IN THE MATTER OF AN ARBITRATION

SHP 638

BETWEEN:

CANADIAN PACIFIC RAILWAY

(the "Employer" or "Company")

AND:

NATIONAL AUTOMOBILE, AEROSPACE, TRANSPORTATION AND GENERAL WORKERS' UNION OF CANADA, LOCAL 101

(the "Union")

(Retiree (Pensioner) Health Benefits)

ARBITRATOR: Vincent L. Ready

COUNSEL: Paul Wajda for

the Employer

Brian McDonagh for the Union

HEARING: January 19, 2009

New Westminster, BC

PUBLISHED: April 3, 2009

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The parties are agreed I was properly constituted as an arbitrator with the requisite jurisdiction to hear and determine the matter in dispute. My jurisdiction is confirmed ill a January 26, 2008 letter between the parties:

The Company cannot agree with the Union's position and as such, we are unable to reach a resolve with respect to these issues. Therefore, the parties have agreed to proceed expeditiously to Arbitration to resolve this matter. ...The Company agrees that the Arbitrator will have full jurisdiction to hear and rule on this matter.

This case concerns the health benefits available to employees retiring after March 31, 2005. The benefits available to this group result from agreements reached in the 2004-2005 round of collective bargaining.

BACKGROUND

Bargaining for the 1985-86 Collective Agreement resulted in a Memorandum of Settlement (MOS) which states, in part, the following:

1. Effective the first of the month following ratification, free transportation privileges of Canadian Pacific Limited employees represented by the bargaining agents signatory hereto on VIA-operated trains will be discontinued.

. . .

4. For employees who retire on or after November 1, 1985, a basic extended health care plan will be introduced, fully paid by the Company. Surviving spouses, as defined in the pension plan, of the aforementioned employees will also be covered by the basic extended health care plan. The general provisions of the basic extended health care pIan are as outlined in Appendix 'B'.

5. The collective agreements will be amended to eliminate any reference to pass privileges, free transportation, etc. on VIA-operated trains, as per Appendix “C".

The Extended Health Care Plan introduced in 1985 remained essentially unchanged until 2005, when the Health Spending Account (HSA) replaced it. The implementation of the HSA was agreed upon, subject to a condition (highlighted below), specified in Appendix C of the February 11, 2005 Memorandum of Settlement, which finalized the terms of the 2005-2007 Collective Agreement:

... As of this date the union is willing to proceed with the implementation of HSA subject to the following terms and conditions. First, it must be demonstrated through rates quoted by Blue Cross or other credible insurance carriers that coverage currently provided in the basic pensioner health care plan can be replicated using the funds generated through HSA. This will be calculated using thirty-one years service that is average for CAW members at retirement. Assuming that like or an improved level of benefits are affordable using the formula noted in Item #2 [*] above, the union agrees to the implementation of HSA using one of the following two options.

1. The Canadian Auto Workers may elect to establish a group post-retirement benefits plan with a carrier of their choice for CAW members. Using the formula noted in item #2 above, related HSA assets will be directed to that carrier to cover the cost of a group post-retirement benefits plan.

2. Should the CAW decide not to establish a group post-retirement benefits plan, retirees will participate in and have access to the range of options that are available under the Company HSA. Top-up plans available for purchase by pensioners that are currently offered by Blue Cross (including the third tier supplemental plan in Manitoba) must either remain available or be capable of being replaced by comparable plans....

*Item #2: The amount of money is determined by a formula, based on an employee's length of service with the company. Under the formula, an employee will accrue $33 for each year of active service. For example, if an employee had 31 years of service when he retired, he would receive $1,023 each year in his HSA ($33 per

year x 31 years of service = $1,023 per year). If the employee dies, the surviving spouse win be eligible for the full amount of the HSA for the rest of their life.

(emphasis added)

The HSA issue resurfaced in the 2007-08 round of bargaining when the

Union made the following proposal to increase the HSA funding formula:

05: NEW: HSA

Increase to 35.00 in 2008, 37.00 in 2009 and 40.00 in 2010 and the Company shall cover any HSA shortfall funding for basic retiree family plan which was guaranteed prior to the introduction of the new HSA.

This Union demand did not form part of the ultimate Collective Agreement settlement, and the parties referred the HSA matter to me in the above-referenced January 26, 2008 letter:

This is in regards to our extensive discussions during [2007-2008] negotiations concerning the Health Spending Account. In the February 11, 2005 Memorandum of Settlement, the Union agreed to proceed with implementation of HSA, subject to it being demonstrated that the rates quoted by Blue Cross or other credible insurance carriers that coverage currently provided in the basic pensioner health C3Te plan can be replicated using the funds generated through HSA, using thirty-one years service that is average for CAW members at retirement. As stated during bargaining, the Union is of the view that this has not C01ne to fruition. As such, the Union expressed the view that they have the right to rescind the February 11, 2005 HSA Agreement.

ISSUE

The Union contends that, "The HSA does not meet the preconditions set out by the Union in Appendix C of the 2005 Memorandum of Settlement", and accordingly the Company must:

Restore the original Retiree (Pensioner) Benefit Plan for all future CAW Retirees (Pensioners); and

Return all CAW Retirees (Pensioners) placed on the present Health Spending Account (HSA) back on the original Retiree (Pensioner) Benefit Plan from the time the introduction of the present Health Spending Account in January 2005; and

Eliminate the present Health Spending Account (HSA) for CAW Members.

