage rates and schedules are intended to minimize potential conflicts between organized and unorganized labour in the tendering and awarding of civic contracts. Fair wage rates and schedules are established through discussions with employee and employer groups and associations (having both union and non-union members). These rates are voted on by the above noted groups and are recommended to Council for approval every three years. Many non-construction classifications are based on market and industrial surveys in accordance with the prevailing wages for non-union workers in the geographic area.

The City of Toronto fair wage rates and schedules provides rates of pay that are about ninety-five percent of the negotiated collective agreement rates for the Greater Toronto Area. As well, the federal and provincial governments have fair wage rates and schedules that provide rates of pay that are about sixty-five percent (federal) and seventy-five percent (provincial) of the negotiated collective agreement rates in the GTA.

Over sixty different organizations of the construction industry were invited to attend an information/consultation session held on November 15, 1999. A total of forty were in attendance. Discussions were held and subsequent submissions were received from the various parties. The current method of establishing fair wage rates and schedules was discussed in detail and is identified as Option One. One of the new options, Option Two, was proposed by over 90% of the attendees present at the session. Option Three, was submitted by The Independent Contractors Association.

As well, an Option Four is also submitted for committee's consideration. However, this option was not considered nor was it mentioned at the November 15, 1999 meeting held with the construction industry.

It should be noted that regardless of which option is utilized, the fair wage rates and schedules do not apply to small businesses, typically those with owner-operators, or partnerships, or principals of companies as long as they undertake the work themselves.

(a) Option One (current method)

The present City of Toronto method of establishing fair wage rates and schedules involves reviewing the various provisions of the construction negotiated collective agreements in the Greater Toronto Area. From these collective agreements, the following particular items are identified and used as the basis for fair wage rates. The highlights of the current method is as follows:

a. the base wage rate for each of the different classifications of worker is used;

b. the maximum weekly hours of work before overtime is used;

c. a four percent vacation pay is used;

d. a six percent holiday pay is used in lieu of any paid statutory holidays;

e. the fringe benefits payable to workers includes only the pension and the extended health and welfare portions.

As well, wage surveys are undertaken in preparing fair wage rates for non-construction classifications.

Observations

The current option provides rates of pay that are about ninety-five percent of the negotiated collective agreement rate. The combined vacation pay of four percent and the holiday pay in lieu of statutory holidays of six percent are the fixed standard in most construction negotiated collective agreements. However, if an employer pays their employees statutory holidays and/or vacation pay, the rates for vacation pay and holiday pay in the fair wage rates and schedules are reduced accordingly. As a "rule of thumb", up to fifteen percent of the total wage package is designated for fringe benefits payable to workers. All construction negotiated collective agreements make provisions for fringe benefits payable to workers.

The majority of contractors and service suppliers who bid on City work are aware of the prevailing fair wage rates for the City of Toronto.

(b) Option Two (new option proposed by over 90% of the organizations)

Same as Option One, but with an additional, new criterion, part (f), as follows:

· include the apprenticeship training portion as part of the worker's overall wages when

establishing fair wage rates and schedules.

Observations

Most negotiated collective agreements allocate between two cents per hour and twenty-five cents per hour for apprenticeship training. It was felt by many construction organizations that apprenticeship programs and training were crucial to the on-going survival of the construction industry in the GTA, especially in view of declining apprentices in many construction classifications.

In addition, City Council approved a clause in the Fair Wage Policy (see attached) that gives preference to contractors who support approved apprenticeship programs and who hire and train apprentices under these programs.

As the allocation of between two cents and twenty-five cents per hour for apprenticeship training is very minimal, the rates of pay under this option would still be at about 95% of the negotiated collective agreement rate, similar to Option One.

(c) Option Three (new option proposed by The Independent Contractors Association)

a. use the current provincial base wage rates as the standard;

b. use the Employment Standards Act as the basis for weekly hours of work;

c. a four percent vacation pay is used;

d. elimination of the six percent holiday pay;

e. elimination of the fringe benefits portion payable to workers of approximately fifteen percent;

f. no allocation of funds for apprenticeship training in establishing wage rates.

Observations

This new option provides rates of pay that are about seventy-five percent of the negotiated collective agreement rate, about twenty percent lower than both Options One or Two (comparable to the current provincial fair wage schedules at the 1995 negotiated collective agreements wage levels for the GTA).

The Employment Standards Act requires overtime pay in excess of forty-four hours worked per week. Most of the negotiated collective agreements require overtime pay after forty hours of work. Under this option, a worker will not be paid for any statutory holidays. As well, if a contractor does pay or offer fringe benefits, it can use up to fifteen percent of the base wage rate to do so.

