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Repealing the Rand Formula Might Weaken Unions, But it Won’t Create New Jobs

I predicted last January that the Ontario Conservative Party would soon attack what is called “the Rand Formula“.   It took 5 months for my prediction to come true.  Last week, the Tories released a discussion paper on labour law that did exactly as predicted, among other proposals.

It is not actually accurate to describe what the Tories have in mind as abolishing the Rand Formula, because the “Rand Formula” is not the law in Ontario at this time.  The Rand Formula refers to an interest arbitration award issued by Justice Rand in 1946 involving a nasty bargaining dispute and strike at Ford.  Justice Rand ruled that the collective agreement should include a mandatory dues clause, but not a mandatory union membership clause.  He thought it made perfect sense for all workers who receive the benefits of a collective agreement should pay their equal, small share of the cost of running a union, bargaining, and administrating the agreements.  He did not believe that employees should be required to actually become members of the union.

Today, the only law in Ontario that governs union dues is Section 47 of the Labour Relations Act.  That section doesn’t require employees to pay dues, but it does say that if the union and employees propose a clause requiring union dues checkoff from employee pay checks, then the employer cannot provoke a strike or lockout over the issue.  This law was enacted by a Conservative  government, in the 1980s, after some nasty labour disputes over union dues clauses. So, whether a union dues clause goes into a collective depends on whether the employees and the union want such a clause.  The collective agreement is required to be ‘ratified’ in a secret ballot vote before it becomes effective.  Therefore, the requirement for employees to pay union dues exists in Ontario only if it is approved as part of a package of collective agreement terms in a majority vote.

Current Ontario law says nothing at all about mandatory union membership.  That too is left as  a matter of collective bargaining.  The Conservative plan, it appears, would be to prohibit a collective agreement from including a mandatory union dues checkoff clause, as well as a mandatory union membership clause.  Outside of construction, mandatory union membership clauses are uncommon.  The real aim of the Tories is to cut off union revenues by abolishing dues checkoff clauses. Proponents of these laws never say that this is the purpose of course.  Rather, they make the curious claim banning union dues clauses is a job creation measure.

Ontario P.C. Party Proposes Repeal of Rand Formula

What should we make of this peculiar claim that making it more difficult for unions to obtain funding for the services they provide will create new jobs?  

Why would there be a link between these two things?  I would place this into the very large category of highly dubious assertions often made by politicians in labour law debates. Let’s think about the Tory’s claim for a moment.

The ‘Rand Formula” and the Free-Rider Problem: Should Unions Be Legally Required to Provide Free Services, Benefits to Non-Members?

Justice Ivan Rand

The Rand Formula–allowing a collective agreement clause that permits dues checkoff for all employees covered by a collective agreement–addresses the well-known ‘free-rider problem’.  Think about taxes. Since we all benefit from hospitals, roads, and schools, we are all required to pay our fair share of taxes to pay for these services.  What if taxes were voluntary, rather than mandatory?  How many people would pay them?  Even people who benefit from the things taxes buy would stop paying them if they saw others receiving the benefits without having to pay their fair share.  A good example of this is provided by that upstanding guy Randy Hillier, the Tory MPP who incidentally is leading this anti-union dues push by the Tories. Recall that he refused to pay his taxes, to the point that liens had to be placed on his property?  Hell, if Hillier isn’t paying taxes, but is still able to use the roads, schools, and hospitals, then why should I pay taxes.  Soon no one would be paying taxes, and the government would go broke.  Is it undemocratic to require everyone who benefits from public goods to contribute marginally to their costs?

This is the dynamic the Tories hope would follow their move to prohibit union dues clauses.  If workers are given a choice to pay or not pay for the services unions provide, they expect that eventually, most people will stop contributing, and the labour movement will go broke.  This is the goal, since if the labour movement’s funds dry up, it would not be as effective in criticizing the Tories during election time. The Tories have been trying to silence the labour movement for years through litigation, losing at every stage. So I understand the political reasons why the Tories would like to eliminate the Rand Formula.

But what about their claim that changing how unions obtain dues will create new jobs?

While making it more difficult for unions to collect dues may weaken unions and help silence their political voice, how would this lead to more jobs in Ontario?  The Tories suggest the answer lies in the fact that the Rand Formula deters companies from coming to Canada.  Presumably, the claim is that,  without the Rand Formula, businesses would rush into Ontario and hire new workers.  They would do this presumably because without unions, labour costs would decline (i.e. wages and benefits would be lower).  That’s why critics of the law, from Martin Luther King to Barack Obama, describe these laws as part of a ‘low wage, low rights’ strategy.

