AH – 59



Canadian National Railways

(the "Company")


Canadian Telecommunications Union

(The "Union")

IN THE MATTER OF THE protection of pension rights



ARBITRATION BOARD: Professor H. W. Arthurs - Chairman

M. J. O’Brien - Company Nominee

Professor J. S. Wells - Union Nominee


There appeared on behalf of the Company:

J. W. Healy - Q.C. - Counsel

R. S. Finegan - Employee Relations

W. A. Young - Labour Relations Officer

And on behalf of the Union:

J. Sack - Counsel

R. A. Tomlison - General Chairman

E. G. Abott - Assistant General Chairman


A hearing in this matter was held at Toronto, Ontario on 26 January 1970.


Pursuant to the provisions of a collective agreement between the parties, professor H.W. Arthurs was appointed as Chairman to deal with this dispute, with Mr. M.J. O’Brien as Company nominee and Professor J.S. Wells as union nominee. The board met a Toronto, Ontario on 26 January 1970 when evidence and argument were presented. Representatives of the parties were: Company: J.W. Healy, Q.C. - Counsel, R.S. Finegan, Employee Relations, W. A. Young, Labour Relations Officer; Union: J. Sack, Counsel, R.A. Tomlison, General Chairman, E.G. Abott, Assistant General Chairman

The dispute giving rise to these proceeding involves an alleged failure by Canadian National Railways to make "arrangements … for protection of … (the) pension rights" of certain of its former employees, now employed by Canadian Pacific Railways, as provided by three "reciprocal Withdrawal Agreement" executed in 1967 and 1968. Pursuant to these agreements both CN and CP agreed to "minimize the adverse effects upon employee" of the suspension of telecommunications services by each company in centres in which the other company would continue to operate.

Obviously, with the withdrawal of each company from several centres numbers of their employees became redundant. The commercial telegraphers’ union which represents employees of both companies, therefore entered into the agreements referred to, with both CN and CP, in order to ensure that redundant employees would be able to move into jobs with the surviving company in their particular location, transfer to other jobs or job locations with their original employer, or otherwise be insulated be (so far as possible) against the adverse effects of this restructuring of the telecommunication industry.

In relation to pension rights (an ambiguous phrase whose definition is the crux of the controversy) a problem arose because the CN pension arrangements are generally conceded to be more generous than those of CP in several respect: level of benefits, interest on repayment of premiums, early retirement provisions, and a deferred pension option for employees leaving the company’s service: the cost of the CN plan is, obviously, higher. Thus, former CN employees who moved to CP employment under the "reciprocal Withdrawal" would be disadvantaged by the move unless they were somehow able to maintain their participation in the CN pension plan. But does it therefore follow that the CN has failed in its obligation under the language quoted?

The first task is to describe the pension rights enjoyed by CN employees. Since the term is neither explicitly nor implicitly defined by Withdrawal Agreements, and since it has no obviously relevant "plain meaning" recourse must be had to extrinsic sources in aid of interpretation.

The collective agreement between CN and the Union makes no reference to pensions. However, the company has unilaterally established a pension plan and its nominees comprise four of the seven members of the pension board. However, The company has unilaterally established a pension plan and its nominees comprise four of the seven of the pension board which administers the plan, the other three being elected by elected by officers of unions representing CN employees. The company continuing control over the plan is not merely based on its voting control of the pension board.

Moreover, since contribution to the CP pension plan is a condition of service with CP, ex-CN employees would in effect either have to make a second complete contribution to the CN plan, or be permitted to pay the difference between the CP and CN contributions directly to the latter. Yet it would be difficult and perhaps impossible to say that the difference in the two rates of contribution of any one individual is the price he would have to pay in order to obtain the extra benefits offered by CN. Obviously, both contributions and benefits are calculated on the basis of group experience.

For example, the funding of early retirements in the CN plan is based on an actuarial estimate of how many individuals in a large, cross-sectional group would claim this privilege. If the composition of the group is distorted by the addition of employees, now employed by CP, who would likely wish to make voluntary contributions to CN because they are within reach of the early retirement age, the actuarial estimate is distorted. This distortion, coupled with the cost of employer’s contribution on behalf of its ex-employees, would result in a burden being imposed on CN, which would not be matched by burden borne by CP in respect of its ex-employees now on the payroll.

