The Fraser Institute

The Fraser Institute

August 25, 2009 06:00 ET

The Fraser Institute: Labour Relations Laws Across Canada Should Be Made More Balanced to Encourage Employment Growth

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 25, 2009) - In order to encourage employment growth as Canada comes out of the recession, the country needs more balanced labour relations laws, concludes a new study from independent research organization the Fraser Institute.

"Empirical evidence from around the world indicates that jurisdictions with more flexible labour markets enjoy better labour market performance," said Niels Veldhuis, Fraser Institute senior economist and co-author of An Empirical Comparison of Labour Relations Laws in Canada and the United States: 2009 Edition.

"When we compare labour relations laws among Canadian provinces and U.S. states, we see that Canada greatly lags the U.S. in terms of balance and laws that allow for labour market flexibility. Regulations in Canada are much more prescriptive and tilted in favour of unions. Ultimately, this will restrict future economic growth."

In An Empirical Comparison of Labour Relations Laws in Canada and the United States: 2009 Edition, Veldhuis and his co-authors provide an empirical assessment of labour relations laws in the private sector for the 10 Canadian provinces, the Canadian federal jurisdiction, and the 50 U.S. states. The study's Index of Labour Relations Laws provides an overall measurement of the extent to which jurisdictions achieve balance in their labour relations laws.

"Canadian labour relations laws inhibit the proper and efficient functioning of the labour market because they favour one group over another, prevent innovation and flexibility, and are overly prescriptive, imposing a resolution to labour disputes rather than fostering negotiation between employers and employees," Veldhuis said.

Of the Canadian jurisdictions measured, Alberta has the most balanced and least prescriptive labour relations laws, earning it a score of 5.3 out of 10, the only province to score more than 5.0 on the Index of Labour Relations Laws.

By comparison, the Canadian federal government and Quebec have the most biased labour relations laws, with the federal government scoring 1.1 out of 10 and Quebec 1.3 out of 10 on the Index of Labour Relations Laws. Manitoba is the third worst jurisdiction, at 1.8 out of 10; followed by British Columbia, New Brunswick and Newfoundland & Labrador, each with a score of 2.8 out of 10. Prince Edward Island scores 3.0 out of 10, with Saskatchewan next at 3.2 out of 10. Nova Scotia (3.3 out of 10) and Ontario (3.4 out of 10) round out the Canadian jurisdictions measured.

"Alberta stands ahead of other Canadian jurisdictions although it falls well short of competing with U.S. states," Veldhuis said.

"Alberta has the same basic failing as all other Canadian jurisdictions in areas such as successor rights and the absence of worker choice laws. If Alberta, and indeed all other provinces, wants to pursue more balanced labour relations laws, they will have to diverge from the Canadian standard on these aspects."

The highest ranking jurisdictions, scoring 9.2 out of 10 on the index, are the 22 U.S. states with Right-to-Work regulations that allow employees to opt out of joining a union or paying union dues. The remaining 28 U.S. states have an overall score of 7.5 out of 10 on the index. These states allow full choice with respect to union membership but only allow workers to opt-out of non-representation related union dues such as political spending.

Canadian workers do not have the same level of choice with respect to joining and financially supporting a union as their U.S. counterparts. Instead, Canadian unionized workers are forced to pay for the political or social activities of unions with which they may not agree, Veldhuis said.

"Overall, U.S. states are superior to Canada in maintaining balanced labour relations laws focused on providing workers and employers with choice and flexibility."

The study emphasizes that labour market flexibility is important because it determines how well labour markets respond to changes in economic conditions. Flexibility means employees can shift their efforts to endeavours that provide the greatest return or benefit to them. For instance, workers in a flexible labour market would be able to shift their efforts easily from one industry or region to another. Similarly, flexibility allows employers to change the mix of capital and labour to respond to market changes.

One of the key issues in this regard is that of successor rights, provisions that determine whether, and how, collective bargaining agreements survive the sale, transfer, consolidation, or otherwise disposal of a business.

Veldhuis points out that with so many companies restructuring, merging, or dealing with bankruptcy as a result of the global recession, successor rights become an even more important aspect of labour relations laws.

"If someone were to purchase assets from a foundering business such as GM or Chrysler, Canada's stringent successor laws will impede the reorganization of the business and the efficient reallocation of its capital."

Legislation in every Canadian province as well as the federal laws make an existing collective agreement binding upon a new employer when a business, in whole or in part, is sold, transferred, leased, merged, or otherwise disposed of. In other words, a purchasing employer is bound by an existing collective agreement that it had no part in negotiating. There is little variance in the treatment of successor rights across Canadian provinces.

Conversely, it is rare in the United States for a purchaser to be responsible for the incumbent collective bargaining agreement. While successor employers may be bound to recognize and bargain with the incumbent union, the general direction taken in the United States is not to consider successor employers to be bound by the provisions of a collective bargaining agreement negotiated by their predecessors.

"Giving workers increased choice regarding union membership and dues payment, and making the labour relations laws less prescriptive would dramatically improve the functioning of Canada's labour market," Veldhuis concludes.

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The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit

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