If the idea is that companies will move to Ontario if only we change the way union dues are collected, then we are talking about a particular subset of potential employers who are geographically mobile–they move around the world, setting up wherever it makes most economic sense.  Therefore, we can ignore all those jobs and industries that are not mobile in that sense.  Construction is one: you can’t ship the construction of a skyscraper in Toronto to Mexico.  Similarly, companies that require a local presence and serve a particular local market–like retail stores, taxis, restaurants, gyms, transportation, galleries, hotels, bank branches, etc.–cannot move from jurisdiction to jurisdiction to avoid regulation they dislike.  So the Tories aren’t talking about these companies either.  So let’s consider what’s left.

Will repealing the Rand Formula cause employers already unionized to create new positions? Hard to see how it would.  The assumption would have to be that unionized employers are at present understaffing due to the law on union dues collection.  Does that make any sense to anyone?  If the law suddenly voided a collective agreement clause requiring dues checkoff, how would this suddenly induce the employer to hire a bunch of new people?  One thing that will likely almost certainly happen is greater workplace tension and conflict.  My HRM colleagues tell me that would suggest lower productivity.  People who opt to stop paying union dues will become pariahs to the union supporters for free-riding–taking all the benefits bargained by the union without paying their fair share towards the expenses associated with that work.  They’ll be great peer pressure to keep paying the dues, even if it is ‘voluntary’. This isn’t like Mississippi, where the right to opt out of union dues has always existed.  The sudden introduction of a law banning union dues checkoff in Ontario for the first time will be like injecting a labour relations poison pill into the workplace.  Whatever else the law might produce, there’s no reason to believe more jobs will result.

Maybe what the Tories are claiming is that there’s a bunch of antiunion employers who would set up in Ontario, but for the Rand Formula.  That seems doubtful for a number of fairly obvious reasons.

Firstly, the Rand Formula law has had no effect whatsoever on the vast expansion of American retailers into Canada, including Walmart

American Retailers Are Rushing in Canada despite Rand Formula


and Target, two of the most antiunion companies in the world.  Those companies know what the Tories are pretending not to:  that our labour laws make it effectively impossible for unions to make any headway into the retail, service, banking, and technology sectors. For employers in these sectors, where many of the new jobs are being created, the Rand Formula is completely irrelevant.  Why worry about a potential clause in a collective agreement when the odds of a collective agreement ever coming into effect in the first place are so miniscule. Surely investment decisions are made on the basis of so many other, far more important economic and social factors. And, indeed, studies confirm that labour laws are low down the priority list when businesses decide where to invest.  In short, businesses in the real world do not act like the Tories say they do.  The idea that there are loads of business waiting to invest in Ontario, if only the government would change the law on how unions collect dues, is utter nonsense.

Secondly, new jobs are coming mostly in the form of small businesses, where unions are all but nonexistent.  As we always hear from politicians, ‘small business drives our economy”. But  while union density in workplaces with over 500 employees is over 50%, nearly 90% of small workplaces (less than 20 employees) are nonunion.  Most unions don’t even bother trying to organize these workplaces, because the costs of servicing them are too high. As a result, the odds of a workplace of 10-25 employees ever being unionized and subjected to a Rand Formula clause are even smaller than they are for a larger Walmart.  It’s stupid to suggest that someone choses not to start a small business because they are worried about how union dues might be collected at some point in the future in the very unlikely chance their workers unionize.  Therefore, the supposed job growth flowing from the repeal of the Rand Formula won’t be in small business, and is a non-factor in the expansion of the retail sector.

Thirdly, most of our unions in Ontario are in the public sector, and many are in the construction industry.  The Tory’s proposed laws might impact those sectors, but not in any way that we would expect to create new jobs.  In fact, we can assume that there would be big job losses in the public sector under a Hudak government, creating a larger pool of unemployed looking for work, creating downward pressure on wages and benefits.  This fits with the Tory strategy of low wage jobs, but it is inconsistent with their claim that they are interesting in creating more jobs.  Construction is booming in Ontario, and again, there is no logical reason why changing the way union dues are collected in that industry will create more construction jobs.  As noted above, construction is not one of those industries that can move to the cheapest jurisdiction.  It’s not as if there’s a bunch of foreign construction companies lining up the border, waiting for Section 47 of the Labour Relations Act to be repealed.

Fourthly, no one really believes that huge manufacturing factories of bygone days would return to Ontario if only we changed the way union dues are collected.  The death nail for those jobs were free trade agreements.  Low skill manufacturing that can be performed in low wage, large scale factories was expected to go to low wage countries under the master plan of free trade.  That’s what free trade theory predicts will happen, that is what Canadian (especially Conservative, by the way) politicians expected to happen, and that is what has, and continues to happen.  Places like Ontario were supposed to transition towards higher skill, higher wage industries and the service sector.  That is where the job growth was supposed to come from, and unions have never had any prominence in any of these sectors.  Our labour laws created in the 1940s were never intended to facilitate collective bargaining in the sorts of workplaces where jobs are being created today–smaller, white collar workplaces–and unions will never be an important player in those sectors without a major labour law overhaul of a sort very different from what the Tories are proposing.

