SHP – 483
IN THE MATTER OF AN ARBITRATION
CANADIAN PACIFIC RAILWAY
NATIONAL AUTOMOBILE, AEROSPACE, TRANSPORTATION
GENERAL WORKERS UNION OF CANADA (CAW-CANADA), LOCAL 101
RE: GE LOCOMOTIVE MAINTENANCE
SOLE ARBITRATOR: Vincent L. Ready
There appeared on behalf of the Company:
Marc Shannon – Counsel
And on behalf of the Union:
Abe Rosner – Counsel
A hearing in this matter was held at Calgary, Alberta on February 23, 24 and 25, 1999.
This is the arbitration of a grievance against contracting out. The Dispute and Joint Statement of Issue filed at the hearing are as follows:
Whether the supply of replacement parts by General Electric for newly purchased GE AC4400 locomotives is contracting out contrary to the collective agreement between the parties.
JOINT STATEMENT OF ISSUE
The Union contends that the Company has contracted for the performance of bargaining unit work in violation of Rule 53.1. The Union further contends that none of the situations enumerated in Rule 53.2 are applicable. The Union also submits that the Company has violated the various notice, consultation and ‘business case’ provisions as set out in Rules 53.3, 53.4 and 53.5. The Union requests a declaration to all these effects, as well as an order that the Company cease and desist from violating the collective agreement, and that the Union and any employees who may have suffered loss of work or work opportunities be made whole.
The Company disputes the Union’s contentions. The supply of replacement components by GE is not contracting out contrary to the collective agreement. The replacement parts are supplied pursuant to a parts and material warranty in the Integrated Service Program and so, in accordance with Rule 532, the Company has not contracted out. Further, the employees have never, prior to the purchase of these 83 GE locomotives, worked on AC locomotives, and the production or overhaul of the components for AC locomotives is not work presently and normally done by the Company’s employees. The Company’s locomotive fleet, other than these GE locomotives, consists entirely of DC locomotives. Further, if the Company were to become involved in the overhaul of components for the AC locomotives, it would require a large expenditure of capital which is not justified. Accordingly, the Union’s grievance must be denied.
Rule 53 with respect to contracting out reads as follows:
Rule 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.
53.3 At a mutually convenient time at the beginning of each year and, in any event, no later than January 31, representatives of the Union will meet with the designated officers to discuss the Company’s plans with respect to contracting out of work for that year.
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 be not 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 contemplated. The Company will provide the Union a description of the work to be contracted out; the anticipated duration; the reasons for contracting 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.
53.6 Should a Regional Union Representative, 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 out, it will be arranged at a mutually acceptable time and place.
53.7 In the event Union representatives are unavailable for any meetings, such unavailability will not delay implementation of Company plans with respect to contracting out of work for that year.
53.8 Where the Union contends that the Company has contracted out work contrary to the provisions of this Rule, the Union may progress a grievance commencing at the last step of the grievance procedure. The Union officer shall submit the facts on which the Union relies to support its contention. Any such grievance must be submitted within 30 days from the alleged non-compliance.
Closed Period Contracting-Out Proposal
53.9 The parties agree to establish a Joint Committee, composed of representatives of Mechanical Services and the CAW, which is mandated to review all instances of contracting out of work coming under the scope of Mechanical Services as identified and listed in the Attachment hereto. The parties agree to use their best efforts in order to achieve a resolve, by mutual agreement, on all the identified items.
In reviewing the identified items, the parties will take into account all of the factors that drive contracting decisions. These factors include economics, flexibility, capacity, equipment, quality, time constraints and customer requirements.
Where a business case cannot be made to have the work performed in-house under the existing collective agreement terms and conditions, the parties may, by mutual agreement, modify such terms and conditions in an effort to have the work performed in- house.
The review process will be limited to two items per month unless otherwise mutually agreed to by the parties.
The repair and maintenance of locomotives and cars may be conveniently divided into two broad and occasionally overlapping categories. One is “running shop work” which includes regular inspections, minor repairs such as simple change out of parts, minor mishap damage or generally scheduled or unscheduled repairs which require a shop visit of limited duration.
The other is main shop or back shop work including major repairs, overhaul of the diesel engine and other components such as traction motors, small motors, main generators and alternators, production of diesel wheel sets and major wreck damage including all manner of bench work.
The Company’s main shop which performs locomotive overhaul and component work is Ogden in Calgary. Locomotive running repairs are performed at a number of diesel shops across the system.
The Company’s agreement to purchase 83 GE AC4400 CW diesel electric locomotives is documented in a contract dated August 30, 1995. Article 8 of that contract is entitled “Warranties”. Article 8.4 thereof provides, in part:
8.4 Manufacturers’ Warranties: With respect to any component or part of any locomotive not provided by Seller (including items free issued by Buyer), Seller gives no warranty, and only the warranty, if any, given by the manufacturer shall apply..
Article 8.5 thereof reads:
8.5 Performance Guarantees: In consideration of
Seller hereby undertakes to provide to Buyer, in respect of each and every Locomotive the following performance guarantees:
8.5.1 a “Mission Failure Guarantee” ,
8.5.2 a “Locomotive Availability Guarantee” ,
8.5.3 a “Labour Guarantee” ,
(together the “Performance Guarantees”), all as further defined in the said Appendix 8.5 and Attachment 3 thereto.
It is understood and agreed that the Performance Guarantees given by Seller under this Agreement, which are conditional upon Seller performing the Integrated Service Program herein described, were an essential consideration of the purchase of the Locomotives by Buyer, and one without which Buyer would not have entered into this Locomotive Purchase Agreement.
