SHP671

AWARD OF THE ARBITRATOR

This grievance concerns the application of Appendix H of the Job Security Agreement, which is a part of the collective agreement. The Union alleges that the Company has failed to maintain the credited pensionable service of employees who have the benefit of Employment Security (ES) under the Job Security Agreement and work for another employer as part of the ES system.

The underlying facts and issues are reflected is the Joint Statement of Issue filed at the hearing which reads as follows:

DISPUTE:

The interpretation and application of Appendices H and M of the Job Security Agreement (“JSA”) and related provisions with respect to the pensionable service of certain employees.

JOINT STATEMENT OF ISSUE:

On July 24, 1995, the parties negotiated the following provision, which was incorporated as Appendix H of the JSA:

“In negotiating changes to Article 7 of the Job Security Agreement, the parties agreed that employees on ES SUB or Enhanced SUB status would continue to accumulate pensionable service. However, concerns were raised in regard to the maximum deemed service provision of the Income Tax Act.

“Under this provision, employees can only accrue a maximum of five years of deemed pensionable service. Inasmuch as this restriction flows from the Income Tax Act and is beyond the control of either party, it was agreed that the parties would jointly make whatever representation is possible to the appropriate officials in an attempt to address this concern.”

On January 26, 2008, the parties further negotiated a provision, incorporated in the JSA as Appendix M, which reads as follows:

“The Company and the union wish to ensure that CAW members on Employment Security for Job Security (ES/JS) are accruing their optimal pension service and benefit amounts in the CPR Pension Plan, according to the terms of the CPR Pension Plan and the Income Tax Act.

During negotiations, the Union indicated that it may be possible that some employees on ES/JS may be able to enhance their pension entitlements for their years on ES/JS if their earnings with another employer and, in some cases, their participation in another employer’s pension plan are coordinated with their participation with the CPR Pension Plan.

In this regard, the Company and the union will undertake to review the status of CAW members who

a) are currently on ES/JS or were on ES/JS after December 31, 1994, and

b) while on ES/JS, the member had earnings from another employer.

The parties will meet within 120 days of the ratification of the Memorandum of Settlement to review potential solutions to these issues. It is further understood that the parties will seek to complete the review of pension entitlements and offer any solutions to affected members within 2008.”

The Union contends that the Company has failed to live up to its obligations as set out in these and related provisions and is in continuing violation of said provisions. By way of remedy, the Union requests that the Company recognize all the years of service of the affected employees as pensionable service.

The Company, by way of preliminary objection, submits that the matter is not arbitrable, both on account of the time limits for the filing of grievances not having been respected, as well as for the reason that matters concerning the pension plan cannot be the subject of arbitration.

The Company further denies the Union’s contentions on the merits of the matter, including the contention that the Union seeks through arbitration, that which it could not achieve through Collective Bargaining.

The parties have agreed to request jointly that the Arbitrator hear both the preliminary objections and full evidence and argument on the merits before rendering his decision.

It is helpful to undertake a brief review of the history of Employment Security (ES) between the parties. In the 1984-86 round of collective bargaining the parties agreed to establish the concept of employment security for employees with more than eight years of cumulative compensated service. Essentially an employee with that status could not be laid off or deprived of revenue by reason on a technological, operational or organizational change implemented by the Company. Employees with ES status who, for example, saw their jobs abolished were obliged to exercise their seniority to hold work over a graduated range of bargaining units and geographic zones. If they were ultimately unable to hold a position they nevertheless continued to receive full salary and full benefits.

In June of 1995 a board of interest arbitration chaired by Justice George Adams implemented a number of adjustments to the ES system. A significant adjustment was that employees on ES incurred the additional obligation to accept employment outside the Company, as approved by a Joint Committee. Any earnings in such employment reduced the ES or Enhanced SUB benefit which employees would receive. These and other changes became incorporated into a revised Job Security Agreement which the parties subsequently redrafted. It was agreed that rather than the reduced 90% earnings protection mandated by the Adams Board, ES employees working inside or outside the railway would receive 100% of their original job rate. Additionally, the parties agreed that time spent working in outside jobs would not be deducted from the duration of the ES benefit, which had been limited to six years by the Adams decision.

Both before and after the 1995 decision employees on ES were deemed to have continuous and unreduced accrual of pensionable service. To avoid any uncertainty with respect to the continuation of that entitlement, in a letter dated July 24, 1995 the parties agreed on the following letter, incorporated into the Job Security Agreement as “Appendix H”:

In negotiating changes to Article 7 of the Job Security Agreement, the parties agreed that employees on ES SUB or Enhanced SUB status would continue to accumulate pensionable service. However, concerns were raised in regard to the maximum deemed service provision of the Income Tax Act.