The status of these individuals raises a further - though not conclusive - inference the union’s interpretation of the "pension rights" clause is misconceived. Ex-CP employees, who are to be covered henceforth by the pension plan, would - on the union’s argument - be the beneficiaries of a windfall. Their former employer, CP, must be taken to have had an obligation only to protect their pension "right" up to their former level, not to the new and higher level they will enjoy as CN employees. Looked at another way, CN would not be in breach (so the union’s agreement suggests) if it relegated them to a pension plan at the lower level they enjoyed as CP employees, and denied them pension participation as CN employees. The failure of CN to thus disadvantage them is categorized by the union as a "gratuity". However, it can be predicted that if former CP employees now with CN were deprived of this "gratuity", the grievance before board would have been on their behalf.

The net result of this scrutiny of the implications of the union’s position is to reveal that the CN would be saddled with considerable administrative difficulties and extra expense, and that one group of employees (ex-CP employees now with CN) have been the beneficiary of a considerable windfall. Thus we are being asked to assume that CN agreed to an arrangement which is impractical, costly, and invidious in its effects, while CP escaped any such disadvantages, even thought both are to be bound by the same contractual provision.

Given a choice of interpretations, the results of that advanced by the union are sufficiently improbable to move us in the opposite direction. In other words, CN cannot be taken to have bound itself to exercise its admittedly complete discretion over participation in its pension plan to procure the result advocated by the union.

What, them, did CN bind itself to do by the Reciprocal Withdrawal Agreement ?

One "right" enjoyed by CN employees who had made contributions is the right to receive pension benefits upon retirement. This right, guaranteed by statutory provisions establishing the vesting of pensions, is not disputed by the CN. However, to attribute to the CN the hollow promise to do no more then what the statute requires is to rob the agreements of significance. As union counsel pointed out, the term "pension rights" can hardly have been used in the narrow legal sense. In fact, the very arrangements made by the two employers provide some clue to the fuller meaning to be attributed to the phrase "pension rights"

By arrangement between CN and CP, a transferred employee is to be subject to the pension rules of his new employer. However, when he retires his pension is to be calculated on a basis which recognizes his entitlement with his original employer in several important respects:

(1) he retains "pension rights" with his original employer up to the date of transfer:

(2) in calculating eligibility for benefits under the pension rules of the company from whose service he retires, "service rendered to both companies is to be taken into consideration"

(3) pension calculations relating to length of service, average earning, and applicable pension percentages will be as defined by each company’s pension rules.

These residual effects of the original employment upon pension calculations made in respect of the new employment are illustrative of the king of "rights" which must have been in contemplation in the Withdrawal Agreements. They certainly do operate with a minimum of inconvenience, requiring only a single calculation and not continuing, complex administrative measures, and do confer paralleled rights and duties upon both companies and both employers.

However, it must be remembered that the bilateral arrangements between CN and CP merely executed the trilateral Withdrawal Agreements to which the union was a party, The union is therefore entitled to insist that all similar "rights" be similarly protected. In particular there are three additional respects in which the "rights" of a transferring employee may be calculated as of the date of transfer, without undue inconvenience or expense. These "right" are inchoate, requiring only the happening of a single future event in order to bring them into operation.

First, there is the question of interest on return of premiums. There is no reason why a CN employee who transfers to CP should be denied interest on premiums which are left in the CN pension fund and returned to him when and if he quits CP at some future date. If he had left CN to enter a completely different job he could (in conformity with the CN pension rules) receive a refund of these monies together with 3% interest. He should be in no worse position now if he makes a detour via CP en route to other employment.

Second, there is the early retirement option in the CN plan which permits employees to retire at age 55 after 30 years of allowable service. It is difficult to see why an ex-CN employee who transferred to CP should not continue to enjoy this right to early retirement, counting years of service with both companies towards a combined total of 30 years "allowable service" - a formula whose validity is already recognized by arrangements entered into by the two companies.

