A massive federal workers strike with broad implications for the Canadian economy and the health of the office market has been settled after 12 days for one key set of employee, with no clear victory for those seeking the right to work from home more often.

The Public Service Alliance of Canada (PSAC) labour union announced Monday that it has reached a tentative agreement that would see 120,000 Treasury Board federal workers it represents return to duty immediately, while 35,000 Canadian Revenue Agency workers will remain on the picket lines.

With the agreement, the federal government commits to raising wages by 12.6% over three years between 2021-2024 as well as a $2,500 payment, which represents a 3.7% raise for the average PSAC employee for the fourth year. The union was seeking a 4.5% raise over three years, while the government countered with an offer of 2.06%. The PSAC union also presented a menu of other demands involving job security, remote work, systemic racism, work-life balance, subcontracting and privatization.

The PSAC union had originally sought concessions that would permit its members to work at home less than the two or three days per week currently required depending on job criteria. In the end, it agreed to allow the issue to be addressed by a special joint union-employer department panel on remote work.

“PSAC members will now have access to additional protection when subject to arbitrary decisions about remote work. We have also negotiated language in a letter of agreement that requires managers to assess remote work requests individually, not by group, and provide written responses that will allow members and PSAC to hold the employer accountable to equitable and fair decision-making on remote work,” the union wrote in a statement.

The remote work issue could play a significant role in dictating the office rate vacancy in Ottawa as well as other parts of Canada, as a good number of the federal workers are employed in other cities across the country.

Bill Argeropoulos, a retired industry executive with more than 30 years of research working for one of the industry's largest brokerages, said commercial real estate have been watching developments closely.

"I think it's important because we want to have a progressive forward-looking government to accommodate flexibility in the future. It will be precedent-setting," he said in an interview. "The question is, what will the private sector do."

He said employers would have to face the reality of hybrid work in the private sector, and being more progressive could attract more employees to the public sector.

The labour fight over working from home comes after the federal government in December 2022 ordered workers back to the office two to three days a week, effective March 31.

Mona Fortier, president of the Treasury Board, defended the action, citing the value of collaboration and teamwork in announcing the policy, which union groups had vowed to fight.

After close to three years of remote work, the federal government's policy change came after a group of 32 business associations, led by the Canadian Chamber of Commerce, had demanded Ottawa's labour forces get back to the office.

Canada's largest province Ontario had already ordered its employees back to the office at least three days a week by mid-June of 2022.

But in British Columbia, effective April 1, the provincial government allowed public service employees to work from home when possible. The NDP-led government said it would open public sector jobs to qualified candidates anywhere in the province.

“Embracing flexible work is an essential part of the future of the public service, particularly in attracting and retaining talented employees who reflect the rich diversity of B.C.,” said Shannon Salter, deputy minister to the premier, in a memo to employees in February.