As the political party that has most pushed for free trade expansion, it is a bit rich and cynical for the Tories to now claim that the law governing the collection of union dues is a central barrier towards the ‘re-industrialization of Ontario’, as if that is the dream.  Complete nonsense.  Now, if we want large industrial manufacturers to come back to Canada, we could always reopen a dialogue about free trade and whether it actually helps Canada.  But don’t expect the Conservatives to start that conversation.

Unions represent only about 15% of private sector workers, and a good proportion of that amount is in jobs that are not influenced by global competitive forces in any direct way related to employment numbers.  Truth is, even if our labour laws were just left to rust away, with no changes at all, private sector union density will probably fall below 10% in the near future.  The Tories are describing a mythical private sector labour movement that doesn’t exist.  The types of companies that would consider moving to Ontario today are not the sort that have anything to ‘fear’ from the Rand Formula, because there is very little chance that they will ever be subject to a collective agreement. Therefore, to suggest that the Rand Formula is some great barrier to new jobs coming to Ontario is utter nonsense.  But the politics of labour law are frequently divorced from reality.

What do you think about the Conservative Party’s proposal to abolish the Rand Formula, which makes it easy for unions to collect dues from bargaining unit employees?

Am I wrong in suggesting that this simple move would cause an influx of new jobs into Ontario?

If so, persuade me and my readers why this is the case?

Socialize

10 Responses to Repealing the Rand Formula Might Weaken Unions, But it Won’t Create New Jobs

  1. Dave Reply

    July 5, 2012 at 9:25 am

    I can agree that the Tories’ job creation claims are just political ear candy to attract a few more uninformed sympathizers come election time. That’s to be expected, but the issue is still whether the Rand Formula should be eliminated. You say yourself “Our labour laws created in the 1940s were never intended to facilitate collective bargaining in the sorts of workplaces where jobs are being created today” – so why hold fast to a piece of legislation from 1946 if it does nothing to improve our economic conditions? Obviously it exists to help unions rather than employers, but the notion of strong, benevolent labour unions is perhaps itself outdated…

    As for the free-rider analogy – it is clear that taxes exist because they provide for a public good. Everyone pays them because everyone has the opportunity to benefit. Union dues do not work in the same universal manner, as only a small group can enjoy any of the benefits they ultimately provide. As a temporary part-time employee, I was explicitly exlcuded from most terms of my local agreement because of my status (including the right to grieve termination). That didn’t preclude the union from collecting $30 in dues from me each pay – I for one would have been happy to opt-out.

    Admission of bias: I now work in a non-union HR role and am not a fan of labour unions, particularly in the tax-funded public sector.

  2. David Jasper Reply

    July 6, 2012 at 6:10 am

    Couldn’t agree more. The only reason for the Conservatives to want the repeal of the Rand Formula is to try to weakon unions financially. Unions have never supported the Conservative party
    Mike Harris tried to weaken unions by making it mandatory for employers to post information on how to decertify your union and it didn’t work.

  3. Dan Reply

    July 6, 2012 at 10:09 am

    Dave ,sorry my friend,but you are wrong.Just like taxes the public an non-union sector including you Dave benefit from unions.Health care,8 hour work day ,vacation pay,pensions,health an safety,and yes weekends.All these things you gladly take advantage of Dave came about by the sacrifice of the labor movement..Your Welcome

  4. Betty Reply

    July 10, 2012 at 2:51 pm

    Unions have outlived their usefulness. They were definitely necessary in the 30′s & 40′s, but they have had their day. If the government were just to tighten up the labour laws and raise the minimum wage, we should be fine. The unions today are just waaay too involved in politics and assume that all of their members agree with them – THEY DEFIITELY DO NOT!! I belonged to the Alberta Provincial Union for years and I don’t even know who our Union Rep was and nobody I knew ever filed a grievance or ever need the Union for any other reason, but we were forced to pay them every payday.

    I now work for a non-profit organization and I believe I get fair wages for what I do and the benefits are quite acceptable as well. We actually work hard for our pay and at the end of the day are proud of our accomplishments and are recognized for them as well.

    I have seen Unions shut down companies who warned them that they could only give them a certain amount and the employees went on strike anyway – the company had no choice but to go our of business. Now you have all of those employees out of work – wasn’t that a smart move!!