However, two points must be kept in mind by such employees in respect of calculation of benefits. First, the CP formula for early retirement is more stringent, requiring a minimum retirement age of 60, with 35 years "allowable service". Thus, an early retiring employee who did not meet the criteria of both plans would have to accept a CN pension calculated solely on his CN pension contributions and reflecting only his CN earnings. Second, unless the employee qualified for a CP pension under CP rules, he could only expect a refund of his pension contributions. Thus, for an employee more than a few years removed from the prospect of early retirement the option just propounded would offer little advantage. Third, similar considerations apply in respect of the deferred pension option, which exists under the CN plan, but not under the CP plan. Under a formula combining age and years of service, contributors leaving the service of CN may elect to receive a deferred pension payable at a future date, rather than accept a refund of contributions. It would be participial to afford to ex-CN employees who leave the CP a similar option, using combined years of service with either company, for purposes of calculating entitlement, and CN contributions for purposes of calculating benefits.

In each instance mentioned above, the key to identification of an employee’s "pension rights" is that they are based upon service prior to transfer, and can ascertained and "vested" as of the date of transfer, thus avoiding the necessity of continued participation by ex-CN employees in the CN plan to a greater degree than has already been implicitly accepted by both companies. This appears to have been the test which must reasonably have been in contemplation of the three parties to the Withdrawal Agreements.

A final point remains to be dealt with. Counsel for the employer urged that this board of arbitration had no jurisdiction to deal with claims made by persons who are not now employees of CN.

We cannot accept this contention.

First, it is the union and not the employees which is asserting the claim here; its basis is not simply money presently owing to particular individuals (of whom, indeed, we have no knowledge) but rather a promise made by the company to the union in the Withdrawal Agreement to "make arrangements".

Second, and more important, by bringing this grievance, the union has availed itself of the very procedure stipulated in the Withdrawal Agreements, and the only procedure available to it. The Withdrawal Agreement provide that grievances "shall be resolved in accordance with the grievance procedures set out in the appropriate articles of the respective collective agreement … between the parties signatory hereto. (emphasis added).

"Respective" can only mean that the grievance shall be brought under the agreement of the company against which it is asserted. In the instant case, the claim is made (and to a limited degree successfully) that CN has defaulted on its promise; no such claim in made against CP. Therefore, it is only under the CN agreement that the grievance can be brought. Even if the ex-CN employees were personally bringing this grievance (as they are not) they would have to bring it against CN to obtain effective relief, and would be entitled to access to the CN grievance procedures on the basis of the quoted language in the Withdrawal Agreements.

In summary, then, we hold:

(1) except as hereinafter provided, ex-CN employees have no right to continue to participate in the CN pension plan, following the date of their transfer to CP; and

(2) notwithstanding their transfer to CP, ex-CN employees may continue to claim in respect only of contributions made to the CN pension fund, prior to transfer,

(a) interest upon the return of contributions,

(b) early retirement, and

(c) deferred pensions;

for purposes of calculating entitlement to early retirement and deferred pensions, but not benefits combined service with both companies shall be recognized.

We will remain seized of the matter for 30 days so that either party to the board, upon notice to the other party, for clarification of this award, should the need arise.

Professor J.S. Wells, the union nominee dissents


Toronto, March 24th 1970.

Professor H. W. Arthurs M. J. O’Brien

(Chairman) (Company Nominee)

Commentary: During proceeding the company submitted that the board of arbitration had no justification to deal with claims made by persons who are not now employees of Canadian National. The board did not accept this contention. The board did, however, with the union nominee dissenting, uphold the company’s position in principal (i.e. "A transferred employee who has been or shall be transferred from the service of CN to the service of CP as a result of the implementation of a Withdrawal Agreement shall be subject to the CP pension plan and will be governed by CP rules from the date of his transfer. In its ruling the board also gave minor concessions to the Union with respect to former CN employees, who with Reciprocal Withdrawal transferred to CP, in that it ruled such employees may continue to claim, in respect only of contribution made to the CN pension fund prior to transfer to CP, interest upon return of contributions, early retirement, and deferred pensions.