October 22, 2020

The Honourable Warren K. Winkler
Commissioner of 5th Deputy Judges Remuneration Commission
254 Lytton Blvd
Toronto, ON M5N 1R6

Dear Commissioner Winkler,

The Lieutenant-Governor-in-Council (LGIC) has given full consideration to the recommendations of the Fifth Deputy Judges Remuneration Commission(the "Commission"). I am writing to thank the Commission for its important work and to convey to you the LGIC's response to those recommendations.

Overview

The LGIC accepts the Commission’s final recommended per diem of $788, such that by the end of the mandate period the per diem will increase by a cumulative 8.24%. It does not, however, accept the Commission's recommendation for the rate of increase to be applied in each year of the mandate period.  For the reasons outlined in more detail below, the LGIC has determined that the per diem should be increased by 1% during each year of the mandate period with a final increase of 5.24% to $788 at the end of the mandate period on December 31, 2021.

The Commission is mandated to make recommendations for the period of January 1, 2019 to December 31, 2021. The Report of the Commission released March 9, 2020 makes the following recommendations for increases to the per diem rate for Deputy Judges:

  • January 1, 2019 - $748 (2.7%)
  • January 1, 2020 - $768 (2.7%)
  • January 1, 2021 - $788 (2.6%)

The total recommended cumulative percent increase over the Commission period is 8.24%.

The LGIC has given careful consideration to the Commission’s Report. The LGIC accepts the recommended cumulative increase to the per diem to $788 over the course of the mandate. The LGIC agrees with many aspects of the Commission’s report, including its recognition of the importance of Deputy Judges to Ontarians and the judicial system. The LGIC also agrees that Professional and Labour tribunal appointees are a relevant and appropriate comparator, although other relevant comparators should also be considered. Further, the LGIC agrees that the per diem is not a salary and is not intended to be the sole or even a significant source of income for a Deputy Judge (para 56).

However, the LGIC disagrees with three particular aspects of the Commission’s Report.  First, the Commission did not accurately characterize the Fourth Commission’s recommendations when it stated that the Fourth Commission had not purported to be providing a full “catch-up” to a fair and reasonable level of per diem. The LGIC is of the view that this statement does not accurately reflect the Fourth Commission’s stated intentions and is inconsistent with the Fourth Commission’s own description of those per diem levels. Second, the Commission’s recommendations did not give sufficient weight to the economic and fiscal evidence before it, including Ontario’s already high levels of debt and deficit. Third, the Commission should have considered the effect of legislative wage moderation measures on public sector compensation trends and given more weight to those trends.

Despite these concerns with the basis for the Commission’s recommendations, the LGIC is nonetheless prepared to accept the Commission’s ultimate per diem recommendation due to its respect for the independent Commission process and the important work the Commission performs. The LGIC is not, however, in a position to phase in the recommended increases as quickly as the Commission recommended due to the covid-19 pandemic which emerged after the Commission released its recommendations on March 9, 2020 and the resulting significant deterioration in Ontario’s economy and fiscal position.

The Commission’s recommendations understandably do not consider the new and unprecedented economic and fiscal challenges that Ontario faces today. As set out later in these reasons, the LGIC has carefully considered the economic impacts of covid-19 in responding to the Commission’s recommendations, in accordance with the government’s responsibility for superintending the province’s fiscal affairs.

Having taken into account the important role of Deputy Judges, all of the relevant criteria established in OIC 1788/2006 and after careful consideration of the Commission’s report, the LGIC has determined that Deputy Judges’ per diems should be increased by 1% each year of the mandate period along with an additional increase to the per diem on the last day of the mandate period to $788, the ultimate per diem recommended by the Commission.  Deputy Judge’s per diems will therefore increase as follows:

  • January 1, 2019 - $735 (1%)
  • January 1, 2020 - $742 (1%)
  • January 1, 2021 - $749 (1%)
  • December 31, 2021 - $788 (5.24%)

The considerations informing the LGIC’s response are further described below.

  1. The Fourth Commission recommendation provided a complete catch-up to a fair and reasonable level of per diem for Deputy Judges which should serve as the baseline for the Fifth Commission

    The LGIC agrees with the Commission that the starting point for the Commission’s remuneration considerations should be the per diem of $728 recommended by the Fourth Commission and implemented by the government for the year 2018.