Nothing herein shall in any way affect, limit or diminish the responsibility of Seller with respect to the design and construction of the Locomotives. Except as expressly provided in this Section 8 and in Section 9 hereof, Seller makes no other warranties, whether written, oral, implied, express or statutory. Without limiting the obligations set forth herein, NEITHER PARTY MAKES ANY WARRANTY WHATSOEVER OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE (WHETHER IMPLIED, STATUTORY, EXPRESS, WRITTEN, ORAL, OR OTHERWISE) WITH RESPECT TO ANY LOCOMOTIVES OR PARTS THEREOF FURNISHED OR UTILIZED HEREUNDER OR ANY SERVICES TO BE FURNISHED HEREUNDER.
The Integrated Service Program (ISP) is for a term of 15 years and renewable for an additional 10 years. The definition of ISP is:
1.8 “Integrated Service Program” or “Program” shall mean the GE-supervised , ongoing maintenance program for the Locomotives described in this Appendix 8.5
Thus it is a long term service arrangement which, submitted the Union, “spell[s], not the erosion, but the elimination of the bargaining unit, notwithstanding that the collective agreement contains what is ostensibly one of the strongest bars against contracting out in the private sector.”
The Union asserts that the ISP threatens locomotive work which is a core function of the shop craft bargaining unit.
The Company takes a much more benign view of the ISP. It says that the only point of departure which the ISP represents is that the Company will replace component parts on the GE locomotives with Original Equipment Manufacture (OEM) parts instead of rebuilding the old parts as it has often done in the past. The Company asserts:
· That the maintenance work on the 83 GE locomotives will be performed by the bargaining unit which will include the above-described replacement of parts instead of the rebuilding of parts.
· That there is no contractual restriction on the Company replacing removed parts with OEM parts. There is nothing in the collective agreement, says the Company, restricting its discretion to install new parts rather than have shop craft employees rebuild an old part.
· That bargaining unit work “presently and normally performed” does not include the repair or reconstruction of equipment and parts owned by other than the Company. In common with warranty arrangements when components are removed from the GE locomotives they become the property of GE which is at liberty to do with the removed parts as it chooses. The parts are not simply rebuilt and returned to the Company. Any work done on GE parts is not the work of the bargaining unit.
· That the 83 GE locomotives are the first Alternating Current (AC) traction locomotives acquired by the Company. The bargaining unit has never worked on this type of locomotive. Therefore, it is not work “presently and normally performed” by members of the bargaining unit.
· That the OEM parts supplied by GE for application by the bargaining unit are provided pursuant to a warranty arrangement and therefore not caught by Rule 53. ( That Rule 53 does not apply to items “normally obtained from manufacturers or suppliers”. The OEM parts supplied by GE are such items.
· That the Company does not have essential equipment or the facilities required to refurbish the component parts of the GE locomotives. ( That the $18 to $26 million capital or operating expenditure necessary to enable the Company to refurbish the component parts of the GE locomotives is not justified.
· That there has been no adverse effects on the bargaining unit. No workforce reduction has occurred as a result of the ISP. In fact, workforce levels have increased since the purchase of the GE locomotives.
The Union submitted that the work connected with supplying the replacement parts as provided by the ISP is work “presently and normally performed” by the bargaining unit and is not correctly characterized as warranty work or “items normally received from the manufacturer or supplier”.
The Union argued that the capital and operating expenditure exception is not applicable and that the Company violated the notice provisions found in Rules 53.3, 53.4 and 53.5.
In a comment which is particularly apt in the present case, Professor Arthurs in Re United Steelworkers of America and Russell Steel Ltd., (1966) 17 L.A.C. 253, said at p. 254:
There can hardly have been a more contentious issue in the field of labour arbitration in the past ten years than that of contracting out. While in part, the controversy is prompted by the extremely serious repercussions of contracting out for both the employee and the Union, it has, as well, assumed a symbolic significance which pervades the entire area of collective agreement administration.
An employer is not prevented from contracting out unless there is an express prohibition in the collective agreement: British Columbia Systems Corporation and British Columbia Government Employees’ Union  3 Can. L.R.B.R. 231 (Kelleher).
In the absence of express language to the contrary, there is no right to a particular job or category of work nor any right to dictate by whom work will be performed: Petro-Canada Exploration Inc. and E.C.W.U. Local 686, (1982), unreported (Hope). Under Rule 53.1 it is impermissible for the Company to contract work which is “presently and normally performed” by employees governed by this collective agreement unless the Company can bring itself within one of the exceptions.
The Company originally sought to rely on Rule 53.1 (iii) but that submission was subsequently withdrawn.
Exception 53.1 (iv) provides relief to the Company in the event that the capital or operating expenditure in doing the work in-house is not justified.
If the disputed work arises in an emergency or is work normally obtained from manufacturers or suppliers or is work performed under a warranty, then Rule 53.1 does not apply.
Rules 53.3 and 53.4 provide certain notice and advice requirements with respect to contracting work and Rule 53.5 is intended to give to the Union an opportunity to make a business case for performing the work in-house.
Prior to the purchase of the GE locomotives, which are the subject of these proceedings, the Company’s fleet consisted primarily of GM Direct Current (DC) locomotives. The GE AC locomotives are conceptually and technologically different from the rest of the fleet. It therefore follows that until the GE purchase the bargaining unit did not work on GE AC locomotives.
