AH – 435




(the “Company”)



(the “Union”)



SOLE ARBITRATOR:                Michel G. Picher


There appeared on behalf of the Company:

J. Coleman                               – Counsel, Montreal

D. S. Fisher                              – Director, Labour Relations, Montreal

S. Grou                                     – Manager, Labour Relations, Montreal

R. A. Gallant                             – Chief, Supply Management, Montreal

N. Lesey                                   – Supply Manager, Edmonton

R. Singh                                   – Market Manager, Coal & Sulphur,Calgary

L. Thurlbeck                              – Senior Manager, Supply & Equipment Services

And on behalf of the Union:

D. Olshewski                             – National Representative, Winnipeg

A. Wepruk                                 – National Coordinator, Montreal

D. Zueff                                    – Local Chairman, Ste. Anne

G. Paradis                                – Material Attendant, Winnipeg

R. Johnston                              – Local Chairman, Montreal

J. Kosary                                  – Local Chairman

S. Pogorzelec                           – President Local

R. Doherty                                – Local Chairman, Winnipeg

P. Didine                                  – Senior Engineering Clerk, Edmonton


A hearing in this matter was held at Montreal on Monday, 10 February 1997.



At the hearing the parties filed the following Dispute and Ex Parte Statements of Issue:


Whether the Company contracted out Agreement 5.1 bargaining unit work at Transcona stores, in violation of article 35.


Sometime in July 1994 the Company asked its workers at the Transcona Distribution Centre to ship large amounts of stock to a few distributors. On October 4, 1994 the parties met to discuss how the work was being reduced. The Company reported that they were eliminating steps in their procurement process when supplying internal customers. Leading up to that date, and following numerous article 8 notices were issued. It is the Union’s contention that the positions abolished are as a direct result of the Company’s contracting out policies.

It is the Union’s request that all work illegally contracted out be returned under the jurisdiction of Agreement 5.1, and any positions abolished as a result of the aforementioned article 8 notices be re-established and full redress be made to those employees affected.


In 1994 the Company minimized the number of supplier contracts, thus enabling it to eliminate a step in the procurement process in respect of the supply of certain materials. Such elimination of the “middleman” as occurred for these suppliers, had been effected on numerous occasions in the past in respect of the process for the supply of a variety of materials to CN’s Stores and ultimate end users.

Rather than having these outside suppliers distribute certain materials to a central Material Distribution Centre in Transcona for eventual redistribution to CN Stores and users, the suppliers are able through enhanced technology to provide the materials directly to the aforementioned Line Stores and end users. In anticipation of the particular changes in the present case, article 8.1 notices were issued in July and August of 1994 in respect of certain specified job abolishments at the Material Distribution Centre.

By grievance dated November 10, 1994, the Union has contended that the aforementioned job abolishments in 1994 were as a direct result of a contracting out in violation of article 35 of the collective agreement.

It is the Union’s request that all the work contracted out in 1994 be returned under the jurisdiction of Agreement 5.1 and any positions abolished as a result of the aforementioned article 8 notices be re-established and full redress be made to those employees affected.

The Company denies any violation of the collective agreement.

For The Company:                                             For The Union:

S. GROU                                                                D. OLSHEWSKI

for: Director, Labour Relations                         for: National Coordinator

The Union represents, among others, persons classified as Material Attendants, Stores Clerks, Receivers and Shippers in the Company’s Material Distribution Centre at Transcona in Winnipeg. First erected in 1909, the Transcona Stores grew from a facility of some 13,600 square feet to in excess of 85,000 square feet, by reason of additions to the building made in 1957 and 1977. It has functioned as the main distribution centre in Western Canada, supplying both the car and motive power shops in Winnipeg as well smaller line point stores at various locations in Western Canada between Thunder Bay and Vancouver. The instant grievance arises following a substantial reduction of employees at the Material Distribution Centre. It does not appear disputed that in late 1994 there were some eighty-nine bargaining unit employees employed in fourteen classifications at that location. At present, the complement has been reduced to thirty-seven employees in seven classifications. Although it is not denied that some of the job losses have been occasioned by downsizing relating to the volume of available work, the instant grievance is brought by reason of the Union’s allegation that a substantial number of positions were lost at the Transcona location as a result of the Company’s contracting out of the work of bargaining unit employees at the Material Distribution Centre.