    In discussing the Fourth Commission’s recommendations, however, the Commission stated that the Fourth Commission had not purported to be providing a full “catch-up” to a fair and reasonable level of per diem. The LGIC is of the view that this discussion does not accurately reflect the Fourth Commission’s intention and is inconsistent with the Fourth Commission’s own description of those per diem levels.  Although the Commission was not bound by the Fourth Commission’s analysis, it should have acknowledged that the Fourth Commission’s recommended per diem was intended to provide a fair and reasonable level of remuneration and explain any disagreement it had with the Fourth Commission’s analysis in this regard.

    The Fourth Commission found that while from the payor’s perspective the time is never right for “catch up”, it was better to do so at that time as compared to previous Commission mandate periods. The Fourth Commission then recommended a “substantial” increase that “in my view, constitutes fair and reasonable compensation.” (p. 6)

    In its Supplemental Report, the Fourth Commission confirmed that its recommended per diem was a full catch-up, as it was directed at redressing “the need to provide fair and reasonable remuneration given the evident failure of the per diem to keep up over time”. (Supplemental Report, pp. 2-3)

    As a result, the Commission erroneously based its recommendations on a perceived need to provide the historic “catch up” the Fourth Commission had already provided.

  2. The Commission gave insufficient weight to the evidence regarding economic conditions and public sector compensation trends that were present at the time of the Report

    At the time of the hearing on February 20, 2020, the government submitted detailed evidence of the province’s fiscal outlook and economic conditions, including projections for GDP growth, inflation, debt levels, and deficits. This evidence related to the criteria the Commission was mandated to consider, including: “the economic conditions in the province, as demonstrated by indicators such as the provincial inflation rate” (s. 8(3)); and “the financial policies and priorities of the Government of Ontario” (s. 8(6)). While some of this evidence also relates to “recent Ontario public sector compensation trends” (s. 8(4)), that criterion is discussed separately in the following section.

    As set out later in these reasons, Ontario’s economic conditions and outlook have unexpectedly and significantly worsened since the Commission released its recommendations.  However, even in relation to the pre-covid-19 economic evidence that was before it, the Commission, in the LGIC’s view, did not give sufficient weight to Ontario’s already high levels of debt and deficit and public sector compensation trends.  Instead, the Commission recommended increases to the Deputy Judges’ per diem that were higher than the then-projected GDP growth, inflation and Ontario-wide annual public sector compensation trends.

    The LGIC is of the view that the Commission did not give sufficient weight to the province’s evidence on economic conditions and the resulting constraints on the public purse based on undue concerns about the risk of politicization in the setting of remuneration. The Commission wrote that: “While the Commission has regard to the financial policies and priorities of the Government and the constraints on the public purse, undue emphasis on this criterion does not serve to depoliticize the relationship between the government and the judiciary.”

    The LGIC shares the Commission’s commitment to ensuring that the relationship between the government and the judiciary is depoliticized. The province’s financial policies and priorities, economic constraints on the public purse, and government policies to moderate increases in public sector compensation all legitimately inform Deputy Judges’ remuneration in accordance with the criteria that it is mandated to consider. Consideration of these criteria by the Commission in the setting of remuneration does not raise the risk of politicization. Rather, these considerations are among the objective criteria that all Ontario remuneration commissions are mandated to consider as part of the independent, objective and effective commission process.

    By not properly considering all of the criteria it was mandated to consider, the Commission gave insufficient weight to the province’s economic conditions and financial policies and priorities. In particular, the Commission’s reasons do not give sufficient weight to the significance of Ontario’s debt levels and deficit in its overall assessment of economic conditions in the province.

    The LGIC agrees with the Commission that the province’s unemployment rate, inflation and GDP are relevant indicators (para 58) of economic conditions in the province and, at the time of the Commission’s report, these indicators were trending more positively. However, the Commission should have balanced its consideration of these more favorable economic indicators with due consideration of other relevant economic indicators that were more concerning: the province’s debt (the largest of any subnational government in the world, projected at $343 billion for 2019-2020), deficits ($15 billion), and annual interest payments on provincial debt ($13.3 billion).  The LGIC is of the view that these more concerning economic indicators were not sufficiently accounted for in the Commission’s report and recommendations.

