BETWEEN:

(the "Company")

AND

(The "Union")

SOLE ARBITRATOR: Michel G. Picher

There appeared on behalf of the Company:

Ken Webb – Manager, Labour Relations

J. J. Worrall – Labour Relations Officer

And on behalf of the Union:

B. R. McDonagh – National Representative

Ron Laughlin – Witness

Ken Corbett – Witness

A hearing in this matter was held in Toronto on August 2, 1996.

By this grievance, the Union alleges that the Company has violated the collective agreement by contracting out the maintenance of some 200 wood chip cars which were operated in the service of Domtar Inc. in relation to its mill at Red Rock, Ontario. The positions of the parties are summarized in the dispute, joint statement of fact and joint statement of issue filed at the hearing, which read as follows:

• the Company violated the provisions of the letter of understanding with respect to contracting out dated March 26, 1982, when it signed a contract with Domtar making them responsible for work generally recognized as Carmen’s work.

[page -2]

The facts are not in substantial dispute. Domtar Forest Products operates a mill in Red Rock, Ontario which processes wood chips for paper or paperboard products produced by its packaging division. For a substantial number of years, the Company has provided service in transporting wood chips originating at Domtar’s sawmill at White River, in the Nipigon area, to Domtar’s pulp mill at Red Rock, where they are unloaded and processed. Chip cars are, in essence, box cars with the roof cut away. Originally, the cars utilized were fully serviced and repaired by the Company, using carmen represented by the Union, stationed at Chapleau. The normal loading point for cars was White River, and the repair to damaged cars, which was regular and extensive, then necessitated moving the empty cars from Red Rock to Chapleau, an additional 300 miles round trip. By the Company’s estimate the damage to the cars, generally caused by a large five-armed scoop which claws the wood chips out of a car, involved substantial damage, generally to the flooring of the car, as well as to walls, doorway areas and, occasionally, door closure plates. By the Company’s estimate, the damages were sufficiently extensive as to require repairs to the wooden floor of not less than two cars per week.

[page 3]

In the arbitrator’s view, there can be little serious doubt that the damage to the cars, and the related cost of repairs, struck at the viability of the contract between the Company and Domtar. The representation of the Company, which is substantially unchallenged, and appears to be supported by subsequent events touched upon below, is that the traffic in question was marginal from a profitability standpoint. Eventually, the only way the business could be retained was to renegotiate the contract by which the Company leased wood chip cars to Domtar at a reduced charge, with the proviso that the customer, Domtar, would itself be responsible for repairing the damage to the cars. On that basis, the agreement was amended in December of 1986 and the cars in question ceased to be serviced by the Company’s carmen at Chapleau. Rather, at its own expense, Domtar engaged the services of a local contracting company referred to as "Atkinson", to itself effect the decking, wall and doorway repairs to the cars at Nipigon. Although the Company remained responsible for the maintenance and repair of the cars’ fundamental running equipment, such as trucks, air and handbrakes, couplers, draft gear and car underframes, work which continued to be performed by its carmen at White River, the body damage to the cars, chiefly in respect of interior flooring, was performed, commencing in the spring of 1987, by Atkinson, under contract to Domtar.

The contract entered into with Domtar contains, in part, the following provisions:

[page 4]

The issue to be resolved is whether the arrangement made with Domtar for self-maintenance in respect of the roofless box cars violates the work jurisdiction provisions of the collective agreement, found in Rule 52 and the contracting out provisions of the collective agreement, found in Rule 54 of collective agreement no. 52.1, effective February 3, 1988 and, more generally, as originally set out in the Letter of Understanding of March 26, 1982 concerning limitations on contracting out.

There is little dispute that the work in question is plainly work which falls within the general work jurisdiction of carmen represented by the Union. The nub of the dispute is, firstly, whether the Company engaged in contracting out and, secondly, if it did, whether it was justified in doing so by the exceptions provided in the rule.

The Letter of Understanding which was in effect at the time of the Company’s actions reads, in part, as follows:

[page 6]

A subsidiary issue raised by the parties is whether the actions of the Company, if they were contracting out, were such as to adversely affect employees, such as to trigger the Company’s obligation to give prior notice of its actions to the Union.

-7-

The first position argued by the Company is that its arrangement with Domtar does not constitute contracting out. With that proposition, the arbitrator has substantial difficulty. It is not disputed that for a considerable number of years work in respect of repairing the floor decking, walls, doorways and related equipment on the roofless box cars was consistently performed by carmen in the bargaining unit. By its arrangement with its customer, Domtar, the Company transferred that work outside the bargaining unit, albeit to its own customer who then sublet the work to Atkinson. In my view, the fact that the contracting out is part of an express contractual arrangement with the Company’s customer does not materially change the nature of what transpired. For good consideration from Domtar, namely the acceptance of a reduced freight rate, referred to in the contract as "repair agreement rates" the Company transferred the work to Domtar, to be done by such means as the customer might decide. The fact that the Company had no privity of contract with Atkinson is neither here nor there for the purposes of characterizing the nature of its arrangement with Domtar. Very simply, by a contractual arrangement with its customer in 1987, the Company outsourced work which was then presently and normally performed by bargaining unit employees. The sole issue, therefore, is whether the Company’s actions are permissible by reason of the enumerated exceptions found in the letter of understanding reproduced above and, secondly, whether its actions had a "material or adverse effect" on employees within the meaning of the collective agreement, so as to require prior notice to the Union.

