SHP - 439



Canadian Pacific Railway Company – Mechanical Services

(the "Company")


National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada) Local 101

(the "Union")

re: contracting out of wheelsets


Sole Arbitrator: Michel G. Picher


Appearing For The Union:

A. Rosner – National Representative

R. Laroche – Financial Secretary, Local 101

G. Michalchuk – Vice-President, Local 101

J. Munch – Witness


Appearing For The Company:

K. E. Webb – Manager, Labour Relations, Calgary

D. E. Guerin – Labour Relations Officer, Calgary

D. K. Meyler – Director, Technical Support, Montreal

J. G. Cain – Director, Car Maintenance and Planning, Calgary



A hearing in this matter was held in Montreal on Friday, 11 April 1997.



This grievance concerns an allegation of improper contracting out, contrary to the collective agreement. The issues are delineated in the Joint Statements of Fact and Issue filed at the hearing which read as follows:


On February 23, 1996, the Company advised the Union, that a total of 330 wheelsets, which would normally have been produced at the Weston Wheel Shop in Winnipeg, had been contracted out. The reason cited was that the availability of replacement wheelsets at various locations had become critical, because of "the recent extreme cold weather, higher than normal winter consumption and slower than normal wheel car distribution account both locomotive shortage and yard congestion." The letter stated: "I regret this late notification. Since our meeting in Winnipeg, we are ensuring that all are aware of the requirements with respect to notifying the CAW-TCA concerning contracting out.:

On March 14, 1996, the Union grieved, alleging violation of Rules 53.1, 53.4 and 53.5 of the collective agreement, and claiming pay at overtime rates for the employees who normally would have performed the work. The Company denied the grievance.

By letter dated July 16, 1996, the Company advised the Union that the actual number of wheelsets contracted out had "approached approximately 1200 due to continuation of extreme conditions and usage." The letter went on to "regret not being aware of this sooner and advising you accordingly."

On February 4, 1997, the Company advised that an additional 212 wheelsets were being contracted out, stating that "the recent extreme cold weather and unprecedented demand for power has resulted in slower than normal wheel car distribution and the availability of replacement wheelsets at various locations across the system has become critical."


The Union contends that the contracting out of wheelsets is prohibited by Rule 53.1 of the collective agreement and is not saved by any of the exceptions therein. The Union further contends that the notice and consultation provisions of Rule 553.4 and 53.5 were violated. The Union asks for a declaration to this effect, an order that such contracting out cease and desist and that the work be returned forthwith to the bargaining unit, and that employees who would have performed the work be made whole, including the payment of overtime rates.

The Company denies the Union’s contentions and claims that the work in question was emergent in nature (Rule 53.2) and that it was accordingly, justified in contracting this work out. Rule 53.1, exception items (ii), (iii), (iv) and (v), also apply.

For The Union: For The Company:

(signed) A. Rosner (signed) K. Webb

for: Regional Vice-President Manager, Labour Relations

It is common ground that the production of wheelsets has, for many years, been performed for the Company at its Weston Wheel Shop in Winnipeg. It is not disputed that historically it has supplied all of its own wheelsets and, to the knowledge of the parties at the hearing, never previously contracted out the purchase of wheels or wheelsets prior to the events giving rise to this grievance.

It does not appear disputed that in 1995 a small scale contracting out for the supplying of 38-inch spine car wheels was undertaken by the Company. That contract was not objected to by the Union, which was persuaded that the appropriate equipment for the production of such wheels was lacking at the time.

In February of 1996 it came to the Union’s attention that wheelsets of a standard type produced by the Weston Wheel Shop were being obtained from outside contractors. Upon inquiring with the Company, its Regional Vice-President, Glenn Michalchuk, was advised by the Director of Technical Support, D.K. Meyler, that some 330 wheelsets had been contracted out to private suppliers in Colorado, Illinois and Lachine, Quebec. Mr. Meyler responded, in part, as follows in a letter dated February 23, 1996:

Due to recent extreme cold weather, higher than normal winter consumption and slower than normal wheel car distribution account both locomotive shortage and yard congestion, the availability of replacement wheelsets at various locations across the system became critical.

It appears that further examination of the issue revealed that in fact the amount of contracting out was considerably greater. Initially the number of wheelsets purchased was upgraded to 450. However, in a letter dated July 16, 1996, Mr. Meyler revised that figure to 1,200. It is common ground that Mr. Meyler’s department was not in fact aware of the purchases, which were entirely obtained through the purchasing and supply functions of the Company. From a volume perspective, it may be noted that, according to Mr. Meyler’s estimate, that the Weston Wheel Shop produces and supplies approximately up to 40,000 wheelsets per year.