  3. The Commission gave insufficient weight to public sector compensation trends and the province’s policy of compensation restraint for most others paid from the public purse

    In the LGIC’s view, the Commission placed undue weight on older data about public sector compensation trends and did not adequately consider the effect of the Protecting a Sustainable Public Sector for Future Generations Act, 2019 (“PSPSFGA”) on public sector compensation trends. The PSPSFGA came into force on November 8, 2019, with retroactive application to collective agreements made after June 5, 2020. It applies to provincial government employees and much of the broader public sector. Subject to any exemptions prescribed by the Minister, salary and total compensation increases are limited to 1% annually during three-year “moderation periods” that generally commence upon the expiry of the last collective agreement.

    Even at the time of the Commission hearing on February 20, 2020, it was evident that the PSPSFGA would very likely moderate wage growth in the public sector. However, the Commission cited and relied on statistics on annual public sector compensation up to the end of November 2019, which did not reflect the effect of the PSPSFGA coming into force on November 8, 2019. The Commission also did not address the monthly data that was before it which showed a dramatic drop in average annual unionized public sector wages in the first month after the PSPSFGA was enacted, falling from 1.45% in October 2019 to 1.09% in November 2019.In the LGIC’s view, the Commission placed undue weight on the older data about public sector compensation increases that were awarded before the introduction of legislative wage moderation measures.

    In addition to placing undue weight on this older data about public sector compensation trends, the Commission discounted the government’s policy on compensation restraint as being inconsistent with the depoliticization of the setting of remuneration. The Commission wrote that: “It will always be a government priority to restrain increases in public sector compensation.”

    The LGIC agrees that the PSPSFGA does not and cannot apply to Deputy Judges. Remuneration for judicial officers, including Deputy Judges, must be set in accordance with the constitutional principle of judicial independence after recourse to an independent, effective, and objective Commission process. This does not, however, require discounting the significance of fiscal constraints. In Reference re Remuneration of Judges of the Provincial Court of Prince Edward Island, the Supreme Court that “[n]othing would be more damaging to the reputation of the judiciary and the administration of justice than a perception that judges were not shouldering their share of the burden in difficult economic times.”

    In the LGIC’s view, the 1% annual increases more appropriately promote public confidence in the administration of justice by avoiding any public perception that Deputy Judges are not shouldering their share of the burden of Ontario’s fiscal challenges during difficult economic times. While the 1% annual increases are in line with increases provided to most other persons paid from the public purse, the LGIC, out of respect for the Commission process and recognition of the distinctive nature of Deputy Judges’ judicial office, accepts the ultimate per diem recommended by the Commission. The 5.24% increase provided at the end of the mandate period contrasts with the treatment of public sector employees who, as a result of the PSPSFGA, cannot receive such increases during the moderation period imposed by the PSPSFGA.

    The covid-19 Pandemic

    The intervening covid-19 pandemic has significantly impacted Ontario’s overall economy, including the province’s net debt-to-GDP ratio. Ontario now faces unprecedented fiscal and economic challenges as the economy begins to gradually reopen. In accordance with the government’s responsibility for prudently superintending the province’s fiscal affairs, the LGIC is of the view that even greater weight should be given to the economic factors the Commission is mandated to consider following the covid-19 pandemic.

    The economic forecasts considered by the Commission and the Commission’s recommendations themselves understandably did not account for covid-19 and the unprecedented financial crisis it has caused. This financial crisis has surpassed the crisis of 2008 both in the scale of the deficits it has created and the uncertainty it generates about the path to recovery. At this time, there is significant uncertainty about the pace and timing of economic recovery. Further there is uncertainty about the covid-19 pandemic and gradual reopening underway in Ontario and many other countries around the globe.

    The unemployment and GDP data relied on in Commission’s Report have now worsened significantly over a very short period. The Commission noted that the unemployment rate was 5.9% of November 2019 and real GDP was projected to grow 1.8% in 2019, 1.7% in 2020, and 1.6% in 2021.

