January 6, 2015 By: Steve Waller
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Many collective agreements limit the employer's ability to contract out the work of the bargaining unit. Such limits protect one of the most important aspects of employment there is – the right to do the work required by one's employer. Without a right to do this work, a person’s income and very employment can be precarious.

Given the undoubted importance of these contractual restrictions, any employer who breaches them should expect to pay a heavy price, right? Well, not necessarily. There are many arbitral awards in which the employer has been found in violation of restrictions on contracting out, but nevertheless has walked away paying little or no damages. These awards have applied the common law approach to breaches of contract. At common law, damages for breach of contract are usually payable only if the wronged party can prove not only that a breach has occurred, but also that the breach has caused a loss. Damages are awarded to compensate not for the breach itself, but only for the loss, if any, that the union can prove has been suffered. Only in exceptional circumstances are damages are awarded to punish the party for the breach itself.

There are two categories of decisions dealing with damages for contracting out.

In the first category, the employer has promised only to follow a mandatory process before deciding to contract out. The promise typically requires the employer to notify the union and/or consult with it before contracting out. But the promise does not prevent the employer from contracting out once it has followed that process. Inevitably, the employer who has contracted out without providing the promised process argues that the breach has caused no loss – because even if the process had been followed, the employer would still have decided to contract out the work. The union is left with the near-impossible task of proving that the employer would not have contracted out had it delivered the promised process.

In such situations, most arbitrators will typically award some damages, to compensate for the injury to the union's representational rights (specifically, the contractual right to make representations about how to avoid or minimize the adverse effects of contracting out). But the damages awarded in this category of cases tend to be nominal, far less than the money the employer has likely saved by contracting out.

In the second category of cases, the employer has broken a promise not to contract out the disputed work at all. Put another way, the employer has promised the work to the bargaining unit, but has given it to someone else. In this scenario, it seems intuitive that the employer should pay damages equal to the compensation that would have been paid to bargaining unit employees to perform the work. Surprisingly, however, most arbitrators have awarded nominal or no damages even in this scenario, on the theory that the breach has still has caused little or no loss. Most of these arbitrators have treated the “no contracting out” clause not as promise to the bargaining unit itself, but rather as a promise to provide existing bargaining unit members with full employment. Accordingly, unless the union can prove that one or more existing unit employees have been laid off, had their work hours cut, or been demoted due to the contracting out, little or no damages have been awarded. In some cases, the arbitrator has awarded only damages equal to the additional dues that the union would have collected had the employer hired additional unit employees to do the disputed work.

My firm recently represented a union in this second scenario. Air Canada had promised to have certain of its flying performed solely by its own pilots, but had contracted out the flying to another airline. The employer did not dispute that it had breached the collective agreement, but argued that the union could not prove that any loss had resulted. Indeed, no existing Air Canada pilot had been laid off, demoted or had work hours reduced because of the contracting out. The union argued that the employer had promised the work to the bargaining unit itself, such that Air Canada should have hired additional pilots to perform the disputed flying. The union sought damages equal to the wages that unit employees would have earned had they done the disputed flying instead.

In an important decision released in February 2013, 2013 CarswellOnt 5454, 114 C.L.A.S. 247, Arbitrator Burkett upheld the union's damage claim. He cited the following considerations to justify his finding:

  • The general promise that flying would be done by the bargaining unit is central to the employment relationship. It guarantees that absent a contractual exception, any growth in the business is to accrue to the benefit of union members.
  • Labour arbitrators are not bound to follow the courts' approach to assessing damages. Rather, they may develop doctrines and fashion remedies appropriate in their field, drawing inspiration from general legal principles, the objectives and purposes of the statutory scheme, the principles of labour relations, the nature of the collective bargaining process and the factual matrix of the grievances of which they are seized.
  • Labour arbitrators can apply equitable as well as legal doctrines.
  • Where the contractual promise was clearly intended to benefit not only existing unit employees, but also future employees who should have been hired to do the disputed work, the Court of Appeal has found it appropriate to award compensation equal to what the employer would have paid unit employees to do the disputed work – in effect making the employer pay twice for the same work, first to the contractor and then to its own union.
  • The Air Canada pilot collective agreement allowed the employer to contract out a certain category of flying, but only if existing unit members were fully employed and the employer paid compensation equal to the wages that it would have paid unit members to do the flying.

Arbitrator Burkett would normally have awarded $2.1 million in damages, which was the amount that Air Canada would have paid in wages to have its own pilots do the disputed flying. In a subsequent award, he reduced the damages to $600 thousand, finding that the union could have taken action at the bargaining table to mitigate its losses.

The Burkett award should be considered in any case where the employer has broken a promise not to contract out bargaining unit work.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Labour Law