The bargaining unit employees were responsible for the inspection, testing, maintenance and repair of the Company’s locomotives. The employees have and, to some extent, still do repair some parts, although this type of work is declining as parts become less mechanical or electrical and more electronic.
I find as a fact that the core duties of the shop employees is to perform running or main shop repair and maintenance on railway cars and locomotives. Shop craft employees do not manufacture locomotive parts. A malfunctioning part on a GM locomotive is removed and either a replacement part is installed or the part is repaired. It has always been open to the Company to purchase new or rebuilt parts to replace the defective parts removed by the shop craft employees. In other words, whether defective parts are repaired or replaced is a decision of management.
Prior to the early 1960s, shop craft workers performed back shop repairs and maintenance, that is, overhauls and repair of components, just as they do today except that they did so on steam locomotives. Their functions and skills obviously differed from those of today but the core duties were the same – to overhaul, repair and maintain the Company’s locomotive and railway cars and the components thereof.
The transition from DC to AC locomotives requires new or different skills but is nowhere near as difficult as the transition from steam to diesel electric. I have not overlooked nor do I discount the need for training. I simply say that is a requirement anticipated by the Company and not out of the ordinary course with the acquisition of new equipment.
There are other useful comparisons. For many years two kinds of diesel electric locomotives have co-existed on the Company’s system: the GM and the ALCO. Those familiar with working on one needed training and experience to work on the other. Does it follow that one could correctly erect a “presently and normally performed” fence around one or the other? I think not.
Working on the GM was different than working on the ALCO in the sense of different skills and techniques but it was the same kind of work.
Shop craft workers made the transition from electromagnetic switches to integrated circuit boards in the electrical cabinets of locomotives; from no computers to computers; from wooden cars and carpentry to steel and aluminum cars and welding and metal fabrication; from journals and wicks to roller bearings. In those cases the “presently and normally performed” kind of work remained fundamentally the same – it was the repair and maintenance of locomotives. The skills and techniques evolved and changed to meet the new technological changes but the fundamental job duties, as opposed to the way the duties were performed, did not change.
In Canadian National Railway Company and CAW Local 100 SHP 409 (1996) the Union contested the Employer’s decision to contract out the locomotive lubrication analysis. The Employer argued, inter alia, that the work had evolved in both its complexity and volume. At p. 7 Arbitrator M.G. Picher said:
Nor can the Arbitrator accept the argument of the Company that, by reason of technological advances and the introduction of computer and laser technology, the work performed by the employees involved cannot be said to be work “presently and normally performed” by employees, in a sense contemplated by rule 52.1 of the collective agreement …
More fundamentally, even if it were necessary to characterize the work of the employees as work such as existed on February 3, 1988, that work plainly continues to be done. The introduction of new equipment, methods, tools or technology does not change the fundamental nature of the work which, in this case, is the ongoing testing of locomotive oil for viscosity, water content, impurities and other properties which have consistently been monitored for many years. While the methods and sophistication of the work may have changed, the tasks to be performed has not, and it cannot be said that the tasks in questions are other than “work presently and normally performed by employees” who are members of the bargaining unit.
In Canadian Pacific Limited and Brotherhood of Maintenance of Way Employees Case No. 2145 (1991) the Employer claimed the right to contract the painting of various track machinery and equipment in the West Toronto Work Equipment Repair Shop.
At p. 2 Mr. Picher wrote:
The Arbitrator is satisfied that the overhaul painting of equipment at the West Toronto Shop was work presently and normally performed by employees in the bargaining unit within the meaning of Section 31.l when the Company’s decision to commence contracting out was taken in 1985. it is common ground that the painting in question was then done by employees in the bargaining unit, albeit by means of paint brushes rather than through the use of spray equipment, although the Brotherhood’s representative suggests that in earlier years spray guns were also utilized by bargaining unit employees in the shop.
In Canadian Pacific Limited and CAW Local 101 SHP 441 (1997) the Union grieved the Employer’s use of workers provided by an outside contractor to perform car inspection and maintenance functions in relation to a pilot project known as “the Iron Highway”. The Company argued that the project was a new concept involving work of a type not performed in the past within the Railway. It argued that the majority of the tasks did not resemble functions normally or then performed by the bargaining unit and disputed the claim of the Union to service the new type of equipment.
At p. 6 the Arbitrator said:
… the Arbitrator is unaware of any principle whereby the undertaking of a new project, or of a different style of operation, necessarily takes the work outside the ambit of work protected by the contracting out provisions of rule 53. In a world of evolving technologies, there can be no doubt that premises, equipment and operations may be subject to radical change through the process of ongoing modernization. That, however, does not remove work from the bargaining unit which has traditionally performed it, albeit in a less modernized form. That principle is reflected in an award of this arbitrator in a shopcraft arbitration between the Canadian National Railway Company and the CAW, Local 101, concerning the contracting out of oil lab work, a decision dated July 16, 1996.
Mr. Picher then went on to provide the analysis from the Canadian National case which is cited at pp. 15-16 of this Award.
In Via Rail Canada Inc. and Canadian Brotherhood of Railway, Transport and General Workers Case No. 2228 ( 1992) the Employer contracted out the washroom and office cleaning work at the Vancouver Maintenance facility.
At p. 2 Arbitrator Picher said:
The case, as pleaded by the Corporation, reduces itself to the proposition that because the cleaning and janitorial work in the new facility grew substantially beyond the requirements of the old facility, it is at liberty to contract out the additional work. Implicit in its argument is the submission that new or additional work cannot be said to be work presently and normally performed by employees represented by the Brotherhood within the meaning of Appendix C of the collective agreement. In the result, as the Corporation would have it, the only protection which the contracting out provisions give to the Brotherhood is the preservation of those job which it had in the old facility, or their equivalent as applied to the new facility.