    As a result of the pandemic, economic conditions have substantially declined in Ontario (and across the globe). The government’s First Quarter Finance projection estimates real GDP will decline by 6.7% in 2020-2021. This is 8.1% lower than the estimated 1.4% growth projected in the 2019 Fall Statement and would be the largest annual decrease since 1980 in Ontario. Prior to the covid-19 pandemic, real annual GDP growth ranged between 1.7% and 2.9% since 2016, averaging 2.2% during this period.

    The government’s most recent projections from the Ministry of Finance’s First Quarter Finances update released on August 12 estimate the deficit to be $38.5 billion in 2020-21.  In the 2019 Fall Statement, the government projected the 2020-21 deficit to be $6.7 billion. This represents a significant increase (of 31.8 billion) to the projected deficits that were available at the time the Commission considered its recommendations.

    The province’s net debt has also risen significantly. Net debt represents the total liabilities of the province less total financial assets. During 2019-20, net debt rose $17 billion, from $338 billion to $355 billion per First Quarter Finances. In comparison, the government’s First Quarter Finances shows net debt rising by $42 billion to $397 billion over 2020-21.  At this time, projections for 2021-2022 and the net debt that will be added over the two-year period from 2020-2021 to 2021-2022 are not yet available, but the First Quarter Finances update shows net debt rising by $59 billion over the two-year time frame covering 2019-20 and 2020-21. This would represent the largest ever increase to net debt over a one-year or two-year period. Previously, the largest ever two-year increase in net debt was the $45 billion added over 2009-2010 and 2010-2011 in response to the 2008 Financial Crisis.

    The First Quarter Finances update also shows net debt as a percentage of GDP rising from 39.9% in 2019-20 to 47.1% in 2020-21. This 7.2 percentage point increase in the net debt-to-GDP ratio, a key indicator of the strength of government finances, would be the largest relative increase since 1993-94. By way of comparison, during the 2008 Financial Crisis, the net debt-to-GDP ratio rose from 27.8% in 2008-2009 to 32.43% in 2009-2010.

    Even as the economy reopens, unemployment remains near record highs at 10.6% as of August 2020, and significantly higher than the unemployment rate of 5.9% from November 2019 that the Commission noted in its Report.

    The economic impacts of covid-19 are still being assessed but it clearly represents both an unprecedented and ongoing challenge. There is significant uncertainty about the pace and timing of the economic recovery, in Ontario, nationally, and globally. This uncertainty, in the LGIC’s view, cautions in favour of more slowly implementing the per diem increases the Commission has recommended to allow time for the economy to continue gradually reopening and the state of the province’s finances to improve.

Conclusion

For the reasons set out above, the LGIC has decided to accept the Commission’s recommendation for a cumulative increase of 8.24% to the per diem over the course of the mandate period. In light of the LGIC’s disagreements with certain aspects of the Commission’s report and the unexpected impact of the covid-19 pandemic on Ontario’s economy and public finances, however, the LGIC has decided to phase in that increase more gradually than the Commission recommended. Doing so respects the Commission’s ultimate recommendation but more accurately reflects the new economic realities facing Ontario.

As a result, the per diem of Deputy Judges will be increased as follows:

  • January 1, 2019 - $735 (1%)
  • January 1, 2020 - $742 (1%)
  • January 1, 2021 - $749 (1%)
  • December 31, 2021 - $788 (5.24%)

On behalf of the LGIC, I wish to reiterate my gratitude to the Commission for carrying out its important work of reviewing and making recommendations for the remuneration of Ontario's Deputy Judges. While the LGIC has not accepted the rate at which the Commission’s recommended increases will be implemented, the Commission's thorough consideration of the issues has strongly informed the LGIC's determination of the appropriate level of remuneration for Deputy Judges as shown by the LGIC’s acceptance of the Commission’s overall recommended increase.

Sincerely,

[Original Signed by]
Peter Bethlenfalvy

President of the Treasury Board

c. Linda R. Rothstein, Counsel for the Association of Deputy Judges of Ontario
Andrew Lokan, Counsel for the Association of Deputy Judges of Ontario
Alysha Shore, Counsel for the Association of Deputy Judges of Ontario

Order in Council 1363/2020