Under this provision, employees can only accrue a maximum of five years of deemed pensionable service. Inasmuch as this restriction flows from the Income Tax Act and is beyond the control of either party, it was agreed that the parties would jointly make whatever representation is possible to the appropriate officials in an attempt to address this concern.

It would not appear disputed that in fact the parties never did make a joint submission tor representation to Revenue Canada, although a document intended to be a joint submission was apparently prepared in draft form and shared between the parties by email in April of 1999.

The tax concern which is reflected in the language of Appendix H involves the application of what the parties refer to as the “five year rule” which apparently became a regulation under the Income Tax Act. The income tax regulations, cited to the Arbitrator as 8507 and 8303, essentially limit the accrual of pensionable service without earnings to a maximum of five years. It does not appear disputed that the purpose of the tax regulation was to prevent the possibility of excessive sheltering of revenues to a level in excess of the 18% which is permissible in respect of Registered Retirement Savings Plans (RRSPs).

It does not appear disputed that even though the “five year rule” was introduced federally in the early 1990s, there was no real impact on the administration of ES benefits and the continuing calculation of accrued pensionable service. For example, an employee who had work with another company, as approved by the Joint Committee, continued to receive credit for pensionable service for work with that outside company under the Company’s own pension plan.

It appears that the Company’s view of these arrangements began to change in or about 2007 or 2008. As reflected in a sample letter dated May 23, 2008, an employee was advised by the Company that his pensionable service was being reduced by applying a sixty month maximum to the accrual of pensionable service while the employee was on ES status but working for another employer in accordance with the ES arrangements. The Union submits that the treatment of that employee, and it would appear many others, constitutes a violation of the Company’s obligation under the express terms of Appendix H of the Job Security Agreement.

The record reflects that the Company itself undertook to obtain clarification and approval from Revenue Canada with respect to the application of the five year rule to ES protected employees. The text of the Company’s letter, dated December 6, 1999, sent to Revenue Canada is as follows:

Mr. Robert D’Aurelio

Director, Registered Plans Division

Revenue Canada

Dear Mr. D’Aurelio

Subject: Canadian Pacific Railway Company Pension Plan

Registration No. 0229575

This letter concerns the application of Income Tax Regulation 8507 to certain of our unionized employees. Regulation 8507 describes prescribed compensation for purposes of pensionable service during periods of reduced pay.

Canadian Pacific Railway (the Corporation) employs approximately 19,000 employees in Canada. Approximately 15,000 of these employees are unionized, represented by seven different union groups. With few exceptions, the annual earnings of employees represented by those unions ranges between $25,000 and $60,000.

In 1995 the railways were under intense pressure to improve their financial viability, and introduce more flexible labour contracts. The federal government was in the process of privatizing CN, and the railway companies were in a position to negotiate strongly for reductions in “employment security” (ES).

Under ES, employees having at least 8 years of cumulative compensated service (14 years for employees who hired after April 30, 1992) were protected in the event of a technological, operational or organizational change in which the employee was adversely affected (job abolished or moved outside his territory). In such event, an affected employee could not be laid off. The employee would be remunerated by the corporation as if actively at work, even if there was no work for that employee. This situation could continue until retirement, possible many years in the future.

These ES provisions originated in the mid-1980s in negotiations between the corporation and the unions. They were patterned from similar provisions earlier negotiated by Canadian National (as a crown corporation). The 1995 contract settlements allowed for the ES, in all cases except one (the BMWE), to be cut back to a maximum of 6 years – in some cases through negotiations, in other following a strike and binding arbitration. The amount of the pay was also cut back from 100% of pay until retirement to between 80% and 90%.

In order to minimize costs, CP and the unions found alternative ways of ensuring these affected employees continued to be paid. Examples are given in the attachment to this letter. In 1995 it was understood and agreed that these employees’ benefit programs, including pensions, would be protected to the extent allowed under the Income Tax Act. However, as also outlined in the attachment, it appears certain situations have arisen which appear to result in limitations in our employees’ ability to accrue pension under the above mentioned pension plan (whereas it was not limited under the former arrangement).

Our comprehension of the ITA treatment of prescribed compensation and pensionable service in the situations described needs to be clarified, and we ask for your consideration to our proposal that the Income Tax Act and/or its regulations be interpreted to accommodate today’s labour reality. We understand that pursuant to Regulation 8520 of the Canadian Income Tax Act, the Minister may grant a waiver or modification of any matter concerning the provisions under Part LXXXV regarding registered pension plans.

We appreciate your consideration in this matter and look forward to working with your officials to clarify the situation ensure our employees are kept whole on their pensions. We will be in touch shortly to discuss next steps.