The Arbitrator at p. 3 found the Employer’s submission:
… plainly at variance with the most fundamental principles of bargaining unit integrity, and the concept of natural accretion to a bargaining unit. The position espoused by the Corporation is tantamount to legitimizing the “runaway shop”, by asserting that a new or expanded location where work similar to that performed by bargaining unit employees is not work governed by the contracting out provisions of the collective agreement.
The material before the Arbitrator establishes, beyond controversy, that members of the bargaining unit represented by the Brotherhood regularly and normally performed the janitorial work in all parts of the Corporation’s maintenance facility at Vancouver from the time of its inception in 1986. In that context the work in question, whether it be continued in the old facility or transferred to a new facility, must, apart from the most tortured interpretation, be construed as “work presently and normally performed by employees represented by the Brotherhood …” within the meaning of Appendix C of the collective agreement.
Here I observe that the shop craft employees have performed the maintenance and repair of locomotives since 1886. Does the introduction of a new type of locomotive requiring new methods, tools or technology, change the fundamental nature of the work which, in this case, is the repair and maintenance of the locomotives? In my view, it does not. The work contracted to be performed by or on behalf of GE is work “presently and normally performed” by bargaining unit employees.
Once the work in issue is determined to be that of the bargaining unit then the onus shifts to the Company to demonstrate that it falls within one of the exceptions which relieve the Company from the general provision: Via Rail Canada Inc. and IAM, 35 L.A.C. (4th) 267.
The Company submitted that the work in issue is excepted from the contracting out prohibition because it is warranty work under Rule 53.2.
The Company submitted that its decision to purchase new locomotives in 1995 was influenced by the fact that it would be unable to handle all of the traffc offered for carriage as required by contracts with shippers and the statutory common carrier obligations. Moreover, the locomotives in its existing fleet were breaking down too often. In order to meet service demands the Company determined that new locomotives should be purchased and the Company should look to the vendor for a warranty of performance.
The Company entered into negotiations with both General Motors and General Electric. The Company sought leading edge technology backed up by warranties that would deliver the reliability necessary for the Company to move the freight offered by its customers for carriage.
The Company decided that the GE locomotive offered a new and more efficient product. It represented new technology for the Company and new technology in railroading generally. The GE locomotives purchased by the Company in 1995 had first been produced only one year earlier. The Company asserts that it had to consider the apparent advantages of new technology with the risks that the technology might not work as intended which would result in an already unacceptable locomotive availability record becoming even worse. Should that occur, the Company would be at risk of failing to meet its contractual and statutory obligations as well as the attendant costs.
The Company submitted that it was aware that US railroads were securing longer term warranties backed up by reliability and availability warranties. There was a move to transfer risks of locomotive failure and availability to the manufacturers all in aid of avoiding en route breakdowns and getting locomotives back into service quickly if they did fail. This trend toward compelling manufacturers to support the claims made for their locomotives was, said the Company, adopted by it in dealing with GE.
The Company’s position is that it entered into a warranty program with GE based on locomotive reliability and availability targetting the Company’s concern that locomotives be in service and not in the shop. This objective, said the Company, was realized with the Integrated Service Plan (ISP). The other component of this initiative, it is argued, is that when repairs are necessary only parts which meet the standards and specifications of new parts are used.
In August, 1994 the Company issued a Request for Proposal to GE and other locomotive manufacturers.
The Company’s objective was a locomotive that would provide the pulling power to meet the Company’s performance requirements. The locomotives were to be used initially in coal service so the needs of that service were described by the Company as the performance requirements. No technical requirements were stipulated. The Company needed the locomotives to do the work as predicted by the manufacturer, to not break down while doing it and to be available a large and predictable portion of the time to do so. This meant that the locomotives had to be working at l00%, not at half power or with some of the capabilities not functioning. It also meant that the Company had to be able to know that when the trains started on a trip the locomotive would make it to the end. It also meant that the locomotives had to be available to be used and not sitting in the shop waiting for parts or being repaired.
In late 1994, GE and GM each submitted a Best and Final Offer which included incentive locomotives.
The Company accepted the GE offer and notifed GE of its intent to purchase 83 locomotives, three of which were by way of incentive. The Company and GE then negotiated the terms of the Locomotive Purchase Agreement including the ISP which was signed on August 30, 1995.
It is convenient at this point to leave the issue of the ISP to discuss the collective agreement negotiations which were in progress at the same time as the Company was conducting its search for new locomotives.
The Union was made aware of the Company’s intention to acquire new locomotives. On August 19, 1994, the Union proposed a change to Rule 53.2 of the collective agreement which then read:
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.
The Union proposed that the language be changed to read:
The conditions set forth above will not apply in emergencies, to items presently and normally obtained from manufacturers or suppliers nor to the performance of warranty work (the latter referring to the kinds of warranties which are presently and generally in place).
The Company submitted that the Union understood that extended warranties were not a violation of the collective agreement and sought the change in order to confine the Company to the types of short term warranties “presently and generally in place”.
The Union put it this way:
… the aim of the amendment was imply to ensure that the Employer would not be tempted to “stretch” the normal meaning of the word “warranty” to dangerous extremes.
The Company resisted the proposed alteration to Rule 53.2 and the language remained in its then and current form.