    How many times have you heard a Union employee say “I can’t do that, it’s not in my job description”. I like to work in an atmosphere of team work – so much more gets accomplished, but I guess the Union doesn’t care about accomplishments of the job, only whatever money and benefits they can wring out of the company.

  5. Johnnyinlabour Reply

    July 26, 2012 at 12:59 pm

    Doorey, Your bang on again!!! Great Post.

    We have learned a lot as Canadian’s from the recent Caterpillar announcement earlier this year in Ontario.

    We learned Labour Law does need reform but, only in the form of strengthening our laws so that companies like Caterpillar cannot use the threat of shutdown to escape their contractual agreements. (Provincially)

    We learned we need to regulate foreign investment and the Investment Canada Act to prevent companies from taking over important assets and then shutting them down. (Happening right now in Alberta with Chinese military buying up oil contacts right now) once signed … we have no international rights to stop the export.

    If it were not for unions how would we have the means of telling the Canadian Society to wake up to the kinds of governments and threats to the quality of life in the pursuit of wealth and greater profits?

  6. MLS Hamilton Reply

    August 1, 2012 at 8:26 pm

    Johnnyinlabour,

    Given how many of our own mining and financial companies are out on the world stage buying up assets in other countries. Whose own populations probably feel the exact same way about our companies buying up their assets and lets not have any illusions about how are companies are the good guys and always do the right thing either. So I’m not sure how you can say we do it but foreign companies can’t buy anything here.

    I do agree with you and Doorey in some regards though and it honestly worries me to see the way unions are being attacked because I do think we are all better off having them, then not. Workers do need a voice. Wiping out the RAND formula is not the answer to our problems, I see absolutely no positives that could come from it but plenty of negatives.

    However a balance does need to be struck, unions should work to ensure their members are protected from neopotistic bosses, unsafe conditions and are treated fairly in a number of areas. But if a worker is sleeping on the job, doing a poor job or showing up drunk they should help the employer get rid of that employee as well.

    My wife and I just lived through a strike at Peel Region, where many of the union members behaved in an embarrassing and disgusting manner. I personally witnessed an obviously pregnant non-unionized employee hounded by strikers with bull horns until she tripped and fell on the pavement. As well strike protocols were blatantly ignored throughout much of the strike. Yet when the union ratified their agreement they refused to allow the firing of strikers who were documented engaging in illegal and criminal behaviour. Several were let go but no doubt will have to be hired back down the road.

    The point this novel of a response is trying to make is I believe firmly that we need unions and taking their ability to fund raise away does noone any good. But union powers do need to be scaled back somehow so they are performing their original function, protecting their members from being mistreated and ensuring a fair environment. Every step they take beyond that mandate makes them more and more irrelevant.

  7. Jim Reply

    August 15, 2012 at 3:02 pm

    Betty,
    Your example exactly proves the continuing value of unions. You said when you were employed by the Alberta government that neither you nor your coworkers ever had to file grievance or visit your union rep in order to ensure that you got a paycheque, had good benefits and regular employment. You were not in this situation as the result of a benevolent employer. You enjoyed these benefits because someone negotiated a good collective agreement and contnued to ensure that collective agreement was being honoured. Your union was working on your behalf without you having to do anything other than pay your fair share of your union dies. Sounds like a good deal to me.
    Regard that old song, “Unions were valuable once, but not today”, I could fill pages of examples today where employers continue to take advantage of workers. The only effective counter to these types of employers are workers coming together to form a union.
    I am glad to hear that you are in the fortunate situation of working for a fair employer who apparently treats their workers well. If every employer behaved in that manner then I might accept your argument that unions would not be necessary. We are not there yet, not be a long shot.

  8. John Doe Reply

    August 29, 2012 at 4:18 pm

    Great comments from everyone. Considering that about 85% of all unionized workers are in the civil service a question that should be asked is whether Rand actually applied in that context to begin with. Judge Rand mediated a dispute between Ford and the CAW (if memory serves correctly). His concern was the competing interests between labour and capital regarding how big a slice of the pie goes to each. The costing of the effort was to be borne by all since everyone in labour would benefit. However, since the concept of profit doesn’t really exist in government, how can we say that labour and “capital” compete with each other. Civil servants simply administer the policies of the day and provide services paid for by all taxpayers. I just don’t see the connection between union dues, rand and labour in a government setting.

    Having the option to pay for union representation would make bargaining agents become more relevant to their members in general. One has to remember there is no transparency in union spending and no one really knows how much is wasted or spent on activities that really don’t impact members. Again, in a civil service setting, collective bargaining and striking are pretty much a think of the past anyway so why not give workers a choice???

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