Yours truly,

Mike DeGirolamo

Assistant Vice-President, Industrial Relations

Canadian Pacific Railway Company

The letter included an attachment which described a number of scenarios, the object being to continue the protection of accrued pensionable service for employees on ES status. The Company’s representative relates that the Company has never received any response to the letter of December 6, 1999. In the Arbitrator’s view, given the wording of the letter, that is not entirely surprising. On its face, the letter does not ask for a response. Rather, as is reflected in the final sentence, the Company indicated that it would soon be in touch with Revenue Canada to discuss next steps. On at least one reading, therefore, it is arguable that the ball still remained in the Company’s court and that Revenue Canada could properly consider that it had nothing to do until it had heard further from Mr. DeGirolamo or someone else on behalf of the Company. It is not clear that Revenue Canada is the actual wallflower at this dance.

The position of the Union is that the grievance does not compel any resolution of the issue of whether the Arbitrator has jurisdiction to deal with the pension plan. According to the Union’s representative, the grievance is framed and presented entirely in relation to the Company’s affirmative obligation under the collective agreement, as reflected in the first paragraph of Appendix H of the Job Security Agreement. The Union submits that the first paragraph of Appendix H confirms the Company’s obligation to continue to accumulate pensionable service for employees on ES SUB or Enhanced SUB status. He argues that the second paragraph with relation to the five year rule is essentially process language dealing with a joint representation to the appropriate officials, something which has simply not occurred. In the Union’s submission the second paragraph cannot be taken to negate the first and, moreover, there is nothing in the regulations under the Income Tax Act which would in fact prohibit the ongoing recognition of years worked for an outside company under the ES scheme as years which continue to accrue for the purposes of calculating an ES employee’s pensionable service. In that regard the Union notes that two possible formulae present themselves as a means of retaining the protections of the first paragraph of Appendix H, under the Revenue Canada rules. The Union submits that the first would be the “loaned employees” rule found within regulation ITR8308(7). The second is the possibility of an employee buying back pensionable service entitlement as envisioned under regulation ITR8308(4), which is referred to as a “past service pension adjustment”. I consider it significant that while the Company expresses some reservations about the application of the “loaned employees” regulation, its representatives at the arbitration did not dispute that the buy-back option under the past service pension adjustment rule could properly apply to employees on ES working for other employers.

Based on the foregoing, the Union seeks a declaration from the Arbitrator that the Company has violated its obligation under Appendix H and an order requiring the Company to restore lost pensionable services for all of the affected employees, to the extent permitted by law. Its representative argues that the best formula would be for the Arbitrator to remit the matter to the parties directing them to agree upon a remedy, failing which the matter could be brought back before the Arbitrator who would retain jurisdiction.

The Company raises a preliminary objection with respect to jurisdiction. Firstly, it submits that the grievance is untimely. Secondly, it argues that because the Union brought the issue to the bargaining table, and was unsuccessful in its demand to have Appendix H interpreted as it would have it, Appendix H should be interpreted as effectively nullified. Lastly, the Company objects on the grounds that the Arbitrator has no jurisdiction to interpret or apply the Pension Plan.

I have some difficulty with all of the objections raised by the Company. Firstly, the Company has drawn my attention to no specific provision with respect to timeliness concerning a grievance such as the instant matter, brought under the terms of the Job Security Agreement. Even assuming that the general timeliness provisions of the collective agreement would apply, the material before me confirms that the concerns of the Union with respect to the Company’s interpretation of the five year rule, as apparently emerged in 2008, has been a matter of ongoing discussion between the parties. In other words, not unreasonably, the Union sought to have the matter resolved through discussions and, eventually, at the bargaining table. It is only when all of those efforts eventually proved unsuccessful that the decision was made to grieve the matter on the basis of Appendix H of the Job Security Agreement, a matter in respect of which the Arbitrator does have jurisdiction.

The issue of the passage of time is in my view well captured in a letter addressed to the Company’s Vice-President of Industrial Relations by Mr. Robert Chernecki, Assistant to the President of the Union dated July 21, 2010. That letter reads as follows:

RE: Pensionable Service for ES/JS Employees

In the 2008 negotiations, CPR, CAW Local 101 and the National Office agreed to review the Maximum Deemed Service problem for employees on ES and JS (F-12 Letter concerning the 7B Pension Issues January 26, 2008).

The issue is important. CAW members on ES and JS have lost and continue to lose pension service. These members value their pension service, particularly if they are on a lay off. Furthermore, the loss of service is the inadvertent result of changes in ES under the 1995 Adams Award. The company and the union have been in agreement since 1995, to find a resolve.

The problem became more pressing in 2007 when members saw their pension service cut or frozen. The CAW has offered various solutions to CPR, including the provision implemented at CN to deal with the same issue. Yet after 2 1/2 years, the problem is not resolved.

It is not acceptable for CPR to delay on a resolution and force us to deal with the issue in the 2011 negotiations. The parties committed to resolving the issue in the closed period and a solution is at hand. I see no reason for further delay.