The Company submitted that the Union contemplated that the existing wording was sufficiently general to apply to all types of warranties and wanted to limit the exception. This was at a time when the railway industry was looking at new and longer term warranties of the type the Company ultimately concluded with GE and, argued, the Company, the Union’s proposed change to Rule 53.2 was not unexpected. The Company, however, did not agree to the Union’s proposal. As a result, the Company argued that Rule 53.2 continued to exclude from its scope all types and kinds of warranties and not just those in effect or common in 1994.
The Union argued that it was told by the Company that the “warranty” attached to the GE locomotives was for three years or 390,000 miles and related to parts defects. The Union submitted that it acted on that representation in withdrawing its proposed amendment to Rule 53.2.
The Company disagrees with that version of the events and there is no satisfactory evidence of mutual intent on this point.
The ISP is an appendix to the Locomotive Purchase Agreement by which the Company agreed to the purchase of the 83 locomotives from GE. Within the Locomotive Purchase Agreement Article 8 deals with warranties and makes the locomotives subject to the ISP. The basic structure of this section of the Locomotive Purchase Agreement provides that:
· the 83 locomotives are subject to the ISP;
· GE guarantees the performance of the locomotives;
· the performance guarantees are conditional on GE performing the ISP;
· the ISP is an essential consideration of the purchase and one without which the Company would not have entered into the locomotive purchase agreement;
· no other warranty was given in respect of locomotives apart from the ISP.
The ISP was a critical component of purchase for both the Company and GE. Without it GE would not guarantee the performance of the locomotives. Without the performance guarantees from GE the Company would not have taken the risk inherent in such a significant acquisition for a new, unfamiliar and relatively untested type of locomotive.
The ISP is more than a warranty arrangement. It is, as the name suggests, an integrated service program by which the responsibilities of the parties are established and technical support and office space and equipment are also provided. The maintenance responsibilities are integrated in that the Company provides all of the lab provides the replacement parts which are required to be replaced due to failure or due to scheduled change out. The Company does not pay for the parts used no matter how many parts may fail or be required to be changed. When parts are removed from a locomotive under the ISP they revert to GE ownership and GE technicians decide whether or how to replace those parts.
It is argued that “warranties” such as this are not unique to the Company. They exist throughout the railway industry and indeed across all industries in which a manufacturer guarantees the performance of its product through a “warranty”. A manufacturer will always impose conditions on the maintenance and parts required to maintain the “warranty”. The Company argues that the ISP is no different: in order to guarantee the performance of its product, GE controls the decision on parts replacement and quality.
Under the ISP, GE is responsible for the availability, the reliability and the performance of the locomotives and the parts that make it up. If the availability targets for the locomotive are not met then GE pays a penalty to the Company. If a part fails it is a GE responsibility. The failed part becomes GE property as soon as it comes off the locomotive. GE replaces that part with a new one. The testing, assessment and removal of failed parts and the replacement, adjustment and testing of the newly applied GE parts is carried out by shop craft employees under GE technical supervision.
Under the ISP all labour is provided by the Company and the parts to do the work are supplied by GE.
Since the GE locomotives are a new addition to the fleet and relatively few in number they are all maintained at the Coquitlam shop. In order to allow the shop craft employees to do the maintenance on these locomotives, the Company expended $200,000 to acquire the necessary tools since the existing tools were not appropriate to allow for the work to be done on the new locomotive. The Company was of the view that this expenditure was justified to allow for the work to be done by bargaining unit employees.
Article 3.1 of the ISP provides that the Company “will perform all Overhauls , Scheduled Maintenance and Unscheduled Maintenance of the Locomotives”. That is what the bargaining unit now does on the Company’s existing fleet of GM DC locomotives. Indeed, it is arguable that, with respect to the GE locomotives, bargaining unit members perform the same work as they have traditionally performed but with more frequency and to higher standards on locomotives on which they have not previously worked.
Article 3.2.1 of the ISP sets out what GE is to provide including technical advisors, computer and communication systems and training to Company employees. Included in the obligations on the Company under Article 3.2.2 is the requirement that it provide its employees with the tools deemed necessary by GE for the maintenance work on the new GE locomotives.
Article 3.32 of the ISP provides that GE continues to own all parts stored on the Company’s property and that ownership of parts removed from the GE locomotives “shall revert to GE as soon as it is removed”. GE is also responsible for the cost of transporting its parts to or from the maintenance facilities. Prior to going on a locomotive or immediately after coming off a locomotive, the parts are owned and controlled by GE. The Company owns the parts while they are on the locomotive and the manufacturer controls their ownership and disposition when they are not.
GE also controls the quality of its parts. Under Article 3.3.4 of the ISP, GE alone determines whether it will supply a new or requalified part. The significant condition which attaches to this determination, however, is that the part must be the “functional equivalent of new components”. The parts used by GE are commonly referred to as Original Equipment Manufacture or OEM parts. The Company does not know or care whether it is receiving a new or requalifed part because the commitment of GE is that the part will be to new specifications and will function as new. Because GE has guaranteed the performance of the locomotive it must ensure that the parts put in the locomotive meet this standard. GE could otherwise be liable for the inability of the locomotive to be available and reliable in the event that the part failed. Consequently, GE insists as the manufacturer and guarantor on owning and controlling the parts until and unless they are on the locomotive.
Article 3.5 of the ISP obligates the Company to provide all labour and to use all reasonable efforts to ensure the availability of a labour force to perform the maintenance to GE’s standards, including recalling for overtime and giving reasonable priority to the maintenance of the GE fleet. A labour guarantee requires that GE absorb the cost of the Company’s labour for certain kinds of volumes of work.