The Company does not deny that it has made a fundamental change in its system of procuring and distributing equipment and material. The record discloses that in April of 1994 the Company first discussed with the Union’s Regional Vice-President a plan to eliminate the “middleman” function of the Material Distribution Centre, by moving towards a system where outside companies from which the store’s supplies were obtained would deliver directly to the Company user, rather than having the materials warehoused and processed through the Transcona Stores. It does not appear disputed that three of the principal providers of supplies, Acklands Ltd., Westburne Industries and Crain-Drummond, had for some years been involved in supplying materials to the Material Distribution Centre. The material before the Arbitrator confirms that the Company entered contracts, the principal of which was with Acklands, whereby virtually all of the functions of supply and distribution would be handled by Acklands. The contract, in the form of a memorandum of understanding dated September 8, 1994 contains in part, the following:


The intent of this Memorandum is to form a business relationship between Canadian National Railway Company (“CN”) and Acklands Limited (“Acklands”) based on mutual trust and cooperation for the benefit of both parties. This Memorandum describes the “spirit” of the business relationship that CN and Acklands seek to establish for the procurement of industrial supplies and fasteners. Both parties agree to conduct business in the true spirit of cooperation and teamwork, with open and honest communication.


Under this Memorandum, Acklands will source, warehouse, distribute and monitor CN requirements for both stock and non-stock materials as specified in Appendix 1 (“Material”), for the locations specified in Appendix 2 (“CN Locations A & B”), and for such other materials and locations as may be agreed by the parties from time to time. CN reserves the right to remove items and locations from these Appendices as and when required. Any substitution of Materials recommended by Acklands pursuant to this Memorandum must be authorized by CN.


The objective of this Memorandum is to reduce CN’s current total cost for procuring, stocking and distributing the Materials. Such total costs associated with the procurement of the Materials include manufacturing costs, shipping, receiving, administration, designing, invoicing, processing, any other related business activity.

Given the extent of the desired business relationship between Acklands and CN, Acklands warrants that CN will receive overall lower costs than any other third party with whom Acklands has a business relationship requiring similar investments, inventory support and/or service requirements as those extended to CN.


Acklands agrees to purchase, stock and distribute CN’s current on hand inventory of Materials. Acklands will add {figure omitted} to CN’s inventory price for such Materials which are subsequently distributed to CN Locations A, plus an additional freight percentage to items distributed to CN Locations B, as detailed in Appendix 2. Any such CN inventory remaining in Acklands warehouse after 12 months shall be deemed obsolete and shall be returned to CN or disposed of by Acklands. Acklands must have the permission of CN before any such Materials are returned or disposed, after which, CN will credit Acklands for such Materials. This credit amount shall not exceed Acklands original purchase price from CN.

It is not disputed that a substantial portion of the Company’s inventory in the Transcona Shops was removed and delivered to Acklands, in accordance with the Inventory Transfer provisions of the memorandum of understanding. It is also common ground that the reduction of jobs at the Transcona Stores facility was accompanied by article 8 notices provided to the Union under the terms of the Employment Security and Income Maintenance Plan, with respect to the related job abolishments. Although the Union participated in the negotiations contemplated under article 8 of the Plan, for the purposes of minimizing adverse impacts on the employees affected, it did so at all times without prejudice to its position that the changes implemented by the Company were in fact a contracting out of the Union’s work contrary to the provisions of the collective agreement.

The Union asserts violations of article 35 of the collective agreement which prohibits the contracting out of bargaining unit work and provides, in part, as follows:


35.1        Effective February 3, 1988, work presently and normally performed by employees who are subject to the provisions of this collective agreement will not be contracted out except:

(a)           when technical or managerial skills are not available from within the Railway; or

(b)           where sufficient employees, qualified to perform the work, are not available from the active or laid-off employees; or

(c)           when essential equipment or facilities are not available and cannot be made available at the time and place required (a) from Railway-owned property, or (b) which may be bona fide leased from other sources at a reasonable cost without the operator; or

(d)           where the nature or volume of work is such that it does not justify the capital or operating expenditure involved; or

(e)           the required time of completion of the work cannot be met with the skills, personnel or equipment available on the property; or

(f)            where the nature or volume of the work is such that undesirable fluctuations in employment would automatically result.