CPR owes the Local and the National a resolve as soon as possible. I ask you to assemble a meeting with the union and CPR representatives working on the pensionable service issue to settle the issue before we go into the next set of negotiations.

This is not a circumstance in which it can be said that the Company is surprised or that the Union in fact sat on its rights. In fact, it appears that the Union did bring the matter to the bargaining table in September of 2010, and it is only after the Company’s ultimate communication to the Union that the solutions which it proposed were too costly, and that the Company would not agree, that the matter was grieved and proceeded to this arbitration. As expressed by the Union’s representative, the ultimate position of the Company was not to suggest that the accrual of pensionable service for ES employees working for other employers would necessarily be unlawful or contrary to the regulations under the Income Tax Act, but rather that the corrective measures would be overly burdensome. It is upon ascertaining that position that the Union moved promptly to process this grievance.

In my view the Union was not unreasonable in the manner in which it staged the timing of this grievance. If it were necessary to so conclude, I would, in the alternative, exercise my discretion under the Canada Labour Code to extend time limits in relation to this grievance. There is clearly no prejudice to the Company, which has been well aware of the Union’s concerns for a substantial period of time. The argument of strict timeliness is also somewhat weaker given that the Company appears not to have moved expeditiously to formulate a joint submission to any authorities to resolve this issue, as contemplated under the second paragraph of Appendix H of the Job Security Agreement. For these reasons I cannot sustain the argument of timeliness raised by the Company.

Nor can I give any weight to the argument that because the Union raised the matter at the last round of negotiations, without successfully obtaining any change in the language of the Job Security Agreement or the collective agreement, the terms of Appendix H of the Job Security Agreement are effectively nullified. I know of no such principle in Canadian collective bargaining law. It is indeed common for parties to bring to the bargaining table existing articles of a collective agreement, firm in their own view of the meaning of the article, with a view to proposing clarifying language or a different formulation to eliminate past or current misunderstandings. Parties clearly do so without prejudice, and the failure to achieve an agreement cannot be converted by an arbitrator to an abandonment of the party’s original position. I must therefore also reject the suggestion that because the Union was not successful at the bargaining table its interpretation of Appendix H of the Job Security Agreement cannot now be advanced.

Finally, I am not persuaded by the suggestion of the Company that the grievance involves the Arbitrator in any interpretation of the Pension Plan. As forcefully stressed by the Union’s representative, the Union does not seek any interpretation or ruling on my part with respect to the wording of the pension plan. What this grievance objects to is the alleged failure of the Company to respect and apply the first paragraph of Appendix H of the Job Security Agreement, a document which forms part of the collective agreement and over which boards of arbitration under the Canada Labour Code clearly have proper jurisdiction.

What, then, does Appendix H provide? In my view the appendix is categorical in that its first paragraph reflects the written agreement of the parties that employees on ES SUB or Enhanced SUB status are to be viewed as entitled to the accumulation of pensionable service.

Insofar as I can discern from all of the material before me, it would appear to be the Company’s view that the five year rule amounts to an insurmountable obstacle to the possible accumulation of pensionable service for ES employees who work for another employer. With respect, the Company has placed before me no authority or compelling argument to demonstrate that the five year rule cannot be dealt with a manner that nevertheless allows the continued accumulation of pensionable service for ES employees. As noted above, both the “loaned employees” exception within the regulations and the exception for Past Service Pension Adjustment, also found within the regulations, would clearly appear to permit such accrual to occur. While the Company has some question with respect to the loaned employees alternative, it does not dispute that the pension service buy-back alternative for past service pension adjustment is fully available under the five year rule. On what basis, therefore, can it be asserted that the five year rule has effectively nullified the force and effect of Appendix H? I can see none. The fact that the Company’s obligation undertaken in the first paragraph of Appendix H of the Job Security Agreement might involve an uncomfortable degree of administration and expense is simply not a pertinent factor that would allow the Company to escape the obligation which it undertook in that document, an obligation which forms part and parcel of the collective agreement.

For all of these reasons the Arbitrator is compelled to accept the position advanced by the Union. I therefore find and declare that the Company has violated Appendix H of the Job Security Agreement by denying the accumulation of pensionable service to employees on ES SUB or Enhanced SUB status. The Arbitrator further directs the Company to restore the lost pensionable service of any affected employees to the extent that the law will permit.

I remit this matter to the parties for them to agree on the details of the appropriate remedial measures to be taken. I retain jurisdiction so that they should be unable to agree, the matter may be returned the Arbitrator for further evidence and submissions, and a determination as to the appropriate remedy, if necessary.

Signed at Ottawa this 16th day of September 2011

ARBITRATOR

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MICHEL G. PICHER