Article 4 of the ISP deals with overhauls. As with regular maintenance, GE is obligated to provide most maintenance materials and parts while the Company is required to provide all labour and facilities. GE determines the frequency and scope of the overhauls required. The Company does not pay for unscheduled overhauls or overhauls that may be required at a greater frequency than defined by the agreement. As with the regular maintenance, and for the same reasons, GE owns the parts and materials until they are applied to the locomotive during an overhaul and also after they are removed.
Unscheduled maintenance is dealt with under Article 7 of the ISP. As with the other provisions, the Company’s employees perform all of the work and GE provides all of the parts and materials required at its expense. Only in the event that the maintenance is occasioned by unintended use, wrecks, derailments, or other events not related to GE, does the Company bear the cost.
Delivery of the 83 GE locomotives commenced in September, 1995 and continued until the last locomotive was delivered before the end of 1995. In addition to being the first ever AC locomotives in Canada, these locomotives were longer, heavier, more powerful and more technologically advanced than any other.
The Company’s intention was to put the new locomotives into coal service. Coal is a major commodity for both Canadian railways and moves by rail from a number of mines in eastern British Columbia and western Alberta to Vancouver/Roberts Bank for export. Canadian coal companies must haul their coal much further by rail than their international competitors and accordingly demand cost effective and time sensitive delivery of their product to port. The Company’s coal service consists of a loop by which it operates dedicated unit trains of approximately 110 cars each from the mines it serves in south eastern British Columbia to Roberts Bank and back. The Company’s locomotive reliability problems, however, had become a significant hindrance to its ability to operate the coal trains through the loop in the time required.
The power and adhesion capabilities of the new AC locomotives allowed the Company to replace five DC locomotives required to pull a unit train of coal with three AC locomotives. The performance guarantees provided by GE also allowed the Company to offer consistent performance to its coal customers operating in a highly competitive international environment which required reliable rail transportation.
The Company encountered a number of problems with the introduction of the GE locomotives into its fleet. AC locomotives had never before been operated in a Canadian winter or on grades such as exist on the Company’s lines through the mountains.
The Company said that many of the problems which it encountered were fixed with laptop computers but there were a number of mechanical problems which needed to be addressed. Some have been isolated parts failures and others have proven to be more systemic. The Company said that the ISP has allowed them to deal with the problems quickly and efficiently under the technical direction of GE as the manufacturer. The Company has relied to a great extent on the ISP coverage provided by GE. Notwithstanding the problems which have been encountered, the Company says that it has achieved unprecedented locomotive availability and reliability with its GE fleet. The Company claims that it could not have achieved that level of reliability and availability had the requirement of GE to provide parts quickly and take timely action not been included in the contractual arrangement.
The Company asserted that had it purchased the 83 GE locomotives under the traditional short term warranty, they would, some three and one-half years after their purchase, no longer be covered by any sort of guarantee. The Company argued that it was correct in following the industry trend toward a longer term “warranty” which assured the performance of the locomotives it had purchased by having the manufacturer guarantee their availability and reliability over a 15 year term.
The Union submitted that the ISP is not a warranty.
It is argued that historically the term “warranty” on new locomotives was confined to work aimed at repairing or replacing defective parts in the first year following the purchase. It is therefore “unreasonable”, asserted the Union, to apply the word “warranty” to a period of 15 years which could become 25 years and replacement of components after normal wear and tear as opposed to replacement because of a defect.
A distinction must be drawn, said the Union, between a warranty that “comes” with a locomotive covering a component or replacement part and the ISP which is negotiated apart from the sale of the locomotives.
The Union relied on BC Rail Ltd. and United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Local 170 Metal Trades Division, Ad Hoc 314 ( 1992) (Munroe) in which the board distinguished between the “usual” warranty and a “unit exchange” Major Component Protection Plan. That case is, however, unhelpful since the parties there agreed the MCPP constituted a contracting out of labour. The point was not disputed.
The parties do not, in the language of the ISP, refer to it as a “warranty”. That is perhaps because it deals with much more than a guarantee of fitness for the purpose intended.
I have previously referred to Article 8.4 of the Locomotive Purchase Agreement.
Article 8.5 thereof provides for “performance guarantees” described as a mission failure guarantee, a locomotive availability guarantee and a labour guarantee conditional upon the Company performing the ISP without which “buyer would not have entered into this locomotive purchase agreement”.
Article 8.5 provides that there are no other warranties.
Attachment number two to the ISP is a form of contract of bailment covering the delivery to the Company of GE owned maintenance material. Article 7 reads:
7. No separate warranties: GE is providing GE Maintenance Material to Bailee in an “as is , where is” condition, and, except as provided in Section 8 of the Purchase Agreement, GE makes no warranties of any nature whatsoever to Bailee with respect to GE Maintenance Material, whether the claim is in contract, warranty, tort (including negligence) or otherwise. Without limiting the generality of the preceding sentence, the foregoing is in lieu of all warranties, whether oral, written, express, implied or statutory. NO IMPLIED OR STATUTORY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE SHALL APPLY.
The effect of all of the foregoing is to make clear that GE’s liability with respect to the performance of the locomotives is defined by and proscribed by the ISP which contains mutual obligations. Provided the Company performs its obligation under the ISP, then certain performance guarantees are triggered. There are no warranties of merchantability or fitness for particular purpose outside of the ISP to be laid at the door of GE.