This option changes the City's current method of establishing fair wage rates and schedules to the method used by the province.

(d) Option Four (this option was not discussed with the construction industry)

Keep the status quo. Most construction wage rates will have increased a total of about thirteen- percent for the ten-year period of 1991-2001. The fair wage rates and schedules under this option will remain frozen for a couple of years and committee can re-consider this matter again in the fall of 2001.

Summary of Options

It should be also noted that because of the City's binding collective agreements in the construction industry, about sixteen of the two hundred and forty-eight classifications found in the fair wage schedules are fixed-in-place by collective bargaining and cannot be altered by any option.

The major differences between the options (with the exception of keeping the wage rates and schedules as status quo under Option Four) is as follows:

Options One and Two basically mirror the same concept and method in establishing fair wage rates and schedules. The base wage rates in the negotiated collective agreements are used. It then adds about fifteen percent per classification as part of a worker's total wage rate for fringe benefits (pension, health & welfare); and with Option Two, there's an additional amount for apprenticeship training. As well, because most construction workers do not receive payment for statutory holidays, a payment in lieu of statutory holidays of about six percent is also included in both of these options.

Option Three provides a method that differs substantially. It reduces the overall wage packages paid to workers by about twenty percent and is similar to the provincial schedules and standards at 1995 levels and until such time as adjusted by the Province.

The impact of the relevant options, can be seen by the following comparison that was prepared last year as Appendix 6 in connection with the consideration of the fair wage policy by Council (October, 1998):

Appendix 6

Fair Wage Rates Comparison

* Up to fifteen percent of the Fair Wage rates may be in the form of benefits not required by law (for example: medical, dental, pension plans)

** Represents fringe benefits (i.e., medical, dental, pension plans)

*** The total former City/Metro Fair Wage rates include Benefits amount (between ten - fifteen percent)

Note: The above is a list of sample classifications for comparison purposes and is not a complete list of either rates. The hourly rates listed are journeyperson fair wage rates. The apprentice fair wage for the City ranges from ten percent to sixty percent less than the journeyperson rate.

If either Option One or Two is the preferred choice, then the new schedules will represent just under a two percent increase in total wages for each year from 1998-1999 to 2000-2001. It should be realized that the labour component on construction projects generally constitutes only about twenty to thirty percent of total construction costs; the other construction costs are related to supplies, equipment, overhead, profit, etc.

Fair Wage Schedules Studies

The office also reviewed the only two studies readily available on the impact of the Fair Wage Schedules on construction costs in Canada. The first one was entitled "Analysis of the Impact on Construction Costs of British Columbia's Fair Wage and Skills Development Policy" dated 1997. The data analyzed by the Quantity Surveyors Society of British Columbia was supplied by several open-shop contractors who actively bid on BC government projects. The report was submitted to our office by The Independent Contractors Association. The executive summary states in part that any "increase in construction cost may not have had an effect on the total cost of the projects awarded, but may have affected the project in terms of physical size, quality and quantity of materials, equipment, furnishings, etc." A total of seven projects were reviewed.

The second study reviewed was entitled "The Impact of Skills Development and Fair Wage Policy on Construction Costs in British Columbia" dated 1997. The study was commissioned by the Construction Labour Relations Association of British Columbia, and the B.C. Provincial Council of Carpenters. The study was financially assisted by the Government of Canada under the Labour-Management Partnerships Program. The Study had not revealed any measurable effect on total construction costs with the inclusion of fair wage schedules.

Stabilization Funds

The Independent Contractors Association expressed a concern with respect to whether or not "stabilization funds" are being used in bidding for City work. In brief, "stabilization funds" are special funds that are established by union trades and are used to assist them when bidding on a specific project to offset the lower wages paid by open shop contractors. It's my understanding that only three construction trade unions have such a fund established and that this stabilization fund is not used on any City project because of the existence of the City's fair wage policy and the labour trades requirements. However, this matter will be reviewed thoroughly and reported back to committee.

Conclusions:

As provided under the regulations governing the duties of the Manager, Fair Wage & Labour Trades Office, amended Fair Wage Schedules and rates will be prepared, filed with the City Clerk's Office, and be made available to contractors. Current and alternative methods of establishing fair wage schedules and rates have been reviewed and presented for Committee's consideration. The "apprenticeship clause" has been inserted in the Fair Wage Policy and the Manager, Fair Wage & Labour Trades Office will be reporting back to committee on related matters.

Contact Name:

Louie Gervasi

392-7300

Louie Gervasi

Manager

Fair Wage & Labour Trades Office

Human Resources Division

Corporate Services Department

Attachment