The conditions set forth above will not apply in emergencies, to items normally obtained from manufacturers or suppliers nor to the performance or warranty work.

The Union submits that with the change that has been implemented the functions of warehousing, picking and filling orders, receiving and shipping, among others, have effectively been transferred into the hands of the suppliers, in a manner contrary to the prohibitions against contracting out bargaining unit work. It submits that the functions performed by the bargaining unit employees, including the original buying of equipment and supplies, has now been transferred to the supplier’s staff.

The company submits that there has been no violation of the collective agreement provisions in respect of contracting out. It asserts, firstly, that technological advancements and, in particular, improvements in computer systems, have facilitated the ability of external major suppliers to communicate with the Company’s “internal customers”, which is to say the departments which are the ultimate consumers of the supplies and equipment. With present technology the CN department requiring supplies can, by computer, request them from the supplier, and receive them directly, without the need for the warehousing and re-supply function of the Material Distribution Centre at Transcona. It is on that basis that it submits that the changes in question were in fact technological, operational and organizational changes within the meaning of the Employment Security and Income Maintenance Plan. Very simply, it submits that the elimination of the stores department process is not the contracting out of the work previously performed by the Distribution Centre, but its entire elimination. The new process, made possible by the Electronic Data Interchange transmission system is described by the Company as operating as follows:

Stock EPS requisites are based on predefined criteria, downloaded to the customer’s personal computer, where a purchase order is automatically created for the respective suppliers (based on stock number), and transmitted via electronic data interchange to the supplier’s order system. Based on the customer’s address code (Ship-to), the order is directed through the supplier’s system to the nearest distribution point where a pick form is produced and material shipped directly to the customer’s address code.

The Company stresses that there is nothing new in the arrangements it has now made for direct supply. It notes that in the past suppliers did deliver some stock to the Company’s internal customers on a direct delivery basis, by-passing the Material Distribution Centre. It gives as examples past changes made with respect to the direct delivery of products such as canned water for running crews, epoxy paint and brake shoes. In the Company’s submission all that has occurred is the elimination of a step in the procurement process, not the contracting out of stores and warehouse work previously performed by the bargaining unit at the Transcona Material Distribution Centre.

By way of precedent, the Company relies on Award No. 27975 of the National Railroad Adjustment Board, Third Division, an arbitration decision in a dispute between the Missouri Pacific Railroad Company and the Transportation Communications International Union. In that decision it was found that, although bills of lading and other documentation in respect of shipments from a customer were previously prepared by bargaining unit employees, when the introduction of new electronic equipment allowed the shipper to program its own bills of lading, the work in question had not been contracted out. At p.2 of its award, the National Railroad Adjustment Board comments as follows:

The Board has reviewed the entire record and concludes that the claim must fail. The installation and utilization of the CRT operated by employees of the shipper transferred no work from Carrier to El Paso Products. El Paso Products always had the responsibility of furnishing bill of lading information. The electronic change did not in any way alter the responsibility of the shipper, and did not transfer to the shipper work previously performed by Carrier.

Instead, the utilization of the CRT eliminated the need for the Carrier’s employees to manually enter the information, since it was automatically added by the computer. What occurred in this case was the result of a labour saving technique. Board Awards of this Division clearly support the position that this type of installation does not constitute a transference of work. See Third Division Awards 11494, 12497, 13215, 14589, 22832. Where there is an elimination of work, as here, rather than a transfer of work the claim must be denied.

A similar case was considered by the Canadian Railway Office of Arbitration in CROA 2057. In that case the Union grieved a Company initiative which allowed customers to utilize computers to directly access Company information as to the location or state of their shipments and to deal electronically with the Company for servicing and billing. As the change occasioned a loss of work to the bargaining unit, the Union grieved a violation of its contracting out protections. The arbitrator rejected the grievance, commenting, in part, as follows:

A change of this kind is not unlike a retail outlet which converts part or all of its store operations from clerical service to self-service. It is within the prerogative of an employer, subject to the terms of a collective agreement, to reorganize its work force and its service to its customers in a way that streamlines operations and enhanced services. While the elimination of jobs attendant on such changes is of obvious concern to the employees involved, their protections are to be found in collective agreement provisions respecting technological and organizational change, and not in prohibitions against contracting out.