The Company submits that the ISP is a warranty. It may be much more than that but, insisted the Company, it is also a warranty. GE has warranted the performance of the locomotives based upon certain conditions, one of them being that it will supply the parts and only its parts will be installed. As the manufacturer and guarantor of the performance of the locomotives, there is nothing particularly remarkable about that.
GE determines the frequency and scope of overhauls and the Company does not pay for unscheduled overhauls or overhauls required more frequently than defined by the agreement. That, too, in the context of the performance guarantees, is unremarkable.
It would appear that the Company’s initial concerns with acquiring new and essentially unproven technology were well founded. Problems have occurred which have been solved under the ISP.
The Company’s view is that, absent what it calls the warranty coverage represented by the ISP, it would not have been able to achieve “unprecedented locomotive availability and reliability” with its GE fleet. Moreover, it is asserted that the traditional short term warranty would now have expired and the Company would, in the absence of what it calls the warranty represented by the ISP, not be in its current enviable position. The Company claims it correctly judged the need to follow the industry trend toward a longer term warranty (see B. Deirlein, “Fleet Equipment”, June, 1997, p. 60 which suggests that equipment and component warranties are being lengthened).
What is a warranty? The parties to this collective agreement have not provided that definition as it relates to Rule 53.2. In the ordinary course of commerce a warranty is not left for definition of general application, but is negotiated between the parties with regard to the specific needs of the business arrangement. Calling something a “warranty” or not using that label will, in most circumstances, be inconclusive. One usually associates the word “warranty” with a guarantee against defects in materials or workmanship for a stipulated period of time.
Black’s Law Dictionary, 4th revised edition contains three definitions or useages of “warranty” as applied to the sale of goods:
A statement or representation made by the seller of goods contemporaneously with and as a part of the contract of sale, though collateral to the express object of it, having reference to the character, quality, or title of the goods, by which he promises or undertakes that certain facts are or shall be as he then represents them … A promise or agreement by seller that article sold has certain qualities or that seller has good title thereto … A statement of fact respecting the quality or character of goods sold, made by the seller to induce the sale, and relied on by the buyer.
Those sorts of general definitions are not very helpful. The buyer of a radio is likely to be much less concerned with the warranty of the seller than the buyer of a locomotive who is concerned that it meets and continues to meet the needs which it has contractually committed to deliver.
Nor can I ignore the changing commercial realities. The Company has demonstrated that US railroads have demanded extended protection assurances from the sellers of locomotives. The Company made a decision to do likewise.
The result was the negotiation of the ISP covering a term of 15 years with certain renewal provisions.
I decline to define a “warranty” for all purposes. A warranty is whatever the parties to an agreement negotiate it to be. The buyer can be expected to press for as extensive a warranty as the seller is willing to give while the latter will wish to restrict its liability.
A warranty is usually some sort of guarantee of performance whether that be expressed as fitness for the purpose intended or expressed in terms of guaranteeing defects in materials and workmanship or expressed in specific target performance terms. A warranty is generally a guarantee or assurance that a product will do what the buyer expects it to do and what the seller has said it will do.
Within those broad generalizations the parties to a commercial contract will usually negotiate the terms of their warranty. Of course, this doesn’t usually apply to the purchase and sale of everyday consumer goods where the buyer must be satisfied with whatever the manufacturer offers by way of warranty. There are, generally speaking, no opportunities to negotiate an individual warranty.
The requirements of manufacturers to perform warranty work with their own workforces is an inherent business arrangement to protect the interests of both the purchaser and vendor. The vendor (GE) assures the quality, reliability and availability of the equipment sold (locomotives) while, on the other hand, the Company’s risks associated with the purchase of new technology GE AC locomotives is somewhat safeguarded. That a manufacturer must perform its own work on parts covered under its warranty protection has been acknowledged by arbitral authorities.
In Railway Employees’ Department (Shop Craft) and Chicago, Burlington and Quincy Railroad Company, Special Board of Adjustment 570, Award No. 101 (1968) a dispute arose surrounding the disassembling of a generator by employees, the shipping of same to GE for repairs, and its return to the railway where it was reassembled into the locomotive by the carrier’s employees. In dismissing the claim that the work had been contracted out the board ruled as follows:
It appears however, that the work did not involve any new contract or subcontract, but rather involved merely the obtaining of performance by the seller on the warranty provision of the original purchase-sale contract. Consequently, the work was not covered by Article II.
The Organization’s contention that work could have been done at less cost by Carrier is therefore irrelevant, but also totally unfounded, since the repair was done at not cost to Carrier.
In Brotherhood of Railroad Signalmen and Southern Railway Corporation, Case No. 100 23890 (1982) the board held that:
It is established precedent of this board that warranty work does not violate a scope rule.
In Re Ford Motor Co. of Canada Ltd. and UAW Local 200, 17 L.A.C. 121, warranty work performed by the manufacturer was grieved by the Union which alleged that bargaining unit work had been contracted out. In dismissing the grievance Arbitrator H.D. Lang said:
This machine was still under warranty, the LaPointe company must carry out its warranty and its employees are entitled to do work on the machine, physical or not, in order to fulfl the terms of the contract. Ford employees do not normally perform work for an outside company, and art. 20.10 does not apply.
When I apply the facts of this case to the language of Rule 53.2 I am compelled to find that the ISP is a warranty as that word is used in Rule 53.2. One can argue with considerable force that the ISP is more than a warranty but this is not the point. It is at a minimum a warranty within the meaning of Rule 53.2. The ISP guarantees the performance of the locomotives and no other warranty was given. Indeed, it was made clear that there are no warranties outside of the ISP without which the Company would not have entered into the Locomotive Purchase Agreement.
