The law from Premier Doug Ford’s government – known as Bill 124 – capped salary increases for public sector workers to one per cent a year for three years.

The Court of Appeal for Ontario found the law violated the collective bargaining rights of public sector workers, which includes nurses and teachers.

On Monday evening, the government said it would not take the legal fight further.

"The Government of Ontario will not appeal today’s Court of Appeal decision and will instead take steps to repeal Bill 124 in its entirety in the coming weeks," the Ministry of the Attorney General wrote in a statement.

Unions hailed the ruling as a big victory for workers’ rights and had urged Ford to listen to the court.

The Progressive Conservatives enacted the law in 2019 as a way to help the government eliminate a deficit.

A lower court struck it down as unconstitutional and the Appeal Court, in a 2−1 decision, largely upheld that decision, writing that the infringement couldn’t be justified.

"Because of the Act, organized public sector workers, many of whom are women, racialized and/or low−income earners, have lost the ability to negotiate for better compensation or even better work conditions that do not have a monetary value," the court wrote in its majority opinion released earlier Monday.

The province had argued the law did not infringe constitutional rights, saying the Charter only protects the process of bargaining, not the outcome.

The Appeal Court wrote that governments are entitled to try to hold compensation increases to a certain level, but the issue is how they do that.

"Ontario has not been able to explain why wage restraint could not have been achieved through good faith bargaining," the court wrote.

"In the absence of any evidence for the need for expediency or that the same goal cannot be achieved through collective bargaining, it is hard to understand on what basis the Act’s salutary effects outweigh its beneficial effects."

The Appeal Court found, however, that the lower court judge erred by striking the entire statute. The law applied both to unionized workers and those not represented by a bargaining organization, and the Appeal Court said the act is only unconstitutional for workers represented by unions, who have different rights because they bargain collectively.

The province said late Monday that it would introduce regulations urgently to exempt non−unionized and non−associated workers from Bill 124 until it is repealed "to solve for the inequality of workers created by today’s court decision."

In a dissenting opinion in the Appeal Court ruling, Justice C. William Hourigan wrote that the evidence showed very real economic reasons for imposing wage restraint, and that the government did so instead of cutting services or jobs.

"According to the application judge’s analysis, it would be permissible for the government to temporarily reduce wage costs when the economy was on the brink of collapse, but it would be unconstitutional for the government to act proactively to prevent the inevitable,” Hourigan wrote.

"If a government sees an economic cliff on the horizon, courts should not require it to wait till the last moment to act."

The law had sparked widespread outrage among labour groups and opposition parties, with its effects on the health sector a particular focus, as critics argued it was partly responsible for driving nurses out of the profession or into private nursing agencies, where the pay is substantially higher for the same work.

"This sham of a bill has severely impacted access to and quality of care for Ontarians since 2019," said Erin Ariss, provincial president of the Ontario Nurses’ Association.

"The trauma inflicted on nurses and health−care professionals because of Bill 124 has driven tens of thousands of us out of the health−care system and away from the work that we love."

Monday’s decision was seen as a big victory for unionized workers.

"I’m feeling like most broader public sector workers are feeling across Ontario: vindicated," said Steven Barrett, a lawyer representing the Ontario Federation of Labour in the case.

"The Court of Appeal is clear that freedom of association and the protection of collective bargaining and the right to strike actually are meaningful."

Paul Cavalluzzo, who represents the Ontario English Catholic Teachers Association, said the government’s financial records were its own undoing.

"Certainly the government’s books now show that this legislation was not necessary, we were in a surplus situation," he said. "They were not even spending all of the budget money on health and education – the bill was unnecessary."

Two unions representing health−care workers said in a joint statement that Monday’s ruling was a win for families and all unions that fought to protect workers’ rights to freely bargain a collective agreement.

"We urge Doug Ford to end his attacks on the very people we need to fix Ontario’s worsening health−care system,” the presidents of CUPE’s Ontario Council of Hospital Unions and SEIU Healthcare wrote.

The union representing the province’s public elementary teachers said the government never should have appealed the decision in the first place, as it "wasted" taxpayer dollars and undermined their recent contract negotiations.

"Let the court’s ruling be a lesson for the Ford government to never circumvent bargaining or trample on workers’ democratic rights again," the Elementary Teachers’ Federation of Ontario wrote.

The government gained little from the law, said J.P. Hornick, president of the Ontario Public Service Employees Union.

"They’ve lost not just the respect of workers, but they’ve also cost us as workers an exponential lifetime of having to catch up," Hornick said. "What they have gained is a reinvigorated labour movement."

Since the law was struck down, even while pending appeal, arbitrators awarded additional retroactive pay to several groups of workers that had "reopener" clauses in their contracts, including teachers, nurses, other hospital workers, public servants, ORNGE air ambulance paramedics and college faculty.

Several hospitals have told a legislative committee conducting pre−budget hearings that the Bill 124 reopener arbitration rulings are straining their budgets, though the government has committed to reimbursing them.

"Bill 124 settlements are driving hospitals into extraordinary cash flow difficulties, threatening our financial viability and forcing delay of critical capital purchases," Sherri McCullough, board chair of Kingston Health Sciences Centre, told the committee last month.

Ontario’s financial accountability officer said in 2022 that Bill 124 was set to save the province $9.7 billion on public−sector salaries and wages, though a successful court challenge would all but wipe that out.

That could cost the province $8.4 billion over five years, he said.

Though the 2019 law was time limited for a three−year period, it has still been affecting collective bargaining because of when some previous contracts expired and the length of some negotiations.

This report by The Canadian Press was first published Feb. 12, 2024.

Allison Jones and Liam Casey, The Canadian Press