Canadian employers attempting to control rising pension and benefit costs by reducing, eliminating or modifying their plans have been significantly hampered by strong unions in Canada.

For the most part, Canadian unions have been able to resist pensions and benefits changes that are more common in the United States, particularly the development of two-tiered pension programs.

"Unions really have managed to control, in good measure, what's happening with respect to pensions and benefits here," said Lee Shouldice, a partner in the labor and employment group of Blake, Cassels & Graydon L.L.P. in Toronto.

Canadian unions derive their strength mostly from a legislative environment that observers describe as more union-friendly than in the United States.

For example, certification of a union in Canada gives it the authority to negotiate on behalf of all employees, regardless of whether they support the union, Mr. Shouldice said. In contrast, if a union in the United States has only the support of a fraction of the workforce, that may force the union to shy away from certain issues, including pensions and benefits, he said. In Canada, "the unions wouldn't have that insecurity," Mr. Shouldice said.

Canadian labor laws also dictate that when a company becomes unionized, the union must negotiate all terms and conditions of employment, which usually includes pensions and benefits.

For unions, "generally, the legal environment is more favorable here than in most states" in the United States, said Bob Baldwin, the outgoing director of social and economic policy for the Canadian Labor Congress, an association of labor unions based in Ottawa.

The workforce in Canada is also more heavily unionized than in the United States, which gives Canadian unions some of their leverage, observers say. In 2004, about 31% of Canadian workers belonged to a union, according to Statistics Canada, the federal government's research agency. In contrast, only about 12.5% of wage and salary workers in the United States belong to a union, according to the U.S. Department of Labor.

In addition, unions have been fairly successful in negotiating for representation on the boards of trustees of pension plans. This allows them to influence the agenda of organizations in ways that they have historically not been able to, according to Patrick Gilligan-Hackett, a partner in the employment and labor law practice of Ogilvy Renault L.L.P., based in Vancouver, British Columbia.

Resisting change

Because of their influence, Canadian unions have been able to resist many attempts by employers to revamp their pensions and benefits programs.

In particular, observers note, Canadian unions are steadfastly opposed to one cost-cutting method popular in the United States: the creation of a two-tiered pension system, in which current employees remain in defined benefit plans while new hires are placed into new defined contribution plans.

It is very rare that companies are allowed to phase out their defined benefit plans and replace them with defined contribution plans, said Ian McSweeney, co-chair of the pensions and benefits practice with Osler Hoskin & Harcourt L.L.P. in Toronto. Unions sometimes allow defined contribution plans as an option but not as a substitute for defined benefit plans, he said.

"The union understands that there is no percentage in compromising pensions," Mr. McSweeney said. "It's political suicide."

In one high-profile example of a union's refusal to permit a switch from a defined benefit to a defined contribution plan, Montreal-based Air Canada Inc.'s restructuring efforts were nearly derailed last year by its unions' refusal to accept a two-tiered pension plan.

An attempt by Montreal-based Abitibi Consolidated Inc. to introduce a defined contribution pension plan for union employees was stymied last year by the Communications, Energy and Paperworkers Union of Canada. The paper and wood products company has a defined benefit pension plan for union employees and a defined contribution pension plan for nonunion employees, a spokesman said.

Although instances of unions in Canada allowing a switch to a defined contribution plan are rare, they are not unheard of.

For example, technicians for Montreal-based Bell Canada voted last year to accept a contract that will put new hires into a defined contribution plan beginning in the fourth year of the contract.

Joel Carr, national representative for Toronto-based CEP, said the union was forced to abandon its traditional opposition to defined contribution plans in that situation because its members were swayed by a generous contract offer from the company. "Certainly, we're not fans of" defined contribution plans, he said. "It was one of the things we didn't like at all."

Despite the Bell Canada situation, resistance to defined contribution plans remains the CEP's ad hoc policy, Mr. Carr said.

Compromise in U.S.

In contrast, more unionized workforces in the United States are seeing their pension offerings converted to 401(k) plans, said John DiNome, a Philadelphia-based partner with Reed Smith L.L.P. who specializes in labor and employment issues. This is a way to protect the current workforce that also helps the employer reduce costs, but it does create a two-tier pension program, he said. U.S. unions are "probably not comfortable, but it's a compromise," he said. "It's a compromise that has to be made."

Canadian unions are open to certain changes that help employers reduce costs.

For example, some unions may be willing to let employers make smaller benefit changes, such as changing to discretionary from mandatory indexing, which is more expensive, said Karen DeBortoli, acting director of Watson Wyatt Worldwide's Canadian Research and Information Center in Toronto. Indexing adjusts pension benefits to account for inflation.

Changes to health care benefits also are more easily negotiated than pension changes, observers say. Some employers have managed to get unions to agree to copayments because their costs-particularly prescription costs-were out of control. Unions, though, say health care benefits are generally not as significant during negotiations as pensions because of Canada's socialized health care system.

Tough sell

But changes to pension offerings tend to be a tough sell for employers.

Toronto-based York University was forced to abandon a bid to control its pension costs by slightly reducing its pension contributions for future retirees, due to opposition from the school's unions, which represent virtually all of its employees. "That just did not fly," Leona Fields, manager of the university's pension fund, said of the proposed change. "The university just backed off and said, 'We're not going to fight that fight.' "

In many cases, the proposed restructuring of benefits can become a deal-breaker in contract negotiations, as in a recent situation involving Toronto-based Hydro One. Employees of the utility company have been on strike since May 25 primarily because of an attempt to reduce the wages, pension and benefits schedule for their future colleagues. "They don't like two-tiering," a Hydro One spokesman said. "That's the real stumbling block."

Employers have limited options when it comes to making benefit changes for unionized workforces because they cannot sidestep collective agreements without the union's consent. "There's no way to unilaterally expunge something from collective agreements," Mr. Shouldice said. "All the union has to really say is 'No, we're not going to do it.' The employer then is in a difficult position."

In theory, some employers can seek relief from pension and benefits obligations by entering court-supervised restructuring and asking a judge to order a change to a defined contribution plan. But it is unclear how far a judge can go in changing the terms of collective agreements, Mr. Shouldice said.

The employer does have the option to lock out employees if the union does not agree to benefit changes. "It's a very severe option," he said. "You have to be struggling so much with the pension that you have to lock them out."