The winter of 1996-97 saw a repetition of the same pattern of contracting out. In a letter dated February 4, 1997, Mr. Meyler advised Mr. Michalchuk, in part, as follows:

Despite our best efforts as building up the good order wheelset pool prior to the onset of winter and ensuring wheelcars are in good operating condition, the recent extreme cold weather and unprecedented demand for power has resulted in slower than normal wheel car distribution and the availability of replacement wheelsets at various locations across the system has become critical.

Mr. Meyler then advises that the Company felt compelled, by what it viewed as an emergency situation, to contract out the purchase of some 212 wheelsets from independent suppliers at Lachine, for the St-Luc Shop in Montreal, in Illinois, to supply the Vaughan Yard in Toronto and at Tacoma, Washington to supply Port Coquitlam, B.C. A subsequent letter from Mr. Meyler, dated March 11, 1997 estimated the total number of wheelsets contracted out in calendar 1997 to total 702.

The Union’s representatives seriously question the Company’s explanation for the need to purchase wheelsets from independent suppliers, arguing that no emergency situation is disclosed. Citing the fact that the Company has for decades been able to provide its own wheelsets, both from the standpoint of production and distribution, to running point locations, the Union’s representative submits that the Company has not brought itself within the exceptions to the prohibition against contracting out provided for in rule 53 of the collective agreement. That rule reads, in part, as follows:

53. Contracting Out

53.1 Effective July 9, 1995, work presently and normally performed by employees who are subject to the provisions of this collective agreement will not be contracted out except:

(i) when technical or managerial skills are not available from within the Railway and cannot be made available through a permanent transfer of employees from other locations on the system, through a reasonable level of training, re-training or upgrading of the active or laid-off employees; or

(ii) where sufficient employees, qualified to perform the work, are not available from the active or laid-off employees and cannot reasonably be made available through a permanent transfer of employees from other locations on the system; or

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

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

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

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

53.2 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.

53.4 The Company will advise the Union representative involved in writing, as far in advance as is practicable, of its intention to contract out work which would have a material and adverse effect on employees. Except in case of emergency, such notice will not be less than 30 days.

53.5 Except in cases where time constraints and circumstances prevent it, the Company will hold discussions with representatives of the Union in advance of the date contracting out is completed. The Company will provide the Union with a description of the work to be contracted out and, if possible, the date the contract is to commence, and any other details as may be pertinent to the Company’s decision to contract out. During such discussions, the Company will give due opportunity and consideration to the Union’s comments on the Company’s plan to contract out and review in good faith such comments or alternatives put forth by the Union. If the Union can demonstrate that the work can be performed internally in a timely fashion as efficiently, as economically, and with the same quality as by contract, the work will be brought back in or will not be contracted out, as the case may be.

The Union submits that in the circumstances the onus is upon the Company to show that the exceptions to rule 53.1 apply, and specifically to establish that an emergency situation justified the contracting out. Its representative submits that the Company has not satisfied that onus. Specifically, he submits that the emergency is, to some degree, of the Company’s own making, to the extent that the fleet of rail cars utilized to deliver wheelsets has been reduced by some 30 or 40 cars, to a present complement of 72. In the result, the Union argues, the Company has made it more difficult to ensure adequate distribution of sufficient stocks of wheelsets throughout its system. He further notes that for some time the cars utilized to transport wheel sets were given the lowest priority in the marshalling of train consists, thereby delaying and frustrating their delivery and stockpiling throughout the system. He further submits, assuming that winter conditions might on occasion have caused genuine emergency situations, that it was nevertheless open to the Company to revert to using trucks to deliver wheelsets to its running point locations, noting that that is the apparent method by which the independent suppliers have delivered wheelsets to St-Luc, Vaughan and Port Coquitlam.

The first issue to be addresses is whether in fact the Company can invoke the protections of rule 53.2 in the circumstances of this case. If the Arbitrator is satisfied, on the balance of probabilities, that the Company did confront emergencies during the two winters in question, within the meaning of rule 53.2, the prohibition against contracting out, and the related obligations of notice, would have no application.

