Court to Stelco's owners: Pay up

The Federal Court of Canada issued a very interesting ruling yesterday that, if upheld, could be either a victory for workers or could drag this country into a double-dip recession.   The court ruled that US Steel violated its legal obligations when it purchased Stelco a few years ago, including minimum employment and production quotas.   The union, which had amici status in the case -- a rare case where the socialists sided with the Conservative government -- is claiming victory and insisting that US Steel either pay up, or be forced to sell Stelco.   The government, for its part, wants any loan guarantees it offered to be paid back as well as a substantial fine imposed.

Here's where it gets rather complicated in my mind, though.   The Americans were the only ones who came anything close to having the money to buy a company for pennies on the dollar while promising to uphold pension obligations.   The shut-down of the plants may have been "illegal," but if no one was buying durable goods such as vehicles and appliances during the recent downturn then where was the steel going to go?

It's not like the stuff is stockpiled anymore, steel manufacturers like any other major business runs on a "just in time system" -- there are specific schedules for the initial "heats" that create the slabs, then the coils get trucked from one processing line to another before being ready to ship out, and in the vast majority of cases the steel is custom made to a customer's specific tolerances.

One can empathize with the concept that the workers should have been paid to stay home -- actually, I would agree with that.   But in the case of Hamilton, we're not next to a power plant or dam with excess electricity waiting to be sold.    It might work with aluminum, where in several cases the smelting company figured it was cheaper to pay the workers to stay at home and sell the excess power rather than keeping the plant running at full tilt.

Also, the whole issue of pensions continues to bedevil a lot of companies in both the private and public sectors.   Many have moved from defined benefit plans (where a pension is guaranteed based on years of service -- assuming the plan remains solvent) to defined contribution plans (where, as the name suggests, contributions are fixed or adjusted each year based on inflation, but there is no guarantee what the payout will be at the back end).   If I understand the present situation, those who were in prior to the takeover continue to get the benefit of the defined benefit plan but new hires since then are put into the less generous plan.

Regardless of how this is sorted out, I strongly support a pension guarantee plan that would act as a form of deposit insurance similar to what banks have to ensure that workers get what they are entitled to.   And I do agree with the idea of increasing payment premiums into the CPP and RRQ.   Some provinces, as I understand it, are balking at the idea and are even threatening to withdraw.   Fine -- but if they continue to charge the lower premiums, then that will be the end of reciprocity which ensures that a Canadian is a Canadian is a Canadian and gets the same benefits at the end no matter how many times he or she had to move to have a job (and pay the required payroll tax).

The fact is, the warning signs were there that a major crisis was bound to happen.    The new owners of the company should have known this.   If they were going to jump in, they should have committed to a guaranteed percentage of employment in North America (as was the case in the early 1980s when Chrysler got loan guarantees from Canada) rather than any absolute numbers.   But a promise is a promise ... what is owed is owed and should be paid up.

What that will mean for any other potential investors looking at Canada?   It may scare the heck out of them unless they get a huge insurance policy to cover the worst case scenario.   Which means ordinary Joe and Jane Blows also will pay higher premiums for their puny auto and habitation policies.

In the end, no one wins.   The government and the union may have won a victory in principle, but what does it really mean in the long run if a company based outside of Canada can just ignore the ruling?   Sure the assets can be seized ... but then no one gets paid anything if the sale is for pennies on the pennies from the previous sale round.

Vote for this post at Progressive Bloggers.