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 propose the repeal of the Rand Formula, the law that facilitates the collection of union dues so unions can effectively perform their legal responsibilities to represent workers.  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.  Yesterday,  a Tory MPP named Michael Harris, was telling the media that the proposals have nothing to do with modern Tories ideological hate-on for collective bargaining, and everything to do with ‘job creation’.

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.

What is The Rand Formula?

The main change proposed in the report is the elimination of the Rand Formula.  The Rand Formula dates from 1946, and  today appears in Section 47 of the Labour Relations Act.  It says that, when a union asks in bargaining for a clause to be included in the collective agreement requiring the employer to deduct union dues from employees’ pay and remit those dues to the union, the employer must agree to that clause so that strikes and lockouts don’t occur over this issue.  A union dues clause only gets into a collective agreement if a majority of the employees covered by it vote for this clause.  The same is true of every other clause in a collective agreement.  It’s there because employees voted for it to be there.  Contrary to the Tories’ propaganda, there is nothing ‘undemocratic’ about a union dues clause.

Unions represent workers by hiring lawyers, economists, pension experts, professional bargainers, and the like.  These things obviously cost a lot of money.  We know empirically that unionized workers benefit from these expenses in the form of higher pay, better benefits and pensions, and more job security.  The Rand Formula says simply that since all employees receive these benefits, it is reasonable to require them all to contribute a small amount towards the costs of operating the union.  Justice Rand explained that it is in the public interest that unions not have to engage in constant battles to obtain their funding:  “The power of organized labour, the necessary co-partner of capital, must be available to address the balance of what is called social justice,” Rand wrote.  The Rand Formula reduces strikes and labour strife. All three political parties supported this sensible compromise for 70 odd years.  Until the new breed of Tories came along.  They would prefer Ontario to follow the lead of low wage U.S. states, like Mississippi.

The Rand Formula 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 repeal the Rand Formula.  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. Without the Rand Formula, businesses would rush into Ontario and hire new workers.  So 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. In fact, I suspect very little would change in the unionized private sector.  A proposal by the employer in bargaining to remove a long-standing union dues provision in a collective agreement might provoke a nasty work stoppage of the sort we saw all the time back in the 1940s.  Stopping strikes over union dues was one of the main reasons the Rand Formula was developed.  Take it away, and let the battles resume.  Some employers might be prepared to start that war with their employees, like the Caterpillars of the world, but I don’t many would. But in any event, there is no reason to believe that employers in Ontario are currently hiring fewer workers than they require because of the union dues clause in their collective agreement.

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

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.

Secondly, new jobs are coming in the form of small businesses.  As we always hear from politicians, ‘small business drives our economy”. But unions are a non-factor in small workplaces here.  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 in construction.  The Tory’s proposed laws might effect 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.  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.

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.  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 objective.  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 push that agenda.

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?