The Company adduced considerable evidence in support of its view that it did resort to outsourcing only because it faced emergency situations. Its representatives note that the last two winters have been uncommonly harsh. By way of example, in the winter of 1996-97 saw the closure of the Company’s main line in Western Canada for a period of some two weeks, because of extreme weather conditions. Additionally, for reasons which are not entirely understood, data would suggest that in recent years the harshness of winter conditions has taken a still higher toll on wheelsets utilized by the Company, as well as by CN Rail. Further, in response to the suggestion of the Union that the emergency is to some extent influenced by the Company’s own actions, Mr. Meyler points to the fact that in late 1996 the Company’s stock of good order wheelsets reached an all time high of 7,100. Notwithstanding that supply, the winter of 1996-97 saw a radical decrease in the number of good order wheel sets, to 3,968. While the data, dating back to 1994, shows a similar pattern of decline in the stock of good order wheel sets during the winter season, it is clear that none is as dramatic as disclosed in the 1996-97 winter season. It is also true, however, that a substantial drop is also recorded as between the October of 1995 and January of 1996.

An important aspect of this case concerns the Union’s argument that the supply difficulties are, in part, to be attributed to the Company’s own actions, and in particular the low priority given to the movement of OCS cars dedicated to the transportation of wheelsets, as well as to the volume of stockpiled wheels which the Company is prepared to maintain. On this issue the Arbitrator has some difficulty with the Union’s case. As noted above, it is not disputed that a management decision was made some time ago to reduce the cost and burden of maintaining substantial stocks of supplies by reverting to a "just in time" inventory system. Pursuant to that policy, the Company has become leaner in the administration of its production and supply functions, striving for a closer relationship between the production and supply of material and equipment, and its actual consumption in the field. That, in part, is reflected in the reduction in the fleet of cars dedicated to the transportation of wheel sets from the Weston Wheel Shop to the running point wheel repair facilities.

Was the Company entitled to make that adjustment? I am satisfied that it was. There is nothing within the terms of the collective agreement, of which the Arbitrator is aware, which would prevent the Company from tightening the system whereby it produces and supplies inventories of equipment, so as to achieve a higher margin of efficiency and profitability. Indeed, doing so would be squarely within the traditional prerogatives of management. I am satisfied, on balance, that the Company has moved towards a system of tighter inventory margins in a manner consistent with the pursuit of legitimate business purposes, and that it was entitled to do so without doing violence to the collective agreement.

The changes in the Company’s operations, however, with respect to the production, distribution and stocking of wheelsets does, however, have an impact on the administration of rule 53 of the collective agreement, and in particular rule 53.2. It seems to the Arbitrator undeniable that by tightening its inventory system, through the adoption of a "just in time" inventory policy, the Company may have gained more efficiency at the risk of making itself vulnerable in unforeseen circumstances which could hamper its lines of supply. In other words, while the "just in time" inventory system may bring improvements in productivity or profitability, it does leave the Company open to the risk that unforeseen events, including winter conditions, might sometimes disrupt its ability to have the necessary supplies of wheelsets at running point repair shops when they are needed. In the result it is true, as the Union argues, that the Company’s actions in redesigning its inventory and supply system have made it more susceptible to emergency problems in obtaining wheelsets, particularly during the winter. However, that is the result of a business decision which the Company was entitled to make and implement.

It should be stressed that the instant does not, in the Arbitrator’s view, involve a colourable scheme on the part of the Company to artificially create an emergency situation as a subterfuge to avoid its fundamental obligations under the collective agreement. As the evidence discloses, wheelsets continue to be produced, apparently in ever greater quantities, at the Company’s Weston Shop. Additionally, as the evidence discussed above reveals, the Company has in this last winter made efforts to raise its inventory of good order wheel sets to record levels, in anticipation of the winter season. Further, as disclosed by Mr. Meyler, for several months the Company has given the highest priority to the movement of rail cars bearing wheelsets, to improve on the distribution difficulties which were encountered.

Based on all of the material and evidence before me, I am compelled to accept the explanation advanced by the Company in this case. For brief periods, during two particularly harsh winters, the Company found itself without adequate supplies of wheelsets at the St-Luc, Vaughan and Port Coquitlam yards. Those shortages cannot fairly be characterized as planned, but rather were the result of unforeseen winter conditions, which I am satisfied fall within the ambit of "emergencies" as contemplated within rule 53.2 of the collective agreement. In the result, the Company was not prohibited from having recourse to outsourcing to obtain the wheelsets it needed, nor was it required to provide notice to the Union of the contracting out under rules 53.3, 53.4 and 53.5 of the collective agreement.

For all of the foregoing reasons the grievance must be dismissed.

Signed at Toronto, May 6th 1997