The Company claims that the Appendix C precondition was satisfied and the HSA was appropriately implemented

POSITION OF' THE UNION

Union Counsel argues that the Health Spending Account has not achieved its "... promised goal of 'replicating' the benefits guaranteed by the old plan with the funds generated by the HAS.”

In support of its position, Counsel points out that the Union's financial analysis, undertaken "as recently as October of 2008" still cannot replicate the benefits of the original Plan.

Additionally, Counsel points out that an HSA without ongoing funding infusions to guard against rate increases results in an, "erosion of benefit buying power" over time. Under the former plan, cost increases were absorbed by the Company. Under item #2 of Appendix C, HSA funding is fixed at $33.00 for each year of active service.

Underscoring it's central contention, Union Counsel summarizes by stating that the Company has failed to show that the HSA "can and will" generate the funds needed to replicate the old plan which was established as part of a settlement for relinquishing Railway Passes in 1985.

POSITION OF THE EMPLOYER

Employer Counsel argues that the Appendix: C precondition amounts to a "one-time binary decision resulting in implementation or not based on conditions at that time [2005]":

A precondition is very simply a condition that must exist, apply or be met before something can take place. If the precondition does not arise then the event cannot take place. If the precondition is met then the event or thing can occur. In this case, implementation could not have occurred if the precondition was not met. In this case the precondition was met and that allowed the implementation which took effect effective March 31, 2005.

Counsel also notes the Company provided the Union with both financial analysis and written Q&A clarification of that analysis, indicating that the then-existing benefit plans could be replicated under an HSA. The Union neither challenged this information nor produced any evidence to the contrary. Accordingly, Counsel submits the HSA was implemented with Union concurrence, in accordance with the February 11, 2005 MOS and cannot be revisited or reconsidered now.

Counsel points out that the Union sought to increase HSA funding in 2007-2008 bargaining and subsequently withdrew that demand. Counsel argues that to allow the Union to gain through arbitration what they failed to achieve in bargaining would be inconsistent with fundamental collective bargaining principals

Counsel also contends that the 1985 Rail Pass/Extended Health Care Plan trade-off is irrelevant to the issue at hand and that the remedy sought by the Union is an impractical and impossible retroactive demand.

DECISION

The parties' respective arguments are appropriately focused on the central question for determination in this dispute: has the Appendix C replication precondition requiring like or improved benefit levels been met?

Where the parties diverge, however, is on the nature of that precondition. The Union essentially argues that replication is an ongoing comparative exercise requiring regular reconsideration subsequent to the implementation of the HSA.

The Employer, on the other hand, considers the precondition a one-time exercise, spent upon implementation.

The parties agreed characterization of Appendix C as an implementation "precondition" is instructive. The word "precondition" (emphasis added) implies that the comparative exercise is, as argued by the Employer, to be done only once, at a fixed point in time, before implementation.

While Union Counsel argues that the Company is required to show the HSA "can and will" generate the requisite funds to replicate the benefits of the old plan, Appendix C requires only that like/improved coverage "can" be replicated. The distinction between "can" and "can and will" further underscores the conclusion that the replication exercise is a one-time only event, as opposed to an exercise regularly revisited into the future.

The Union is not assisted by the fact that they sought to add an HSA funding boost during 2007-2008 bargaining. If the Union considered it

necessary to add such language, how can it now be argued that the same result - termination of the HSA system or an ongoing Employer supplied funding increase to maintain "replication" - is somewhat inherent in the original language of Appendix C.

In making my determinations in this case, I am mindful that the fiscal reality of increasing benefit costs means that without additional Employer funding there is a degradation of benefit buying power over time. The inescapable fact in this case, however, is that neither ongoing Employer funding increases, nor a post-HSA implementation return to previous benefit plans, was bargained in Appendix C. Either outcome could easily have been included in the language of Appendix C. The Union's proposal in 2007-2008 bargaining specifies the former. A statement as to the necessity of an ongoing comparative replication exercise in order to maintain the HSA would have sufficed for the latter. Neither occurred here.

If the Union is quite rightly concerned about degradation of the benefit buying power of Health Spending Accounts, the appropriate place to seek resolution of that concern is at the bargaining table. To paraphrase Arbitrator Hanrahan in CROA Case No 40, July 11, 1966, such a concession is properly sought through negotiation, not the arbitration process.

The February 19, 1986 Memorandum of Settlement eliminating rail passes is not relevant to the current dispute. Notwithstanding that no one retiring in 2005 would have a Company supplied rail pass, the February 11, 2005 MOS replaces all previous agreements and my jurisdiction is limited to that document.

The Union's proposed remedy also undercuts their position. It cannot reasonably be concluded that the parties' shared intention in Appendix C was to subject HSA implementation to potential recall years down the road. The

logistics of unscrambling the HSA eggs are too significant to contemplate as an intended, expected, or reasonable outcome in this case.

Given all of the above, I find in favor of the Employer's position. The one-time pre-condition in Appendix C was satisfied, spent upon agreed implementation, and cannot now be reversed.

The grievance is dismissed.

Dated at the City of Vancouver in the Province of British Columbia this 3rd day of April, 2009.

__________________

Vincent L. Ready