Ottawa offered striking workers a lump sum payment – that could become a bargaining norm

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Ottawa’s one-time payment of $2,500 to federal public servants as part of a deal reached this week with the Public Service Alliance of Canada could be replicated by other employers when dealing with union negotiations during a period of high inflation.

PSAC and the government reached a settlement for 120,000 public-sector workers early Monday morning, after 13 days of striking and more than two years of charged and complex bargaining. On the wage front, the union secured a compounded 12.6-per-cent wage increase over four years, backdated to 2021, and a one-time pensionable payment of $2,500 for all employees.

Labour experts say that giving unionized employees a one-time cash payment could become more of a norm in bargaining over the next year or so, at a time when employers are being pushed to give their workers wage increases that match inflation. But they are divided over whether lump sum payments – as opposed to cost-of-living increases baked into salaries – set a positive precedent in labour relations.

“It is certainly cheaper for employers and increases their flexibility at the bargaining table. So I can see more employers offering this,” said Adam King, a labour relations expert and former researcher at the Canadian Labour Congress. “Union members also tend to like one-time payments so it can be useful for unions playing catch-up while dealing with an inflationary cycle. But it doesn’t compound wage hikes like percentage-based increases do.”

Inside the emboldening of Canada’s unions

Across the globe, labour negotiations have become more contentious amid prolonged inflation, and unions have been scoring some of the highest wage increases for their members in more than a decade.

The average annual wage increase in 10 major public- and private-sector union settlements between December and January was 3.1 per cent, according to government data. That is still well below the inflation rate, but higher than previous years, when wage increases for unionized workers hovered between 1 and 2 per cent, on average.

PSAC, a union not necessarily known for its militancy, managed to secure a deal for its workers after almost two weeks of being on strike. The deal somewhat addressed inflation, but not solely through percentage-based salary increases.

The length of the collective agreement that was being negotiated spanned 2021 to 2024. Workers obtained a wage increase of 1.5 per cent in 2021, 4.75 per cent in 2022, 3.5 per cent in 2023 and 2.25 per cent in 2024. Those numbers still did not come close to matching inflation, which is estimated to be 13.7 per cent between 2021 and 2023. But the government also offered the union the immediate lump sum payment, which according to PSAC, represents an additional 3.7 per cent of salary for the average PSAC member.

“My sense is the government recognized that workers had not seen wage increases for almost two years because of how long negotiations took, and so that $2,500 was a catch-up payment,” said Charles Smith, a professor of labour relations at the University of Saskatchewan. “This is something we have seen before in other public-sector negotiations when workers are without a contract for a long time.”

One-time lump sum payments disproportionately help those on the lower end of a union salary scale than those on the higher end, noted Armine Yalnizyan, an economist and Atkinson Fellow on the Future of Workers. “It’s like a reverse flat tax. And making a difference to those at the bottom of the income spectrum is incredibly important in a cost-of-living crisis.”

Roughly 60 per cent of PSAC’s 120,000 members, whose bargaining agreements were being negotiated, earn less than $70,000 a year, according to the union. Of that group, 24 per cent earn between $40,000 and $60,000. For those earning under $45,000, the $2,500 represents a healthy 5.5-per-cent boost to their annual salary, compared with 3.3 per cent for those earning $75,000.

But the difficulty with a one-time payment, said Ms. Yalnizyan, is that it does not get carried forward to the next year. In the case of PSAC members, in the fourth year of the collective agreement, their wages will again start lagging inflation without another lump sum payment.

This is exactly why many unions have attempted to force employers to agree to cost-of-living adjustment clauses in collective agreements – a demand that employers, especially when weathering a labour shortage and inflation – are inclined to push back against.

In the 1980s when inflation was at a prolonged high, some automotive unions began accepting lump sum payments to members in new collective agreements as a means of accounting for the increased cost of living. But lump sum payments were largely seen by the labour movement as a win for employers as opposed to workers, according to Mr. King. “It was one of the reasons why the Canadian Auto Workers union split from the United Auto Workers union.”

Inflation has tapered – it was 8.1 per cent at its height last June, and 4.3 per cent as of March, 2023 – and the Bank of Canada predicts that it will continue its descent. Employers are hence reluctant to lock in future wage increases that match the current rate of inflation.

Unions should be prepared to see one-time cash payment offers more often at the bargaining table, said Mr. King. “And it is attractive – for lower-wage workers, a union cannot possibly tell them not to accept an immediate lump sum payment.”

Mikal Skuterud, a labour economist at the University of Waterloo, is skeptical that employers actually prefer lump sum payments. “They certainly don’t prefer strikes,” he said. “It might be that COLA [cost-of-living adjustment] clauses are actually more effective in averting strikes in inflationary environments.”