Without the ISP, GE would not guarantee the performance of the locomotives and the Company would not have taken the risk of buying the new technology.
The ISP specifically provides for the Company to perform all overhaul scheduled maintenance and unscheduled maintenance. The bargaining unit performs the same work on the Company’s existing fleet of GM DC locomotives. How then does the ISP result in the contracting of work normally provided by the bargaining unit?
The essential difference is that GE supplies the parts whereas the shop craft employees might remove and repair a defective part for the GM locomotives. The parts are owned by GE and the Union has no say in what GE does with its parts. Nor, for that matter, does the Company have a say in it. The work which the Union claims is not controlled by the Company, it is controlled by GE. How can the Union claim a right to work which the Company does not control? (See Re Fraser Valley Mushroom Grower’s Cooperative and Retail, Wholesale Union, Local 580 (1993) 32 L.A.C. (4th) 439 (Taylor).)
It could be argued of course that, by entering into a contract with GE whereby the Company granted that control to GE, the Company has breached the collective agreement. But that would assume that the Company has no authority over whether it uses replacement parts or repairs defective parts. The collective agreement language does not go that far.
GE supplies new locomotive components as part of its ISP arrangement with the Company. The acquisition of new components in this case is not contracting out of bargaining unit work, but is a business decision which falls outside the purview of the collective agreement.
In Valley Forest Products Ltd. and Canadian Paperworkers Union, Local 219, unreported, (1988) (Collier) the issue was whether the purchase of a rebuilt tractor trailer engine in lieu of having the work performed in-house constituted contracting out. In dismissing the Union’s grievance the board said:
In my opinion the purchasing of a replacement engine is nothing more than the purchasing of a new piece of equipment by the Employer to replace a damaged piece of equipment, or to acquire equipment which it did not previously possess. In neither case does the purchase of a new piece of equipment constitute the act of “contracting out” as that term is normally used in Collective Agreements. The practice of purchasing new or replacement equipment is one which would have to be much more specifically dealt with in the provisions of the Collective Agreement before that activity could constitute a violation of the Collective Agreement.
In Brotherhood of Railroad Signalmen and Illinois Central Gulf Railroad Company, National Railroad Adjustment Board Third Division, Award No. 28276 (1990) the Union claimed that the Employer’s purchase of prewired equipment was a violation of the scope rule. In dismissing the claim the board said:
There is nothing in the Scope Rule relied upon by the Organization, in the circumstances that we find here, that gives it the right to perform work done off of the Carrier’s property on equipment that was not owned, at that point in time, by the Carrier. In this respect, we particularly note the Scope Rule applies only to work done “in signal shops or in the field”. Moreover, the preponderance of Third Division Awards that speak to similar facts and issues as in this case consistently have held that carriers do not violate agreements when purchasing factory-built equipment wholly or partially assembled by the outside source.
In Special Board of Adjustment No. 570, Award No. 1027 involving The Brotherhood of Railway Carmen Division and Duluth, Missabe and Iron Range Railway Company (1964) the board rejected the Union’s claims that the manufacturing of roof liners by an outside firm constituted contracting out of work:
It is well established by a myriad of Awards of the National Railroad Adjustment Board and various Special Boards of Adjustment, that the Carriers did not, by the adoption of classification of work rules or otherwise, surrender their right to purchase new equipment or component parts when deemed advisable; and there is no indication that it was surrendered by the Mediation Agreement.
There is no provision in the collective agreement which would suggest that the Company has bargained away its right to purchase OEM parts. A right described by the authors in Canadian Labour Arbitration as follows:
… because organizing the working process and directing work operations lie at the heart of management’s reason for being, often a provision is contained in collective agreements which speaks directing to such matters, such as the following:
The union recognizes the right of the company to operate and manage its business in all respects in accordance with its commitments and responsibilities, and that the location of plants, the products to be manufactured or dealt with, the schedules of production and distribution, the methods, processes and means of manufacturing and dealing with such products are solely the responsibility of the company.
Indeed it is now generally conceded that whether or not an express provision giving management the power to initiate such changes is included in the agreement, inherently management possesses this power or ability to initiate such changes. Very simply, arbitrators have recognized that such authority flows from management’s function and responsibility to manage the enterprise.
Then there is the evidence that the Union anticipated the ISP and endeavoured to negotiate a change to Rule 53 which would have limited the Company “to items presently and normally obtained the latter referring to warranties presently in place”.
That collective bargaining proposal failed and the Union cannot obtain at arbitration what it failed to get in collective bargaining. As Arbitrator Hope observed:
The place to confine the right of an Employer to contract out is at the bargaining table. Whether it is viewed as flexibility or not, the fact is that the Employer is free to contract out work unless the work falls within the criteria in the contracting out provision and one cannot say the integrity of the bargaining unit is compromised simply because work it is capable of performing is contracted out. Its integrity is compromised only if work to which it can establish a claim has been contracted out. (Petro-Canada, supra, pp. 29-30)
I conclude therefore that the replacement of GE parts rather than the rebuilding of Company parts does not constitute the contracting out of bargaining unit work.
That is sufficient to dispose of the issues and it is unnecessary for me to deal with the other arguments which were advanced.
Dated at the City of Vancouver in the Province of British Columbia this 7th day of May, 1999.
(signed) VINCENT L. READY