Upon a review of the facts the Arbitrator cannot sustain the position of the Union, with respect to the general change in supply and procurement implemented by the Company. Very simply, the Company has made administrative changes to eliminate a portion of its stores and materials distribution function, by arranging with suppliers, principally Acklands, to obtain and deliver ordered supplies, equipment and material directly to its in-house users, rather than have the material processed through the Material Distribution Centre. I am satisfied that what has transpired is accurately described as the elimination of the stores’ function, rather than a contracting out of bargaining unit work, subject to one exception related below. It cannot be disputed that if the Company chooses to acquire and warehouse large volumes of materials and equipment, for later distribution within its operations, the handling of such work belongs to the bargaining unit as “work presently and normally performed by employees who are subject to the provisions of [the] collective agreement” within the meaning of article 35.1 of the collective agreement. That, however, is not what is disclosed on the evidence before me. Although the Union has expressed concerns about employees of the suppliers being brought in to work physically within the stores and other locations actually monitoring supply bins, work which belongs to the bargaining unit, that has not occurred. Those functions have continued to be performed by the bargaining unit, albeit on a reduced scale basis, given the reduction in the volume of the work remaining at the Material Distribution Centre.

What the case discloses, however, is that as a general matter the Company has, for a substantial portion of its supplies, eliminated procuring, warehousing and distribution steps which were the essence of the function performed by the stores employees at the Material Distribution Centre in Transcona. While it may be true that the suppliers, such as Acklands, have now undertaken a larger burden of procuring and holding for availability materials and supplies needed by the Company, that is essentially an enlargement of the very function which they previously performed as suppliers, and indeed performed on occasion by direct delivery to the Company’s own in-house users. With the greatest respect to the Union’s argument, and the understandable nature of its concerns, that does not constitute contracting out.

There is, however, in the material before the Arbitrator evidence of a certain degree of contracting out which, I am satisfied, is contrary to the provisions of the collective agreement. It is common ground that a substantial volume of materials and equipment was removed from the Transcona Material Distribution Centre and delivered to Acklands, pursuant to the inventory transfer provisions of the memorandum of understanding of September 8, 1994 between the Company and Acklands. I cannot see upon what basis the Company can argue that those materials, which were then plainly in the Material Distribution Centre and were destined to be handled entirely by bargaining unit employees until such time as they would be delivered to the Company’s in-house customers, could be removed from that location and placed into the hands of an outside company which would then administer the same function of warehousing and distribution of the same actual stocks, without violating the contracting out provisions of the collective agreement, as regards that particular volume of equipment and supplies. It appears to the Arbitrator indisputable that the warehousing, handling and shipping of materials already contained within the Material Distribution Centre at Transcona must fairly be described as work belonging to the bargaining unit within the meaning of article 35 of the collective agreement. Contracting out would plainly be found if Ackland’s staff came into the Transcona Stores to perform order filling functions. The nature and quality of the work, and its contracting out, does not change by the mere moving of the material and equipment in question from that location to the facilities of the outside supplier. That circumstance is, I think, to be distinguished from the situation of a fresh supplying of materials and equipment by direct delivery to the Company’s in-house customer. What occurred with respect to the inventory transfer was plainly the movement of bargaining unit work from the confines of the Distribution Centre to the hands of the suppliers. To that extent, therefore, there has been a violation of the contracting out provisions of the collective agreement.

For the foregoing reasons the grievance is allowed, in part. The Arbitrator finds and declares that the general arrangement entered into by the Company with respect to the direct supply of materials and equipment from Acklands, and other suppliers, is not of itself a violation of the contracting out provisions of the collective agreement. However, the removal of inventory which was already within the Material Distribution Centre, and its delivery to Acklands, for warehousing and eventual picking and re-delivery to the Company constituted a transfer of bargaining unit work to an outside contractor contrary to the provisions of article 35 of the collective agreement. The Arbitrator so declares, and retains jurisdiction with respect to the remedy appropriate to that partial violation of the contracting out provisions which I have found did occur.

The matter is therefore remitted to the parties for their agreement in respect of remedial implementation, failing which the matter can further be spoken to.

DATED AT TORONTO, this 5th day of March, 1997