SHP 118




(the "Company")


Canadian Council of Railway Shopcraft Employees and Allied Workers

(the "Union")




SOLE ARBITRATOR: J. F. W. Weatherill



There appeared on behalf of the Company:

M. M. Yorston



And on behalf of the Union:

J. W. Asprey

A. Manocchio



A hearing in this matter was held at Montreal on January 14, 1982.




The Joint Statement of Fact and Joint Statement of Issue in this matter are as follows:


The Company contracted for the replacement of four wheels on overhead crane No. 57 at Angus Shops with the actual replacement being done between July 1 and August 14, 1981. The Union was advised of this contracting out on or about May 29, 1981.


It is the Union’s position that the Company violated the terms of the Letter of Understanding dated April 28, 1978, on page 153 of Wage Agreement No. 16.

It is the Company’s position that the purchase of the four wheels and two gears for the system was cheaper than manufacturing that equipment and, therefore, exception No. 4 to the Letter of Understanding was applied. Further, the Company contends that inasmuch as there were no employees adversely affected by the purchase contract, pursuant to the final paragraph of the Letter of Understanding, there is no grievance under the terms of the Collective Agreement and, therefore, this matter is not arbitrable.

The Letter of Understanding with respect to contracting-out is as follows:

This has reference to the award of the Arbitrator, the Honourable Emmett M. Hall, dated December 9, 1974, concerning the contracting out of work.

In accordance with the provisions as set out on Page 49 of the above mentioned award, it is agreed that in the period to December 31, 1978, work presently and normally performed by employees represented by the Association Non-Operating Railway Unions and the Railway Employees’ Department, Division No 4, signatory to the Memorandum of Settlement dated February 21, 1978, will not be contracted out except:

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

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

(3) when essential equipment or facilities are not available and cannot be made available from Railway-owned property at the time and place required; or

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

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

(6) 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 of warranty work.

It is further agreed that at a mutually convenient time at the beginning of each year representatives of the Union will meet with the designated officers to discuss the Company’s plans with respect to the contracting out of work for that year.

In addition, the Company will advise the Union representatives involved, in writing, as far as in advance as is practicable of its intention to contract out work which would have a material and adverse effect on employees.

Such advice will contain a description of the work to be contracted out; the anticipation duration; the reasons for contracting out and, if possible, the date the contract is to commence. If the General Chairman, or equivalent, requests a meeting to discuss matters relating to the contracting out of work specified in the above notice, the appropriate Company representative will promptly meet with him for that purpose.

Should a General Chairman, or equivalent, request information respecting contracting out which has not been covered by a notice of intent, it will be supplied to him promptly. If he requests a meeting to discuss such contracting, it will be arranged at a mutually acceptable time and place.

Where a Union contends that the Railway has contracted out work contrary to the foregoing and this results in an employee being unable to hold work, the Union may progress a grievance in respect to such employee by using the grievance procedure which would apply if this were a grievance under the collective agreement. Such grievance shall commence at (*), the union officer submitting the fasts on which the Union relies to support its contention. Any such grievance must be submitted within 30 days from the alleged non-compliance.

In the instant case the work which was contracted-out was it appears, work of a sort which would normally be performed by members of the Machinists’ bargaining unit. The Letter of Understanding would, therefore, apply, and the work ought not to have been contracted-out unless one of the six exceptions set out in the second paragraph of the Letter applied.

It may be noted that the contracting-out of this work was not discussed with the union as contemplated by the fourth paragraph of the Letter. It may be that this matter was not among the company’s plans at the start of the year. In any event, as is noted in the HV-6 Injector case, heard on the same day as this case, it is not a necessary condition of each act of contracting-out that it be discussed at the meeting referred to in the fourth paragraph of the Letter.

The Company contends that the matter is not arbitrable because there were no employees laid off as a direct result of this contracting-out. In fact, however, there were employees laid off from Ogden Shops at the time, and it appears from what is before me that if the work had been done by the company, members of the bargaining unit would have been recalled there, even temporarily. In my view, it was at least an indirect result of this contracting-out (but clearly attributable to it) that certain employees were "unable to hold work" within the meaning of the final paragraph of the Letter. The grievance is, therefore, properly before me pursuant to the Letter of Understanding.

It remains to be determined whether or not the contracting-out in question comes within exception (4), the others not being in issue.

The material produced by the company would appear to indicate that the company would have incurred a greater cost in having the work done, by its own forces than by having it contracted-out. On the company’s figures, there was a saving in the order of (roughly) twenty per cent (or in absolute terms some $2600.00), in contracting the work out. In making its comparative cost analysis, however, the company included "shop overhead" in the order of 68% of the estimated shop wages. The term "overhead", it was said, refers to benefit costs in the order of 33%, and as well to the more general "overhead" which would include a portion of plant capital, maintenance and operating costs. The latter are, of course, quite properly to be considered in calculating the real cost of any item produced. They do not, however, result in directly proportionate changes in expenditure to the company with relation to changes in production. Most of the "overhead" costs borne by the company in its, Ogden Shop operations would, in my view, be borne in any event, and would by only very slightly reduced by the contracting-out of the work in question. The "benefits" portion of the "overhead" would, however, properly be fully taken into account for the purposes of the comparison.

When the company’s figures are restated in accordance with the foregoing, it still appears that it would be somewhat less expensive (the difference would appear to be approximately $700) to contract the work out than to perform it in the shop. When exception (4) is read in-the context of the second paragraph of the Letter of Understanding it is apparent that it does not contemplate a simple cost comparison. The Letter of Understanding quite clearly does not provide that work may be contracted-out simply because it may be more economical to do so. Exception (4) contemplates an "operating expenditure", and sets out as a criterion of contracting out that such expenditure be "not justified" by the nature and volume of the work. I was not referred to any guidelines by which such justification or lack of it might be determined.

While I have noted earlier that the company may contract-out work notwithstanding that the work was not discussed in the annual review of plans contemplated by the fourth paragraph of the Letter of understanding, it must be noted that the fifth and sixth paragraphs of the Letter call for notice to the union "as far in advance as is practicable" of the intention to contract-out work. Here, no notice whatever was given.

The work in question was of a sort conducted only on rare occasions. It was, however, work of sort which was normally performed by members of the bargaining unit. Its "nature and volume" would clearly have "justified" the expense of performing the work "in house": the company did consider that possibility and would certainly have done the work had a cheaper source of supply not been found.

In my view, the company has not shown that this case came within the exceptions to the general rule against contracting-out. The union has not requested specific relief for any designated employees, but rather a declaration that such contracting-out should not take place until laid-off employees are recalled. That, however, goes beyond the authority I would have, having regard to all of the provisions of the Letter of Understanding.

Having regard to all of the circumstances of this case my award is simply to declare that the contacting-out in question was contrary to the Letter of Understanding.

DATED AT TORONTO, this 8th day of February, 1982.

(signed) J. F. W. Weatherill