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December 16, 2013

Small raises so far with oil price-tied wage contracts

Alberta construction unions and employers are part-way through a novel experiment, where semi-annual wage increases are linked to the price of oil.

The deal is between some of Alberta’s trade unions, who negotiate under the Building Trades of Alberta (BTA) organization, and the employers’ group, Construction Labour Relations-Alberta (CLRA).

The oil industry has seeped into the fabric of most Albertan’s lives.

“When people wake up in the morning, they look at the price of oil,” said Warren Fraleigh, the BTA’s executive director.

“There’s a much-heightened awareness of the price of oil here.”

The oil-based wage scheme covers most of Alberta’s building trade unions, but not non-traditional, umbrella unions such as Unifor or the Christian Labour Association of Canada (CLAC).

According to CLRA president Neil Tidsbury, the oil-linked agreements cover 80 to 100 million hours of labour each year among construction, maintenance and fabrication workers.

In late 2013, there were 86 construction industry wage settlements representing 44,200 union employees, according to the October 2013, Alberta Human Services Bargaining Update.

The new formula, first applied in 2013, uses the percentage change of Alberta’s Consumer Price Index (CPI) over a 12-month period and the average of the prices for West Texas Intermediate Oil, in US dollars, over the six months before the month of calculation.

The wage formula is applied in May and November of each year.

The formula has five options, ranging from a zero wage increase, when the price of oil is less than $60 per barrel, up to a raise made up of a 1.5 per cent hike plus the CPI fluctuation, when oil is more than $125 per barrel.

Raises over the six-month period cannot be greater than five per cent and there cannot be wage rollbacks.

“We put ceilings on it and we put floors on it,” Tidsbury said.

The concept is to allow employees to share the wealth during a boom, but to also safeguard employers from handing out flush wage hikes when prices plummet.

In May 2013, the average wage increase came to 14 cents per hour.

Tidsbury noted that the CPI had been stuck on zero so while small, the raise was wholly attributable to the modest price of oil.

In November, the raise was about 78 cents per hour.

A Calgary labour lawyer said using the formula was a very smart move by both sides.

‘There was the recognition that the price of oil rises and falls,” said Bill Armstrong, Q.C., a senior partner with Norton Rose Fulbright.

Agreeing to the formula was a way for both sides to take part of the risk, he said.

For the unions, it was unusual that they would link their wages to anything, but the cost of living and, in particular, tying wages to a volatile commodity like oil, said Armstrong, who has practised law in Calgary since the late-1970s.

He likened it to auto plant workers linking their pay to changes in the price of raw steel.

The impetus for the groundbreaking agreement may be due to rapidly-escalating labour costs and swings in oil prices.

Over the last decade, companies like Shell have blamed unions for driving up costs, while unions responded that costs increased because owners wanted oil projects to be built too fast, Armstrong said.

According to Tidsbury, the number of hours worked by trade union members in Alberta is tied to the price of oil.

As prices rise, so do the hours spent working.

Recently, employers have been turning to CLAC members, who Armstrong said are “more efficient on the worksite.”

Armstrong said he sees the oil-CPI formula as a way for the building trades to get into the good graces of the owners.

“It’s saying, ‘We’ll get into business with you,’” he said.

Fraleigh said the agreement was an attempt to find a better way.

When employers and union negotiators sat down to reach the deal, they wanted to seal a deal within four months and use an “interest-based approach” to negotiating where interests were shared and options were offered.

Typically, unions look to increase the purchasing power of their members, Tidsbury said.

When the 14 cent raise was applied in May, there were union concerns that the formula wasn’t desirable.

The second 78 cent raise was met with more optimism.

“The jury is still out,” Fraleigh said, noting that with only one year of experience, there is nothing to compare it to.

“Now we need time to see if it’s right or not,” he said.

The next round of negotiations begin in fall 2014.

“We can tweak the formula if necessary,” Tidsbury said.

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