The arbitrator deals with the second issue first. There is, very simply, no evidence before me to demonstrate a causal link between the contracting out of the work in question and any layoffs or a reduction of work opportunities for active employees by reason of the Company’s actions in contracting out the repair work to Domtar. If anything, the evidence would indicate that the arrangement made by the Company saved at least two carmen’s positions at White River. The arbitrator is satisfied, on the balance of probabilities, that the marginal profitability of the pre-contracting out arrangement was so dubious as to necessitate the Company’s insistence that Domtar do the repair work in question. Failing that saving, the Company was simply not prepared to continue to service its customer. In the result, but for the contracting out arrangement, the work which was preserved to two carmen at White River, in respect of the inspection and repair of running gear of the cars, would have been lost. Moreover, there is no evidence by which I can conclude that any active employee was laid off or deprived of a work opportunity by reason of the transfer of the work to Domtar. The evidence discloses that some 13 full-time carmen were employed at Chapleau, Ontario in 1986, and that reductions in traffic levels have more recently occasioned a reduction in staff, at that location, to 9 positions. The unrebutted evidence of the Company is that the reduction of the positions in that area took place long after the contracting out of the work. On balance, I am satisfied that, in fact, there were no reductions in complement occasioned by the contracting out. In the result, therefore, there was no violation of the obligation upon the Company to give prior notice to the Union of the contract, as it was only required to do so in the event the contracting out. would have an adverse effect on employees.

[page 9]

Finally, the evidence does support the Company’s assertion that the marginality of its prior arrangement with Domtar in respect of the movement of wood chip cars to the Red Rock Mill was such as to bring into play the exceptions to the prohibition against contracting out, in particular the provisions of subparagraph 4. It is not, of course, necessary or advisable to give an exhaustive definition of the scope of that provision. For the purposes of this case, it is sufficient to note that the Company was faced, under the pre-contracting arrangement, with an operating expenditure which simply did not justify continuing to service the Domtar mill. In fact, even the contracting out did not bring about a permanently viable arrangement between the Company and Domtar. It is not disputed that, as of May of 1996, the contract between the Company and Domtar was discontinued, and Domtar reverted to truck transportation for the carriage of wood chips to its mill at Red Rock from its sawmill at White River. On the whole of the evidence, I am satisfied that, by reason of the nature of the work, relating as it did to a service that had become no longer worthwhile, the continuance of the work within the Company’s operations did not justify the operating expenditures which were being incurred. It is important, I think, to emphasize that I am satisfied that this is not a matter of mere profitability, but of the fundamental viability of the Company’s contract with Domtar. I am satisfied, on the balance of probabilities, that because of the excessive cost in repairing an average of two roofless box cars per week at Chapleau, the Company would have been obligated to terminate its service to Domtar in 1986. In that circumstance, the conditions for the exception provided in subparagraph 4 of the Letter of Understanding are made out.

The issue of the "nature and volume" of work being such as to no longer justify the continuation of the work within the bargaining unit was addressed by Arbitrator Weatherill in the award between CP Limited and Canadian Council of Shopcraft Employees and Allied Workers, a grievance concerning the contracting-out of certain machinist’s work at Angus Shops, dated February 8, 1982. At p.8 of that award, Arbitrator Weatherill makes the following comment in rejecting the Company’s argument as to the application of the exception:

The case before me is to be distinguished from that considered by Arbitrator Weatherill. I am satisfied, on the balance of probabilities, that the Company would not have continued to perform freight transportation work for Domtar if it had been compelled to continue to perform the repairs on the wood chip cars itself, as previously had been done. If a cheaper arrangement could not have been found, the overall expense incurred by the Company would not have justified the continuation of the service to Domtar or, by extension, the repair work in question.

The Union relied, in part, on the decision of Arbitrator Vincent L. Ready in an award between B.C. Rail Ltd. and the Canadian Autoworkers Union, an unreported decision dated December 10, 1992. In that case, Arbitrator Ready found that the decision of B.C. Rail to contract out the cleaning of pulp cars was in violation of the collective agreement governing carmen’s work, including contracting out provisions similar to those found in the instant collective agreement. At page 15 of the Award, he rejected the suggestion that the exception with respect to the outlay of capital or operating expenditures, in relation to the nature and volume of the work, had any application. He reasoned, in part, as follows:

[page 11]

In my view, the circumstances in the case at hand are also to be distinguished. This is not, as was the case in the B.C. Rail award, a situation where the Company merely sought to find a cheaper way of having the work done so as to increase its profitability. Rather, it was faced with an "all or nothing" proposition, as it could not hope to continue to service Domtar if its freight rates were structured so as to include the cost of chip car repairs at CP Rail’s own facilities. That particular aspect of this case which, in my view, is determinative of the application of the exception, is reflected, in part, from the following passage from a letter drafted to the Union by the Company’s General Manager during the course of grievance process:

[page 12]

In the instant case, I accept the above statement as accurate. Based upon it, I am compelled to the conclusion that these circumstances were such that, due to the nature and volume of the work, the operating expenditure required to continue it within the Company was not justified, because the work itself, and indeed the freight contract with Domtar, would no longer have been viable.

I agree with Arbitrator Ready that the exception in subparagraph 4 cannot be invoked to simply find a cheaper way of having work done, so as to increase profit margins. The facts of the instant case, however, go well beyond that, relating as they do to the very existence of the freight contract with Domtar.

In light of these conclusions, it is unnecessary for the arbitrator to deal with the alternative argument advanced by the Company, with respect to the application of the doctrine of laches to this grievance, which is brought to arbitration some ten years after the event. While the arbitrator is inclined to give some weight to the explanations advanced by the Union, given that the parties continued to discuss this grievance through the years, without any indication on the part of the Union that it was abandoned, it is unnecessary to deal with that issue further in light of the result. It may also be noted that the issue of delay does not appear as an issue raised for the arbitrator’s jurisdiction within the language of the joint statement of issue.

For all of the foregoing reasons, the grievance is dismissed.

DATED at Toronto this 13th day of August, 1996