This column was published in the National Post.

The Ontario government’s decision to send a wage dispute with its prison guard union to binding arbitration has resulted in guards getting a 4.4 per cent raise in 2017. It’s part of a trend that has put upward pressure on public-sector wages, with police, firefighters and now doctors all getting hefty pay increases in recent years.

In the January memorandum of settlement, the government traded the prison guard union’s right to strike for the right to have wage disputes determined by a third-party arbitrator. By deciding to send future wage disputes to binding arbitration, it has ceded control to third parties who have historically shown little deference to the government’s ability to pay for wage hikes.

In other union negotiations, the government has committed to what Ontario Premier Kathleen Wynne calls “net zero” wage increases. In theory, “net zero” means that any increase in wages must be offset by savings in other areas. But when Wynne agreed to send the prison guard wage dispute to arbitration, she admitted that she could not guarantee the arbitrator would reach a “net-zero” result.

In his decision, arbitrator Kevin Burkett did refer to the government’s “net zero” policy, and as a result did not award an across-the-board salary increase. But he did award a three per cent special catch up adjustment for 2017, on top of the 1.4 per cent wage hike the government negotiated in January, for a 4.4 per cent increase in total.

Exactly what the government will now need to cut, or which taxes will have to be hiked, in order to afford the wage increase imposed by the arbitrator is not clear. But that’s not the arbitrator’s problem, which is the whole issue with binding arbitration.

What the arbitrator must consider will be set out in a memorandum of settlement between the province and the union, and only one factor on that long list is the “economic situation in Ontario and in the municipality.” In many arbitrated decisions, such considerations are given little credence, despite the often-dire financial circumstances of the province and its cities. In fact, an entire approach to labour law known as the “ability to pay doctrine” holds that governments have unfettered ability to tax and should do so to the extent necessary to keep government employees happy.

One of the most frequently cited passages rejecting government claims of an inability to pay comes from Burkett’s 2004 decision in a dispute between Bruce Power and its employees, in which he held that “tax revenues must be tapped (whether directly or indirectly) to the extent of providing normative salary increases to public-sector employees.” This statement is shocking, as appointed and unaccountable arbitrators should not be unilaterally determining that tax hikes must be implemented to pay for government employee wage hikes.

What hope is there for taxpayers on issues of wage restraint when there is an entire legal doctrine in labour relations that rejects government claims that it is short of cash? What will happen in future arbitrations now that Wynne has handed over control to third-party arbitrators who ignore the economic reality of the province?

The dismissal of economic reality by arbitrators is why the 2010 Drummond Report recommended that the “ability to pay” criteria be broadened to include the wider economic and fiscal environment. But an even further narrowing of arbitral discretion is in order. Given the total rejection of arbitral concern for the government’s ability to pay, enumerating some specific and objective factors could be useful. For example, the total provincial debt burden, debt-to-GDP ratio and the overall tax burden on the population should all be taken into consideration when determining pay increases.

Until there is real and substantial reform of the arbitration system, Wynne needs to stop opening up the arbitration system to more and more groups, and muster the political will to tackle unsustainable union demands head-on.